INCOME TAXES

The following table presents components of (loss) income from continuing operations before income taxes for the years ended December 31:



	2013			2012			2011
Domestic	$	(171,878	)	$	(37,910	)	$	16,173
Foreign	52,071			148,805			142,764
Total	$	(119,807	)	$	110,895		$	158,937

The following table presents the components of income tax expense from continuing operations for the years ended December 31:



	2013			2012			2011
Current:
U.S. Federal	$	10,453		$	3,381		$	(921	)
Foreign	59,481			39,185			41,244
State and local	3,231			2,006			932
Total current	73,165			44,572			41,255
Deferred:
U.S. Federal	(20,180		)	(2,344		)	9,727
Foreign	9,678			(13,159		)	(40,105		)
State and local	(5,948		)	(844		)	(2,849		)
Total deferred	(16,450		)	(16,347		)	(33,227		)
Income tax expense	$	56,715		$	28,225		$	8,028

In addition to the income tax expense listed above for the years ended December 31, 2013, 2012 and 2011, income tax expense (benefit) allocated directly to shareholders equity for the same periods was $67,351, $(8,909) and $(23,695), respectively. Offsetting the income tax expense allocated directly to shareholders equity for the year ended December 31, 2013 was a benefit of $9,049 related to current year movement in valuation allowance.

Income tax expense attributable to (loss) income from continuing operations differed from the amounts computed by applying the U.S. federal income tax rate of 35 percent to pretax (loss) income from continuing operations. The following table presents these differences for the years ended December 31:



	2013			2012			2011
Statutory tax (benefit) expense	$	(41,932	)	$	38,813		$	55,628
Brazil nontaxable incentive	(7,849		)	(10,622		)	(10,652		)
Valuation allowance	43,884			1,609			(35,650		)
Brazil tax goodwill amortization	(3,807		)	(4,802		)	(5,231		)
Foreign tax rate differential	(12,432		)	(14,332		)	(10,946		)
Previously undistributed subsidiary earnings	59,460			10,648			10,724
Accrual adjustments	5,755			494			(2,584		)
Non-deductible goodwill	5,189			—			—
FCPA provision, nondeductible portion	5,412			2,939			1,563
Other	3,035			3,478			5,176
Income tax expense	$	56,715		$	28,225		$	8,028

In the second quarter of 2013, the Company recorded a valuation allowance for the Brazil manufacturing subsidiary due to a change in circumstances including lower profitability in core operations, lower anticipated taxable income and an unfavorable business outlook. The Company also changed its assertion regarding the indefinite reinvestment of foreign subsidiary earnings due primarily to forecasted cash needs within the United States and strategic decisions related to the Company’s capital structure. As a result, the Company recorded current and deferred tax expense (net of related foreign tax credits) due to the repatriation of earnings of approximately $55,000. In 2011 The Company released a valuation allowance for the Brazil manufacturing subsidiary related to a change in circumstances including sustained profitability in core operations and a favorable outlook.

The Company recognizes the benefit of tax positions taken or expected to be taken in its tax returns in the consolidated financial statements when it is more likely than not that the position will be sustained upon examination by authorities. Recognized tax positions are measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon settlement.

Details of the unrecognized tax benefits are as follows:



	2013			2012
Balance at January 1	$	13,178		$	12,636
Increases related to prior year tax positions	1,489			712
Decreases related to prior year tax positions	—			(181		)
Increases related to current year tax positions	2,864			180
Reduction due to lapse of applicable statute of limitations	(986		)	(169		)
Balance at December 31	$	16,545		$	13,178

The entire amount of unrecognized tax benefits, if recognized, would affect the Company’s effective tax rate.

The Company classifies interest expense and penalties related to the underpayment of income taxes in the consolidated financial statements as income tax expense. Consistent with the treatment of interest expense, the Company accrues interest income on overpayments of income taxes where applicable and classifies interest income as a reduction of income tax expense in the consolidated financial statements. As of December 31, 2013 and 2012, accrued interest and penalties related to unrecognized tax benefits totaled approximately $5,805 and $4,043, respectively.

It is reasonably possible that the total amount of unrecognized tax benefits will change during the next 12 months. The Company does not expect those changes to have a significant impact on its consolidated financial statements. The expected timing of payments cannot be determined with any degree of certainty.

As of December 31, 2013, the Company is under audit by the IRS for tax years ended December 31, 2010, 2009 and 2008. All federal tax years prior to 2004 are closed by statute. The Company is subject to tax examination in various U.S. state jurisdictions for tax years 2003 to the present, as well as various foreign jurisdictions for tax years 2005 to the present.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at December 31 are as follows:



	2013			2012
Deferred tax assets:
Accrued expenses	$	56,351		$	43,622
Warranty accrual	25,973			26,296
Deferred compensation	15,776			18,587
Allowance for doubtful accounts	8,280			9,239
Inventories	13,437			12,930
Deferred revenue	14,900			15,101
Pension and post-retirement benefits	48,565			66,222
Finance lease receivables	—			6,210
Tax credits	34,146			23,738
Net operating loss carryforwards	79,300			74,528
Capital loss carryforwards	2,853			3,534
State deferred taxes	13,630			17,341
Other	2,233			5,903
	315,444			323,251
Valuation allowance	(92,138		)	(57,303		)
Net deferred tax assets	$	223,306		$	265,948

Deferred tax liabilities:
Property, plant and equipment	$	15,989		$	14,369
Goodwill and intangible assets	19,978			41,175
Finance lease receivables	1,042			—
Investment in partnership	12,824			17,056
Undistributed earnings	27,766			5,016
Other	6,759			3,511
Net deferred tax liabilities	84,358			81,127
Net deferred tax asset	$	138,948		$	184,821

Deferred income taxes reported in the consolidated balance sheets as of December 31 are as follows:



	2013			2012
Deferred income taxes - current assets	$	110,165		$	143,248
Deferred income taxes - long-term assets	39,461			76,375
Other current liabilities	(1,528		)	(552		)
Deferred income taxes - long-term liabilities	(9,150		)	(34,250		)
Net deferred tax asset	$	138,948		$	184,821

At December 31, 2013, the Company had domestic and international NOL carryforwards of $519,533, resulting in an NOL deferred tax asset of $79,300. Of these NOL carryforwards, $390,529 expires at various times between 2014 and 2034 and $129,004 does not expire. At December 31, 2013, the Company had a domestic foreign tax credit carryforward resulting in a deferred tax asset of $26,481 that will expire between 2018 and 2023 and a general business credit carry forward resulting in a deferred tax asset of $8,011 that will expire between 2029 and 2033.

At December 31, 2012, the Company had domestic and international NOL carryforwards of $520,803, resulting in an NOL deferred tax asset of $74,528. Of these NOL carryforwards, $407,827 expires at various times between 2013 and 2033 and $112,976 does not expire. At December 31, 2012, the Company had a domestic foreign tax credit carryforward resulting in a deferred tax asset of $24,263 that will expire between 2017 and 2020 and a general business credit carry forward resulting in a deferred tax asset of $780 that will expire between 2031 and 2032.

The Company has a valuation allowance to reflect the estimated amount of certain foreign and state deferred tax assets that, more likely than not, will not be realized. The net change in total valuation allowance for the years ended December 31, 2013 and 2012 was an increase of $34,835 and a decrease of $9,685, respectively. The 2013 increase in valuation allowance is primarily attributable to recording valuation allowances for Brazil and Italy deferred tax assets, partially offset by the release of a valuation allowance for Switzerland deferred tax assets. The 2012 reduction in valuation allowance is primarily attributable to the write off of deferred tax assets and corresponding valuation allowance for dissolved legal entities. The Company believes that net deferred tax assets are more likely than not to be realized due to income generated by future operations.

For the years ended December 31, 2013 and 2012, provisions were made for foreign withholding taxes and estimated U.S. income taxes, less available tax credits, which may be incurred upon the remittance of certain undistributed earnings in foreign subsidiaries and foreign unconsolidated affiliates. Provisions have not been made for income taxes on approximately $425,997 of undistributed earnings at December 31, 2013 in foreign subsidiaries and corporate joint ventures that are deemed permanently reinvested. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability, if any, depends on certain circumstances existing if and when remittance occurs. A deferred tax liability will be recognized if and when the Company no longer plans to permanently reinvest these undistributed earnings.