Income Taxes

Earnings (loss) from continuing operations before income taxes consist of the following (in thousands):



	2012			2011			2010
Domestic	$	(21,984	)	$	(21,635	)	$	(30,212	)
Foreign	31,958			12,497			54,156
	$	9,974		$	(9,138	)	$	23,944

The company has provided for income taxes (benefits) from continuing operations as follows (in thousands):



	2012			2011			2010
Current:
Federal	$	(8,043	)	$	3,244		$	4,749
State	816			680			329
Foreign	21,154			13,008			9,729
	13,927			16,932			14,807
Deferred:
Federal	3,968			(3,474		)	(1,696		)
Foreign	348			(4,078		)	(771		)
	4,316			(7,552		)	(2,467		)
Income Taxes	$	18,243		$	9,380		$	12,340

Included in the 2010 Federal current tax benefit is a benefit of $7,750,000 resulting from the carryback of the 2008 Federal domestic net operating loss as a result of the Worker, Homeownership and Business Assistance Act of 2010, which became effective in November of 2010. The deferred tax asset previously recorded by the company, related to the loss carryforward, was fully offset by a tax valuation allowance. Included in the 2012 Federal current tax benefit is a benefit of $5,758,000 related to an intra-period allocation to continuing operations. A charge in an equal amount is in discontinued operations. A reconciliation to the effective income tax rate from the federal statutory rate is as follows:



	2012		2011		2010
Statutory federal income tax rate	35.0	%	(35.0	)%	35.0	%
State and local income taxes, net of federal income tax benefit	5.3		4.9		0.9
Tax credits	(4.9	)	(13.5	)	(65.4	)
Foreign taxes at less than the federal statutory rate excluding valuation allowances	(34.7	)	(54.5	)	(38.8	)
Federal and foreign valuation allowance	274.3		56.8		24.7
Non-deductible extinguishment and debt finance costs	0.7		28.2		13.4
Withholding taxes	7.0		(0.4	)	(0.6	)
Compensation	0.7		3.4		(0.5	)
Dividends	(1.1	)	28.8		87.1
Life insurance	(6.5	)	(7.5	)	(1.8	)
Foreign branch activity	(8.4	)	(15.5	)	(5.4	)
Uncertain tax positions	88.9		1.2		(2.8	)
Goodwill and intangible asset impairment (Asia/Pacific)	—		154.5		—
Foreign tax audit settlement	—		(54.1	)	—
Basis difference, asset held for sale	(173.7	)	—		—
Other, net	0.3		5.3		5.7
	182.9	%	102.6	%	51.5	%

The foreign tax audit settlement above relates to a tax settlement in Germany as the German government agreed to follow a European Court of Justice case and a German Tax Court case that impacted an open tax return year for a benefit of $4,947,000 or $0.15 per diluted share.

At December 31, 2012, total deferred tax assets were $128,535,000, total deferred tax liabilities were $40,899,000 and the tax valuation allowance total was $119,895,000 for a net deferred income tax liability of $32,259,000 compared to total deferred tax assets of $106,197,000, total deferred tax liabilities of $43,095,000 and a tax valuation allowance total of $90,430,000 for a net deferred income tax liability of $27,328,000 at December 31, 2011. Significant components of deferred income tax assets and liabilities at December 31, 2012 and 2011 are as follows (in thousands):



	2012			2011
Current deferred income tax assets (liabilities), net:
Loss carryforwards	$	107		$	2,017
Bad debt	7,296			8,585
Warranty	4,929			4,591
State and local taxes	2,761			2,687
Other accrued expenses and reserves	2,611			5,846
Inventory	2,388			1,549
Compensation and benefits	2,439			2,644
Product liability	292			292
Basis difference, asset held for sale	17,320			—
Valuation allowance	(40,020		)	(23,374		)
Other, net	(2,259		)	(3,217		)
	$	(2,136	)	$	1,620
Long-term deferred income tax assets (liabilities), net:
Goodwill & intangibles	(23,752		)	(24,042		)
Convertible debt	(810		)	(941		)
Fixed assets	(14,078		)	(14,895		)
Compensation and benefits	15,915			14,388
Loss and credit carryforwards	48,747			43,603
Product liability	3,812			4,236
State and local taxes	11,608			10,734
Valuation allowance	(79,875		)	(67,056		)
Other, net	8,310			5,025
	$	(30,123	)	$	(28,948	)
Net Deferred Income Taxes	$	(32,259	)	$	(27,328	)

The company recorded a valuation allowance for its domestic net deferred tax assets due to a domestic loss recognized in each year from 2007 through 2012 and based upon near term domestic projections. For 2011, the company had a domestic current tax return liability of $3,140,000 and for 2012 the company estimates a domestic current tax return liability of approximately $0 and has recorded a deferred tax asset equal to these amounts. In addition, during 2007 through 2012, the company also recorded valuation allowances for certain foreign country net deferred tax assets where recent performance results in a three year cumulative loss and near term projections do not warrant substantial positive evidence to overcome the past losses. The company made net payments for income taxes of $10,837,000, $14,290,000, and $2,600,000 during the years ended December 31, 2012, 2011 and 2010, respectively.

At December 31, 2012, the company had foreign tax loss carryforwards of approximately $46,483,000 of which $46,056,000 are non-expiring and $427,000 expire in 2027, of which $45,128,000 are offset by valuation allowances. At December 31, 2012, the company also had $380,000,000 of domestic state and local tax loss carryforwards, of which $156,000,000 expire between 2013 and 2016, $128,000,000 expire between 2017 and 2026 and $96,000,000 expire after 2027. The company has domestic federal tax credit carryforwards of $35,372,000 of which $12,695,000 expire between 2014 and 2018 and $22,362,000 expire between 2019 and 2022, $68,000 expire in 2031 and $247,000 or indefinite.

As of December 31, 2012 and 2011, the company had a liability for uncertain tax positions, excluding interest and penalties of $9,401,000 and $3,525,000, respectively. The company does not believe there will be a material change in its unrecognized tax positions over the next twelve months.

The total liabilities associated with unrecognized tax benefits that, if recognized, would impact the effective tax rates were $9,401,000 and $3,525,000 at December 31, 2012 and 2011, respectively.

A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows (in thousands):



	2012			2011
Balance at beginning of year	$	4,075		$	4,500
Additions to:
Positions taken during the current year	516			475
Positions taken during a prior year	6,055			105
Deductions due to:
Exchange rate impact	(14		)	20
Positions taken during a prior year	(118		)	(545		)
Settlements with taxing authorities	(621		)	(195		)
Lapse of statute of limitations	(42		)	(285		)
Balance at end of year	$	9,851		$	4,075

The company recognizes interest and penalties associated with uncertain tax positions in income tax expense. During 2012, 2011 and 2010 the (expense) benefit for interest and penalties was $(3,309,000), $20,000 and $1,150,000, respectively. The company had approximately $4,029,000 and $720,000 of accrued interest and penalties as of December 31, 2012 and 2011, respectively.

Included in the 2012 amounts above is an accrual of tax ($5,995,000) and interest ($3,341,000) resulting from a foreign audit related to years before 2012.

The company and its subsidiaries file income tax returns in the U.S. and certain foreign jurisdictions. The company is subject to U.S. federal income tax examinations for calendar years 2009 to 2012, and is subject to various U.S. state income tax examinations for 2008 to 2012. With regards to foreign income tax jurisdictions, the company is generally subject to examinations for the periods 2006 to 2012.