Income Taxes

The provision for income taxes for the years ended December 31 consists of the following:



	2012			2011			2010
Current
Federal	$	134,276		$	113,937		$	88,302
State	22,072			19,416			13,482
International	52,708			88,509			80,461
	209,056			221,862			182,245
Deferred
Federal	9,690			25,729			12,143
State	2,572			3,328			4,153
International	(17,676		)	(40,434		)	837
	(5,414		)	(11,377		)	17,133
	$	203,642		$	210,485		$	199,378

The principal causes of the difference between the U.S. federal statutory tax rate of 35% and effective income tax rates for the years ended December 31 are as follows:



	2012			2011			2010
United States	$	441,526		$	405,508		$	313,127
International	268,833			404,293			365,876
Income before income taxes	$	710,359		$	809,801		$	679,003

Provision at statutory tax rate	$	248,626		$	283,430		$	237,651
State taxes, net of federal benefit	16,019			14,784			11,463
International effective tax rate differential	(43,008		)	(48,785		)	(61,868		)
Change in valuation allowance	(6,266		)	(49,826		)	11,945
Other non-deductible expenses	2,764			4,744			4,040
Changes in tax accruals	(10,613		)	12,437			(2,145		)
Other	(3,880		)	(6,299		)	(1,708		)
Provision for income taxes	$	203,642		$	210,485		$	199,378

In 2011, the company recorded a net reduction in the provision for income taxes of $28,928 ($.25 per share on both a basic and diluted basis) principally due to a reversal of a valuation allowance on certain deferred tax assets as a result of a realignment of the company's international business operations.

In 2010, the company recorded a net reduction in the provision for income taxes of $9,404 ($.08 per share on a basic and diluted basis) and a reduction in interest expense of $3,840 ($2,312 net of related taxes or $.02 per share on both a basic and diluted basis) primarily related to the settlement of certain tax matters covering multiple years.

At December 31, 2012, the company had a liability for unrecognized tax benefits of $46,980 (substantially all of which, if recognized, would favorably affect the company's effective tax rate), of which approximately $1,000 is expected to be paid over the next twelve months. The company does not believe there will be any other material changes in its unrecognized tax positions over the next twelve months.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31 is as follows:



	2012			2011			2010
Balance at beginning of year	$	63,498		$	66,110		$	68,833
Additions based on tax positions taken during a prior period	448			10,850			14,067
Reductions based on tax positions taken during a prior period	(11,824		)	(2,389		)	(20,273		)
Additions based on tax positions taken during the current period	8,014			7,602			5,835
Reductions related to settlement of tax matters	(8,288		)	(12,879		)	(65		)
Reductions related to a lapse of applicable statute of limitations	(4,868		)	(5,796		)	(2,287		)
Balance at end of year	$	46,980		$	63,498		$	66,110

Interest costs related to unrecognized tax benefits are classified as a component of "Interest and other financing expense, net" in the company's consolidated statements of operations. In 2012, 2011, and 2010 the company recognized $18, $2,068, and $(1,599), respectively, of interest expense (income) related to unrecognized tax benefits. At December 31, 2012 and 2011, the company had a liability for the payment of interest of $10,599 and $13,411, respectively, related to unrecognized tax benefits.

In many cases the company's uncertain tax positions are related to tax years that remain subject to examination by tax authorities. The following describes the open tax years, by major tax jurisdiction, as of December 31, 2012:



United States - Federal		2010 - present
United States - States		2005 - present
Germany (a)		2010 - present
Hong Kong		2006 - present
Italy (a)		2008 - present
Sweden		2006 - present
United Kingdom		2010 - present

(a) Includes federal as well as local jurisdictions.

Deferred income taxes are provided for the effects of temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated balance sheets. These temporary differences result in taxable or deductible amounts in future years.

The significant components of the company's deferred tax assets and liabilities, included primarily in "Other current assets," "Other assets," "Accrued expenses," and "Other liabilities" in the company's consolidated balance sheets, consist of the following at December 31:



	2012			2011
Deferred tax assets:
Net operating loss carryforwards	$	95,960		$	79,317
Inventory adjustments	45,201			39,595
Allowance for doubtful accounts	17,008			14,401
Accrued expenses	56,222			61,589
Interest carryforward	46,876			52,606
Stock-based compensation awards	14,266			12,330
Other comprehensive income items	15,055			12,475
Other	3,381			—
	293,969			272,313
Valuation allowance	(24,409		)	(30,675		)
Total deferred tax assets	$	269,560		$	241,638

Deferred tax liabilities:
Goodwill	$	(31,107	)	$	(9,060	)
Depreciation	(61,896		)	(57,346		)
Intangible assets	(61,690		)	(60,100		)
Other	—			(1,916		)
Total deferred tax liabilities	$	(154,693	)	$	(128,422	)
Total net deferred tax assets	$	114,867		$	113,216

At December 31, 2012, the company had international tax loss carryforwards of approximately $226,283, of which $54,108 have expiration dates ranging from 2013 and 2032, and the remaining $172,175 have no expiration date. Deferred tax assets related to these international tax loss carryforwards were $65,128 with a corresponding valuation allowance of $18,370.

The company also has Federal net operating loss carryforwards of approximately $79,596 at December 31, 2012 which relate to recently acquired subsidiaries. These Federal net operating losses expire in various years beginning after 2020. The company has an agreement with the sellers of an acquired business to reimburse them for the company's utilization of approximately $72,155 of these Federal net operating loss carryforwards.

Valuation allowances reflect the deferred tax benefits that management is uncertain of the ability to utilize in the future.

Cumulative undistributed earnings of international subsidiaries were $2,716,769 at December 31, 2012. No deferred Federal income taxes were provided for the undistributed earnings as they are permanently reinvested in the company's international operations.

Income taxes paid, net of income taxes refunded, amounted to $179,408, $236,872, and $125,903 in 2012, 2011, and 2010, respectively.