Income Taxes

The components of income before income taxes and provision for income taxes for the years ended December 31 are as follows:



	2011			2010			2009
Income (loss) before income taxes
Domestic	$	141.6		$	35.4		$	49.1
Foreign	72.2			61.4			(20.2		)
	$	213.8		$	96.8		$	28.9
Income tax provision
Current tax provision (benefit):
Federal	$	31.5		$	(2.9	)	$	(12.1	)
State	2.8			1.3			4.6
Foreign	8.8			10.5			3.0
Total current	43.1			8.9			(4.5		)
Deferred tax provision (benefit):
Federal	10.4			7.7			23.9
State	0.3			0.5			(1.8		)
Foreign	(2.1		)	0.3			2.9
Total deferred	8.6			8.5			25.0
	$	51.7		$	17.4		$	20.5

The Company made income tax payments of $33.6 million, $15.8 million and $8.5 million during 2011, 2010 and 2009, respectively. During the same periods, income tax refunds totaled $0.6 million, $4.4 million and $11.0 million, respectively.

A reconciliation of the federal statutory and effective income tax rate for the year ended December 31 is as follows:



	2011			2010			2009
Income before income taxes	$	213.8		$	96.8		$	28.9
Statutory taxes at 35.0%	$	74.8		$	33.9		$	10.1
State income taxes	4.1			1.2			1.3
Non-deductible expenses	2.1			1.4			1.7
Unremitted foreign earnings	1.6			1.7			10.3
Foreign statutory rate differences	(10.0		)	(14.7		)	(3.1		)
Valuation allowance	(9.5		)	9.1			17.8
Percentage depletion	(6.9		)	(7.2		)	(6.5		)
Equity interest earnings	(1.9		)	(0.4		)	1.2
R&D and other federal credits	(0.9		)	(0.7		)	(0.9		)
Tax controversy resolution	—			(6.6		)	0.7
Basis difference in foreign stock	—			—			(11.9		)
Other	(1.7		)	(0.3		)	(0.2		)
Income tax provision	$	51.7		$	17.4		$	20.5
Effective income tax rate	24.2		%	18.0		%	70.9		%

As of December 31, 2011, the cumulative unremitted earnings of the Company's foreign subsidiaries are approximately $300 million. The Company determined during 2009 that up to $75 million in foreign earnings, primarily with respect to its European business group, may be repatriated within the foreseeable future. As a result of additional earnings and changes in currency exchange rates, the Company increased its estimate of the foreign earnings to be repatriated within the foreseeable future by an additional $5 million in both 2011 and 2010. During 2010, the Company repatriated $28 million of such deferred earnings to the U.S. There were no repatriations of these deferred earnings in 2011. As a result of these determinations and actions, the Company has provided a cumulative deferred tax liability in the amount of $8.8 million with respect to the cumulative unremitted earnings of the Company as of December 31, 2011. The Company has continued to conclude that predominantly all remaining foreign earnings in excess of this amount will be indefinitely reinvested in its foreign operations and, therefore, the recording of deferred tax liabilities for such unremitted earnings is not required. It is impracticable to determine the total amount of unrecognized deferred taxes with respect to these permanently reinvested earnings; however, foreign tax credits would be available to partially reduce U.S. income taxes in the event of a distribution.

A detailed summary of the total deferred tax assets and liabilities in the Company's Consolidated Balance Sheets resulting from differences in the book and tax basis of assets and liabilities follows:



	December 31
	2011		2010
Deferred tax assets
Tax carryforwards	$	62.7	$	82.0
Accrued expenses and reserves	54.7		58.1
Accrued pension benefits	24.9		24.1
Other employee benefits	12.4		11.1
Other	11.4		11.2
Total deferred tax assets	166.1		186.5
Less: Valuation allowance	65.5		76.9
	100.6		109.6
Deferred tax liabilities
Depreciation and depletion	47.4		48.8
Partnership investment - development costs	18.7		20.3
Unremitted foreign earnings	8.8		9.8
Inventories	4.2		3.6
Total deferred tax liabilities	79.1		82.5
Net deferred tax asset	$	21.5	$	27.1

The following table summarizes the tax carryforwards and associated carryforward periods and related valuation allowances where the Company has determined that realization is uncertain:



	December 31, 2011
	Net deferred tax asset		Valuation allowance		Carryforwards expire during:
Non-U.S. net operating loss	$	34.7	$	34.7	2012-Indefinite
State losses	12.1		9.8		2012-2031
Alternative minimum tax credit	5.0		—		Indefinite
Foreign tax credit	2.1		—		2019-2020
Capital losses	8.8		8.8		2014-Indefinite
Total	$	62.7	$	53.3



	December 31, 2010
	Net deferred tax asset		Valuation allowance		Carryforwards expire during:
Non-U.S. net operating loss	$	40.9	$	40.9	2011-Indefinite
State losses	13.9		10.8		2011-2030
Alternative minimum tax credit	8.6		—		Indefinite
Foreign tax credit	6.6		—		2013-2019
Capital losses	8.2		8.2		2011-Indefinite
General business credit	3.8		—		2024-2030
Total	$	82.0	$	59.9

The Company continually evaluates its deferred tax assets to determine if a valuation allowance is required. A valuation allowance is required where realization is determined to no longer meet the “more likely than not” standard. During 2008 and continuing into 2009, significant downturns were experienced in NMHG's major markets. The significant decrease in the operations, and certain actions taken by management to reduce NMHG's manufacturing capacity to more appropriate levels, resulted in a three-year cumulative loss for each of NMHG's Australian, European and U.S. operations. As a result, valuation allowances against deferred tax assets for these operations have been provided. Although NMHG projects earnings over the longer term for the operations, such longer-term forecasts cannot be utilized to support the future utilization of deferred tax assets when a three-year cumulative loss is present.

The establishment of a valuation allowance does not have an impact on cash, nor does such an allowance preclude the Company from using its loss carryforwards or other deferred tax assets in future periods. The tax net operating losses that comprise the Australian and the substantial portion of the European deferred tax assets do not expire under local law and the U.S. state taxing jurisdictions provide for a carryforward period of up to 20 years.

During 2011 and 2010, the net valuation allowance provided against certain deferred tax assets decreased by $11.4 million and increased by $10.4 million, respectively. The change in the total valuation allowance in 2011 included a net decrease in tax expense of $9.5 million and a decrease in the overall U.S. dollar value of valuation allowances previously recorded in foreign currencies and amounts recorded directly in equity of $1.9 million. The change in the total valuation allowance in 2010 included a net increase in tax expense of $9.1 million and an increase in the overall U.S. dollar value of valuation allowances previously recorded in foreign currencies and amounts recorded directly in equity of approximately $1.3 million.

Based upon the review of historical earnings and trends, forecasted earnings and the relevant expiration of carryforwards, the Company believes the valuation allowances provided are appropriate. At December 31, 2011, the Company had gross net operating loss carryforwards in non-U.S. jurisdictions of $126.4 million and U.S. state jurisdictions of $300.3 million. The Company expects that if the major markets for its products continue to experience economic recovery similar to 2011, the Company would expect to start to release valuation allowances in taxing jurisdictions when a three-year cumulative loss is no longer present and long-term forecasts are favorable.

The tax returns of the Company and certain of its subsidiaries are under routine examination by various taxing authorities. The Company has not been informed of any material assessment for which an accrual has not been previously provided and the Company would vigorously contest any material assessment. Management believes any potential adjustment would not materially affect the Company's financial condition or results of operations.

The following is a reconciliation of the Company's total gross unrecognized tax benefits, defined as the aggregate tax effect of differences between tax return positions and the benefits recognized in the financial statements for the years ended December 31, 2011 and 2010. Approximately $9.6 million and $10.0 million of these gross amounts as of December 31, 2011 and 2010, respectively, relate to permanent items that, if recognized, would impact the effective income tax rate. This amount differs from the gross unrecognized tax benefits presented in the table below due to the decrease in U.S. federal income taxes which would occur upon the recognition of the state tax benefits included herein.



	2011			2010
Balance at January 1	$	11.2		$	16.6
Net additions for tax positions of prior years	0.1			—
Additions based on tax positions related to the current year	1.1			1.6
Reductions due to settlements with taxing authorities and the lapse of the applicable statute of limitations	(1.6		)	(6.6		)
Other changes in unrecognized tax benefits including foreign currency translations adjustments	(0.1		)	(0.4		)
Balance at December 31	$	10.7		$	11.2

The Company records interest and penalties on uncertain tax positions as a component of the income tax provision. The Company recognized net expense of $0.1 million, a net benefit of $1.9 million and a net benefit of $1.0 million in interest and penalties related to uncertain tax positions during 2011, 2010 and 2009, respectively. The total amount of interest and penalties accrued was $1.6 million as of both December 31, 2011 and 2010.

The Company expects the amount of unrecognized tax benefits will change within the next twelve months; however, the change in unrecognized tax benefits, which is reasonably possible within the next twelve months, is not expected to have a significant effect on the Company's financial position or results of operations.

In general, the Company operates in taxing jurisdictions that provide a statute of limitations period ranging from three to five years for the taxing authorities to review the applicable tax filings. The examination of the 2007 and 2008 U.S. federal tax returns was completed in May 2011; however, one unsettled issue is being pursued through the Internal Revenue Service Appeals process and is expected to be settled favorably during early 2012. The examination of the 2009 and 2010 U.S. federal tax years commenced in February 2012. The Company is currently under examination in various non-U.S. jurisdictions for which the statute of limitations has been extended. The Company believes these examinations are routine in nature and are not expected to result in any material tax assessments. The Company does not have any additional material taxing jurisdictions in which the statute of limitations has been extended beyond the applicable time frame allowed by law.