INCOME TAXES

The components of income before income taxes from operations are as follows:



	December 31,
(in thousands)	2012		2011		2010

United States	$	67,668	$	7,041	$	104,424
Foreign	263,011		249,070		253,232
	$	330,679	$	256,111	$	357,656

The components of the provision for income taxes from operations are as follows:



	December 31,
(in thousands)	2012			2011			2010

Current:
U.S. federal	$	23,412		$	34,870		$	21,848
U.S. state	2,788			5,151			3,795
Foreign	69,954			59,397			62,196
Total	$	96,154		$	99,418		$	87,839

Deferred:
U.S. federal	$	(128,832	)	$	(29,664	)	$	3,067
U.S. state	11,730			(4,089		)	1,062
Foreign	29,868			(54,649		)	(2,743		)
Total	$	(87,234	)	$	(88,402	)	$	1,386

	$	8,920		$	11,016		$	89,225

The reconciliation of the U.S. federal statutory tax rate to the effective rate for the years ended is as follows:



	December 31,
	2012		2011		2010

Statutory U. S. federal income tax rate	35.0	%	35.0	%	35.0	%
Effect of:
State income taxes, net of federal benefit	0.7		0.3		0.9
Federal benefit of R&D and foreign tax credits	(7.2	)	(8.6	)	(6.9	)
Tax effect of international operations	(7.4	)	(7.9	)	(3.7	)
Net effect of tax audit activity	(0.6	)	2.1		1.0
Tax effect of enacted statutory rate changes	(3.7	)	0.2		—
Federal tax on unremitted earnings of certain foreign subsidiaries	0.1		0.1		0.2
Valuation allowance adjustments	12.0		(18.1	)	(1.0	)
Foreign outside basis differences	(26.5	)	—		—
Other	0.3		1.2		(0.5	)

Effective income tax rate on operations	2.7	%	4.3	%	25.0	%

The tax effect of significant temporary differences giving rise to deferred tax assets and liabilities are as follows:



	December 31, 2012					December 31, 2011
(in thousands)	Deferred Tax Asset			Deferred Tax Liability		Deferred Tax Asset			Deferred Tax Liability

Commission and bonus accrual	$	2,529		$	—	$	2,812		$	—
Employee benefit accruals	44,266			—		38,061			—
Foreign outside basis difference	189,125			—		—			—
Inventory	21,173			—		19,972			—
Identifiable intangible assets	—			359,303		—			336,822
Insurance premium accruals	4,381			—		4,533			—
Miscellaneous accruals	12,685			—		12,273			—
Other	15,844			—		13,166			—
Unrealized losses included in other
comprehensive income	39,879			—		28,424			—
Property, plant and equipment	—			51,020		—			52,251
Product warranty accruals	1,154			—		907			—
R&D and foreign tax credit carryforward	—			—		49,552			—
Restructuring and other cost accruals	1,048			—		1,439			—
Sales and marketing accrual	4,480			—		4,874			—
Taxes on unremitted earnings of foreign subsidiaries	—			2,556		—			2,273
Tax loss carryforwards and other tax attributes	187,449			—		152,999			—
Valuation allowance	(179,699		)	—		(71,758		)	—
	$	344,314		$	412,879	$	257,254		$	391,346

Deferred tax assets and liabilities are included in the following consolidated balance sheet line items:



	December 31,
(in thousands)	2012		2011

Prepaid expenses and other current assets	$	80,903	$	67,159
Income taxes payable	2,856		2,678
Other noncurrent assets	86,029		51,250
Deferred income taxes	232,641		249,822

The Company has fully utilized its foreign tax credit carryforwards as of December 31, 2012.

Certain foreign and domestic subsidiaries of the Company have tax loss carryforwards of $853.3 million at December 31, 2012. Of such losses, $497.1 million expire at various times through 2032, and $356.2 million may be carried forward indefinitely. Included in deferred income tax assets as of December 31, 2012 are tax benefits totaling $136.5 million (before valuation allowances) for these tax loss carryforwards. The Company has provided $118.0 million of valuation allowance to offset the tax benefit of net operating losses and $61.7 million of valuation allowance for other deferred tax assets. The Company has provided these valuation allowances totaling $179.7 million due to the uncertainty that these assets can be realized in the future.

The Company has provided federal income taxes on certain undistributed earnings of its foreign subsidiaries that the Company anticipates will be repatriated. Deferred federal income taxes have not been provided on $1.1 billion of cumulative earnings of foreign subsidiaries that the Company has determined to be permanently reinvested. It is not practicable to estimate the amount of tax that might be payable on these permanently reinvested earnings.

Tax Contingencies

The Company applies a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company recognizes in the financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position.

The total amount of gross unrecognized tax benefits at December 31, 2012 is approximately $18.4 million, of this total, approximately $16.9 million represents the amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate. It is reasonably possible that certain amounts of unrecognized tax benefits will significantly increase or decrease within twelve months of the reporting date of the Company’s consolidated financial statements. Final settlement and resolution of outstanding tax matters in various jurisdictions during the next twelve months could include unrecognized tax benefits of approximately $1.4 million.

The total amount of accrued interest and penalties were $6.1 million and $6.9 million as of December 31, 2012 and 2011, respectively. The Company has consistently classified interest and penalties recognized in its consolidated financial statements as income taxes based on the accounting policy election of the Company. During the year ended December 31, 2012, the Company recognized income tax benefit of $0.9 million in interest and penalties. During the years ended December 31, 2011 and 2010, the company recognized income tax expense in the amount of $0.9 million and $0.6 million for interest and penalties.

The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The significant jurisdictions include the U.S., Germany and Switzerland. The Company has substantially concluded all U.S. federal income tax matters for years through 2009, resulting in the years 2010 and 2011 being subject to future potential tax audit adjustments while years prior to 2010 are settled. The Company has concluded audits in Germany through the tax year 2008. The taxable years that remain open for Switzerland are 2002 through 2011.

The Company had the following activity recorded for unrecognized tax benefits:



	December 31,
(in thousands)	2012			2011			2010

Unrecognized tax benefits at beginning of period	$	14,956		$	13,143		$	12,864
Gross change for prior period positions	(3,029		)	1,425			47
Gross change for current year positions	268			640			1,036
Decrease due to settlements and payments	—			—			—
Decrease due to statute expirations	—			(123		)	(424		)
Increase due to effect of foreign currency translation	—			—			—
Decrease due to effect from foreign currency translation	69			(129		)	(380		)

Unrecognized tax benefits at end of period	$	12,264		$	14,956		$	13,143