(9) Income Taxes

Income before income taxes consists of the following:

	December 31,
	2012		2011		2010

Domestic	$	13,525	$	3,749	$	1,199
International		17,843		16,188		13,775
Total	$	31,368	$	19,937	$	14,974

The provision for income taxes consist of the following (benefits)/provisions:

	December 31,
	2012			2011			2010
Current:
Federal	$	(177	)	$	(196	)	$	(3	)
State		4			45			55
International		8,525			7,074			6,778
		8,352			6,923			6,830
Deferred:
Federal	$	(36,287	)	$	204		$	204
International		(3,926	)		(925	)		(1,369	)
		(40,213	)		(721	)		(1,165	)
Total	$	(31,861	)	$	6,202		$	5,665

The (benefit)/provision for income taxes differs from the statutory federal income tax rate of 35% for 2012, 2011 and 2010 as follows:

	December 31,
	2012			2011			2010

Income tax provision at U.S federal statutory rate	$	10,979		$	6,978		$	5,241
State and local taxes, net of federal income tax benefits		(1	)		14			17
Effect of foreign income taxed at rates other than the U.S. federal statutory rate		(1,780	)		469			610
Foreign income inclusions		4,563			8,398			13,869
Tax credits		(177	)		(196	)		-
Indefinite-lived intangibles		-			204			204
Net change in valuation allowance		(45,105	)		(9,546	)		(14,246	)
Other		(340	)		(119	)		(30	)
Total	$	(31,861	)	$	6,202		$	5,665

Foreign income inclusions represent distributions from foreign subsidiaries which gave rise to newly recognized foreign tax credits. The Company utilized fully valued foreign tax credits, alternative minimum tax credits, and research and experimentation tax credits in 2012, prior to the release of the domestic valuation allowance, fully valued foreign tax credits in 2011, and fully valued net operating loss carryforwards and foreign tax credits in 2010, to completely offset any tax impact of the foreign income inclusions. Net change in the valuation allowance in 2012 includes the fourth quarter benefit of $36,287 for the release of the domestic valuation allowance, the reduction in the domestic valuation allowance, prior to the release, for the utilization of fully valued tax credits to offset U.S. income tax and deferred tax amounts of $8,660, and the reduction in the foreign valuation allowance of $158.

The components of deferred tax assets and liabilities as of December 31, 2012 and 2011 relate to temporary differences and carryforwards as follows:

	December 31,
	2012			2011
Current deferred tax assets:
Inventory	$	2,263		$	2,281
Legal and related reserves		100			508
Other		121			120
Current deferred tax assets		2,484			2,909
Valuation allowances		(754	)		(1,991	)
Total current deferred tax assets	$	1,730		$	918

Current deferred tax liabilities:
Unremitted foreign earnings	$	541		$	-
Other		2			856
Total current deferred tax liabilities	$	543		$	856

	December 31,
	2012			2011
Non-current deferred tax assets:
Foreign tax credit carryforwards	$	35,410		$	50,936
Environmental		850			1,549
Net capital loss carryforwards (domestic)		31			15
Net operating loss carryforwards (foreign)		902			996
Employee benefits		17,977			17,138
Restructuring		334			18
Research & experimentation tax credit carryforwards		1,681			1,630
Alternative minimum tax credit carryforwards		2,604			3,070
Property, plant and equipment		4,228			3,498
Other		4,432			3,817
Non-current deferred tax assets		68,449			82,667
Valuation allowances		(29,187	)		(75,580	)
Total non-current deferred tax assets		39,262			7,087

Non-current deferred tax liabilities:
Property, plant and equipment		6,523			7,960
Intangibles and other		9,510			11,558
Foreign tax allocation reserve		2,544			3,812
Total non-current deferred tax liabilities	$	18,577		$	23,330
Total net non-current deferred tax (assets)/liabilities	$	(20,685	)	$	16,243

The Company establishes a valuation allowance against deferred tax assets when it is more likely than not that the Company will be unable to realize those deferred tax assets in the future. In 2003, the Company's assessment of the need for a valuation allowance against domestic deferred tax assets considered current and past performance, cumulative losses in recent years from domestic operations, and a shift in the geographic mix of forecasted income. Considering the pattern of then-recent domestic losses, the Company gave significant weight to projections showing future domestic losses for purposes of assessing the need for a valuation allowance. This assessment resulted in a determination that it was more likely than not that domestic deferred tax assets would not be realized, and as such, a valuation allowance against net domestic deferred tax assets was recorded.

A sustained period of domestic profitability along with expectations of future domestic profitability of sufficient amounts and character is required before the Company would change its judgment regarding the need for a full valuation allowance against net domestic deferred tax assets. During 2012, the Company noted that it continued to approach three-year cumulative profitability and that it was possible it would conclude by the end of the year that a portion of its domestic deferred tax asset valuation allowance could be reversed in the fourth quarter of 2012. During the fourth quarter of 2012, the Company completed its long range planning process and all necessary analyses and concluded that its three-year cumulative domestic profitability through the end of 2012 and expectations of future domestic profitability warranted the reversal of all of the domestic valuation allowance attributable to net federal temporary differences, alternative minimum tax credits, and research and experimentation tax credits. Additionally, the Company released a portion of the domestic valuation allowance attributable to federal foreign tax credits. These valuation allowance releases resulted in a tax benefit to continuing operations of $36,287.

The Company expects to maintain a partial valuation allowance against its domestic federal foreign tax credits, subject to the consideration of all prudent and feasible tax planning strategies, until such time as the Company attains an appropriate level of future domestic profitability of the appropriate character and in the appropriate taxable years and is able to conclude that it is more likely than not that some portion of the domestic federal foreign tax credits against which the valuation allowance is recorded are realizable. The Company currently expects to maintain a full valuation allowance against state tax credits and deferred tax assets due to restrictive rules regarding realization. The Company expects to maintain a full valuation allowance against certain foreign tax assets, primarily NOL carryforwards, until such time as the Company attains an appropriate level of future profitability in the appropriate jurisdictions and is able to conclude that it is more likely than not that its foreign deferred tax assets are realizable.

The domestic valuation allowance for the years ended December 31, 2012, 2011 and 2010 decreased $47,490, increased $304, and decreased $3,891 respectively. The 2012 decrease in the domestic valuation allowance was allocated as follows: The valuation allowance decreased $36,287 for the release of valuation allowance due to domestic profitability, decreased by a net amount of $8,660 for domestic income and deferred tax amounts in continuing operations prior to the release of valuation allowance in the fourth quarter of 2012, and decreased by a net amount of $2,543 for domestic gains and losses included in OCI and discontinued operations. The 2011 increase in the domestic valuation allowance was allocated as follows: The valuation allowance decreased $9,340 for domestic income in continuing operations and increased by a net amount of $9,644 for deferred tax amounts, domestic gains and losses included in OCI and discontinued operations. The 2010 decrease in the domestic valuation allowance was allocated as follows: The valuation allowance decreased $14,321 for domestic income in continuing operations and increased by a net amount of $10,340 for deferred tax amounts, domestic gains and losses included in OCI and discontinued operations.

The foreign valuation allowance for the years ended December 31, 2012, 2011 and 2010 decreased $140, decreased $582, and increased $1,372, respectively. The 2012 decrease in the foreign valuation allowance was allocated as follows: The valuation allowance decreased $158 for foreign income and increased $18 for deferred tax amounts and currency translation adjustments included in OCI. The 2011 decrease in the foreign valuation allowance was allocated as follows: The valuation allowance decreased $206 for foreign income and decreased $376 for deferred tax amounts and currency translation adjustments included in OCI. The 2010 increase in the foreign valuation allowance was allocated as follows: The valuation allowance increased $75 for foreign losses and increased $1,297 for deferred tax amounts and currency translation adjustments included in OCI.

Under the tax laws of the various jurisdictions in which the Company operates, NOLs may be carried forward or back, subject to statutory limitations, to reduce taxable income in future or prior years. The domestic federal NOLs and most of the domestic state NOLs were fully utilized during 2010. The foreign NOLs are approximately $3,038, of which $2,347 are attributable to NOLs acquired during 2010. NOLs in most foreign jurisdictions will carry forward indefinitely.

As of December 31, 2012, $35,410 of domestic federal foreign tax credits, $1,681 of research and experimentation tax credits and $2,604 of alternative minimum tax credits are available as credits against future U.S. income taxes on worldwide income, subject to certain limitations. Under U.S. tax laws, these will expire in 2013 through 2018, 2020 through 2031, and the alternative minimum tax credit carryforwards have no expiration date, respectively. The domestic federal foreign tax credits are partially offset by a valuation allowance.

In 2012 and 2011, the Company repatriated $8,953 and $25,332, respectively, of cash from its foreign subsidiaries in order to reduce its credit and currency exposure for cash held in foreign currencies or in non-U.S. banks by utilizing the excess cash for debt reduction. The Company utilized fully valued domestic tax credits in 2012 and 2011 to completely offset any tax impact of the foreign inclusions. Historically, the Company intended to reinvest foreign earnings indefinitely outside of the U.S. and only considered repatriating excess cash from foreign subsidiaries if it could utilize fully valued domestic tax attributes to completely offset any tax expense that would otherwise result. Unrecognized foreign tax credits and fully valued foreign tax credit carryovers had been available to offset any potential U.S. tax liability. Therefore, the Company had not provided U.S. federal or state income taxes or foreign withholding taxes on its undistributed earnings from foreign operations as of December 31, 2011. During the fourth quarter of 2012 the Company completed a detailed forecast of foreign source income by jurisdiction as part of the ongoing process to evaluate its valuation allowance against deferred tax assets. As part of this process, as well as a continuing desire to limit its exposure for cash held in foreign banks, the Company determined that it is likely that a portion of the undistributed earnings of its foreign subsidiaries will be repatriated to the U.S. in the future. Accordingly, the Company has changed its indefinite reinvestment assertion and provided a deferred tax liability of $541 on undistributed foreign earnings as of December 31, 2012. Subject to limitations, U.S. income tax on such foreign earnings, when actually repatriated, may be reduced or eliminated by unrecognized foreign tax credits that may be generated in connection with the repatriation, or by existing foreign tax credits or other tax attributes for which a valuation allowance was released in the fourth quarter of 2012.

The following table summarizes the activity related to the Company's unrecognized tax benefits as of December 31, 2012, 2011 and 2010:

	2012			2011			2010

Balance at January 1	$	4,328		$	4,085		$	4,598
Gross increases related to current period tax positions		348			317			236
Gross increases/(decreases) related to prior period tax positions		(483	)		95			(303	)
Expirations of statute of limitations for the assessment of taxes		(113	)		(38	)		(161	)
Settlements		(175	)		-			-
Foreign currency translation		62			(131	)		(285	)
Balance at December 31	$	3,967		$	4,328		$	4,085

Of the total balance of unrecognized tax benefits at December 31, 2012, $3,967, if recognized, would affect the effective tax rate.

Gross interest and penalties at December 31, 2012, 2011 and 2010 of $4,511, $3,427 and $3,160, respectively, related to the above unrecognized tax benefits are not reflected in the table above. In 2012, 2011 and 2010, the Company accrued $985, $328 and $343, respectively, of interest and penalties in the income statement. Consistent with prior periods, the Company recognizes interest and penalties within its income tax provision.

Tax years 2007 and forward in the U.S. are open to examination by the IRS. The Company is also subject to examinations in its non-U.S. jurisdictions for 2007 and later years.

The Company is also subject to audits in various states for various years in which it has filed income tax returns. Previous state audits have resulted in immaterial adjustments. In the majority of states where the Company files, the Company is subject to examination for tax years 2008 and forward.

In 2009, a subsidiary of the Company was examined by a European tax authority, which challenged the business purpose of the deductibility of certain intercompany transactions from 2003 and issued two formal assessments against the subsidiary. In 2010, the Company filed appeals to litigate the matter. The first court date related to this matter was held in 2011, after which the court issued its ruling in favor of the Company. The tax authorities appealed this ruling and the appeals court also ruled in the Company's favor in the fourth quarter of 2012, however this ruling only applies to the smaller of the two assessments. The first court date for the larger of the two assessments was held in September 2012, and the Company had not yet received the court's ruling. In 2012 the Company increased its reserve for unrecognized tax benefits for this matter by $664, including $116 of foreign currency translation, primarily due to a change in the potential penalties that could be levied against the Company. The Company still believes this dispute to be in the early stages of the judicial process since any ruling reached by any of the courts may be subject to further appeals, and as such the final date of resolution of this matter is uncertain at this time. However, within the next twelve months it is possible that factors such as new developments, settlements or judgments may require the Company to increase its reserve for unrecognized tax benefits by up to approximately $8,000 or decrease its reserve by approximately $6,000, including penalties and interest. If the court rules against the Company in subsequent court proceedings, a payment for a substantial portion of the judgment, including any penalties and interest, will be due immediately while the case is appealed. The Company has analyzed these issues in accordance with guidance on uncertain tax positions and believes at this time that its reserves are adequate, and intends to vigorously defend itself.

In the next twelve months, other than as noted above, the Company may increase its reserve for unrecognized tax benefits for intercompany transactions and acquired tax attributes by approximately $500. This could affect the effective tax rate.