Income Taxes

The Company's income before income taxes and income tax expense for continuing operations, each by tax jurisdiction, consisted of the following:



	Year ended December 31,
	2012			2011		2010
	(dollars in thousands)
Income before income taxes:
Domestic	$	11,920		$	49,060	$	29,980
Foreign	30,340			30,680		26,450
Total income before income taxes	$	42,260		$	79,740	$	56,430
Current income tax expense:
Federal	$	8,250		$	4,500	$	930
State and local	1,860			2,490		70
Foreign	4,190			9,890		8,800
Total current income tax expense	14,300			16,880		9,800
Deferred income tax expense (benefit):
Federal	(6,200		)	10,390		9,930
State and local	(750		)	830		(1,310		)
Foreign	(1,380		)	830		(920		)
Total deferred income tax expense	(8,330		)	12,050		7,700
Income tax expense	$	5,970		$	28,930	$	17,500

The components of deferred taxes at December 31, 2012 and 2011 are as follows:



	2012			2011
	(dollars in thousands)
Deferred tax assets:
Accounts receivable	$	1,110		$	1,210
Inventories	5,670			5,730
Accrued liabilities and other long-term liabilities	34,880			32,110
Tax loss and credit carryforwards	6,740			5,190
Gross deferred tax asset	48,400			44,240
Valuation allowances	(4,440		)	(2,950		)
Net deferred tax asset	43,960			41,290
Deferred tax liabilities:
Property and equipment	(19,800		)	(20,330		)
Goodwill and other intangible assets	(60,990		)	(63,490		)
Other, principally deferred income	(3,860		)	(2,120		)
Gross deferred tax liability	(84,650		)	(85,940		)
Net deferred tax liability	$	(40,690	)	$	(44,650	)

The following is a reconciliation of income tax expense computed at the U.S. federal statutory rate to income tax expense allocated to income from continuing operations before income taxes:



	2012			2011			2010
	(dollars in thousands)
U.S. federal statutory rate	35		%	35		%	35		%
Tax at U.S. federal statutory rate	$	14,790		$	27,910		$	19,750
State and local taxes, net of federal tax benefit	730			2,440			650
Differences in statutory foreign tax rates	(4,920		)	(2,250		)	(1,720		)
Change in recognized tax benefits	(1,320		)	(700		)	(270		)
Tax holiday	(1,160		)	—			—
Restructuring (benefits)/charges	(2,400		)	1,300			—
Noncontrolling interest	(790		)	—			—
Net change in valuation allowance	1,600			130			(1,300		)
Other, net	(560		)	100			390
Income tax expense	$	5,970		$	28,930		$	17,500

The Company has recorded a deferred tax asset of $3.1 million related to various state operating loss carryforwards. The majority of the state tax loss carryforwards expire between 2024 and 2027.

The Company has recorded valuation allowances of $4.4 million and $3.0 million as of December 31, 2012 and 2011, respectively, against certain deferred tax assets. Based on expected future taxable income due to the reversal of existing U.S. federal deferred tax liabilities, the Company believes it is more likely than not that all of the U.S. federal deferred tax assets will be realized.

In general, it is the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations. As of December 31, 2012, the Company has not made a provision for U.S. or additional non-U.S. withholding taxes on approximately $180.4 million of undistributed earnings of non-U.S. subsidiaries that are considered to be permanently reinvested. Generally, such amounts become subject to U.S. taxation upon remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of deferred tax liability related to investments in these non-U.S. subsidiaries.

Unrecognized tax benefits

The Company has approximately $21.7 million and $13.4 million of unrecognized tax benefits ("UTB's") as of December 31, 2012 and 2011, respectively. If the unrecognized tax benefits were recognized, the impact to the Company's effective tax rate would be to reduce reported income tax expense for the years ended December 31, 2012 and 2011 approximately $14.0 million and $9.3 million, respectively.

A reconciliation of the change in the UTB's and related accrued interest and penalties for the years ended December 31, 2012 and 2011 is as follows:



	Unrecognized Tax Benefits
	(dollars in thousands)
Balance at December 31, 2010	$	13,150
Tax positions related to current year:
Additions	1,340
Tax positions related to prior years:
Additions	870
Reductions	(475		)
Settlements	—
Lapses in the statutes of limitations	(1,495		)
Balance at December 31, 2011	$	13,390
Tax positions related to current year:
Additions	3,990
Tax positions related to prior years:
Additions	6,760
Reductions	(320		)
Settlements	(720		)
Lapses in the statutes of limitations	(1,370		)
Balance at December 31, 2012	$	21,730

In addition to the UTB's summarized above, the Company has recorded approximately $1.6 million and $1.8 million in potential interest and penalties associated with uncertain tax positions as of December 31, 2012 and 2011, respectively.

The increase in UTB's and estimated liabilities for interest and penalties for tax positions related to prior years is primarily due to the Company's business acquistions during 2012. The Company maintains an indemnification asset for certain acquired UTB's and corresponding interest and penalties.

The Company is subject to U.S. federal, state and local, and certain non-U.S. income tax examinations for tax years 2002 through 2012. There is currently one non-U.S. income tax examination in process. The Company does not believe that the results of this examination will have a significant impact on the Company's tax position or its effective tax rate.

Management monitors changes in tax statutes and regulations and the issuance of judicial decisions to determine the potential impact to unrecognized tax benefits and is not aware of, nor does it anticipate, any material subsequent events that could have a significant impact on the Company's financial position during the next twelve months.