Note 14: Income Taxes

Income (loss) before income taxes consists of the following:


	2011		2010		2009
U.S.	$	202,476		104,036		31,449
Non-U.S.		184,505		127,815		(169,843	)
Income (loss) before income taxes	$	386,981		231,851		(138,394	)

The following table details the components of the provision for income taxes. A portion of these income taxes will be payable within one year and are, therefore, classified as current, while the remaining balance is deferred:


	2011			2010			2009
Current:
U.S. federal	$	69,164			31,459			18,351
U.S. state and local		5,283			2,392			2,060
Non-U.S.		41,084			24,646			17,345
Deferred:
U.S. federal		(3,048	)		1,680			(3,810	)
U.S. state and local		(825	)		1,518			(1,143	)
Non-U.S.		(4,219	)		(4,798	)		(7,898	)
Provision for income taxes	$	107,439			56,897			24,905

The U.S. federal corporate statutory rate is reconciled to the Company's effective income tax rate as follows:


	2011			2010			2009
U.S. federal corporate statutory rate		35.0	%		35.0	%		35.0	%
State and local taxes, less federal tax benefit		1.2			1.7			(0.7	)
Foreign income taxes		(6.7	)		(10.7	)		7.1
Goodwill impairment		—			—			(64.2	)
Manufacturing benefit		(1.2	)		(1.0	)		0.7
Repatriation, net of foreign financing tax effect		(0.3	)		(1.1	)		1.4
Other, net		(0.2	)		0.6			2.7
Effective income tax rate		27.8	%		24.5	%		(18.0	)%

The principal items that gave rise to deferred income tax assets and liabilities are as follows:


	2011			2010
Deferred tax assets:
Reserves and accruals	$	56,660			37,137
Postretirement benefits other than pensions		5,888			5,913
Postretirement benefits — pensions		12,483			14,075
Tax loss and interest carryforwards		26,952			32,375
Foreign tax credit carryforwards		5,545			6,825
Other		10,130			11,252
Total deferred tax assets		117,658			107,577
Valuation allowance		(11,948	)		(19,687	)
Deferred tax liabilities:
LIFO inventory		(3,242	)		(3,637	)
Property, plant and equipment		(20,590	)		(21,063	)
Intangibles		(115,103	)		(89,255	)
Other		(7,588	)		(1,464	)
Total deferred tax liabilities		(146,523	)		(115,419	)
Net deferred income tax liability	$	(40,813	)		(27,529	)

Total unrecognized tax benefits were $5.3 million and $4.5 million at December 31, 2011 and 2010, respectively. The net increase in this balance primarily relates to the recording of $2.4 million of unrecognized tax benefits pursuant to our acquisition of Robuschi S.p.A. on December 15, 2011, the settlement of tax audits in various U.S. and foreign jurisdictions, and benefits associated with the lapse of applicable statutes of limitations. Included in total unrecognized tax benefits at December 31, 2011 is $5.3 million of unrecognized tax benefits that would affect the Company's effective tax rate if recognized, of which $1.5 million would be offset by a reduction of a corresponding deferred tax asset. Included in total unrecognized tax benefits at December 31, 2010 is $4.5 million of unrecognized tax benefits that would affect the Company's effective tax rate if recognized, of which $2.3 million would be offset by a reduction of a corresponding deferred tax asset. The balance of total unrecognized tax benefits is not expected to significantly increase or decrease within the next twelve months. Below is the tabular reconciliation of the changes in total unrecognized tax benefits during the years ended December 31, 2011 and 2010:


	2011			2010
Total unrecognized tax benefits at January 1	$	4,510			5,238
Gross increases for tax positions of prior years		1,449			1,396
Gross decreases for tax positions of prior years		(364	)		(2,042	)
Gross increases for tax positions of current year		301			646
Increases due to acquisitions		2,412			—
Settlements		(1,434	)		(464	)
Lapse of statute of limitations		(1,513	)		(221	)
Changes due to currency fluctuations		(65	)		(43	)
Total unrecognized tax benefits at December 31	$	5,296			4,510

The Company includes interest expense and penalties related to unrecognized tax benefits as part of the provision for income taxes. The provision for income taxes includes interest and penalties in 2011, 2010 and 2009 of $0.4 million, $0.4 million, and $0.5 million, respectively. The Company's income tax liabilities at December 31, 2011 and 2010 include accrued interest of $0.2 million and $0.7 million, respectively, and accrued penalties of $0 and $0.3 million, respectively.

In 2011, the IRS completed its examination of the Company's federal income tax returns for the years 2008 and 2009. The settlement of the IRS audits did not have a material effect on the Company's financial statements, and all federal tax reserves and related tax assets for those tax years were reversed. The statutes of limitations for U.S. state tax returns are open beginning with the 2007 tax year, except for two states for which earlier periods have been extended.

The Company is subject to income tax in approximately 30 jurisdictions outside the U.S. The statute of limitations varies by jurisdiction with 2004 being the oldest tax year still open. The Company's significant operations outside the U.S. are located in the United Kingdom and Germany. In the United Kingdom, tax years prior to 2008 are closed. In Germany, generally, the tax years 2008 and beyond remain subject to examination. At the end of 2011, German tax audits through 2007 were finalized for 15 German subsidiaries without any material findings.

The Company had deferred tax assets associated with net operating loss and interest carryforwards from various jurisdictions of $27.0 million and $32.4 million as of December 31, 2011 and 2010, respectively. Valuation allowances associated with net operating loss carryforwards were $11.8 million and $19.7 million as of December 31, 2011 and 2010, respectively. The decreases in deferred tax assets and valuation allowances related to net operating loss carryforwards were primarily the result of the utilization of certain net operating losses in the United Kingdom which carried a full valuation allowance. Carryforwards related to interest expense unable to be deducted from current period income were approximately $12.4 million and $11.0 million at December 31, 2011 and 2010, respectively, and have an indefinite life. The expected expiration dates of our carryforwards as of December 31, 2011 and 2010 are as follows:


	December 31, 2011							December 31, 2010
	Tax Benefit		Valuation Allowance			Net Tax Benefit		Tax Benefit		Valuation Allowance			Net Tax Benefit
2011		—		—			—		561		(561	)		—
2012		205		(205	)		—		197		(197	)		—
2013		277		(242	)		35		462		(462	)		—
2014		215		(215	)		—		58		(58	)		—
2015		391		(112	)		279		346		(115	)		231
2016		344		(116	)		228		203		—			203
2017		—		—			—		—		—			—
2018		41		—			41		25		—			25
2019		124		—			124		59		—			59
2023		505		—			505		234		—			234
2024		674		—			674		695		—			695
2027		265		—			265		434		(434	)		—
2028		147		—			147		158		(158	)		—
2029		213		—			213		230		(230	)		—
2030		—		—			—		—		—			—
2031		—		—			—		—		—			—
Indefinite life		23,551		(10,870	)		12,681		28,713		(17,472	)		11,241
Total	$	26,952		(11,760	)		15,192	$	32,375		(19,687	)		12,688

U.S. deferred income taxes have not been provided on certain undistributed earnings of non-U.S. subsidiaries (approximately $449.4 million and $400.4 million as of December 31, 2011 and 2010, respectively) as the Company intends to reinvest such earnings indefinitely.