
14.	Income Taxes

Income from continuing operations for the three years ended December 31, was as follows:



	2013		2012		2011
U.S. operations	$	54,702	$	47,220	$	40,282
Foreign operations	5,176		12,670		8,448
Total	$	59,878	$	59,890	$	48,730

Income tax expense (benefit) for the three years ended December 31, was as follows:



	2013			2012			2011
Current:
Federal	$	13,551		$	8,158		$	10,321
Foreign	3,567			4,633			2,277
State	1,136			1,089			1,450
	$	18,254		$	13,880		$	14,048
Deferred:
Federal	$	1,856		$	4,423		$	2,330
Foreign	(424		)	(126		)	(203		)
State	(39		)	129			(158		)
	$	1,393		$	4,426		$	1,969
Total:
Federal	$	15,407		$	12,581		$	12,651
Foreign	3,143			4,507			2,074
State	1,097			1,218			1,292
Total Income Tax Expense	$	19,647		$	18,306		$	16,017

U.S. income taxes have not been provided on approximately $23,596 of undistributed earnings of non-U.S. subsidiaries. We do not have any plans to repatriate the undistributed earnings. Any repatriation from foreign subsidiaries that would result in incremental U.S. taxation is not being considered. It is management’s belief that reinvesting these earnings outside the U.S. is the most efficient use of capital.

We have Dutch and German tax loss carryforwards of approximately $18,046 and $15,674, respectively. If unutilized, the Dutch tax loss carryforward will expire after 9 years. The German tax loss carryforward has no expiration date. Because of the uncertainty regarding realization of the Dutch tax loss carryforward, a valuation allowance was established. This valuation allowance increased in 2013 due to results of operations.

We have U.S. foreign tax credit carryforwards of approximately $3,157. If unutilized, foreign tax credit carryforwards will expire in 2020. Based upon evaluation, as of December 31, 2013, no valuation allowance has been recorded. We have Dutch foreign tax credit carryforwards of $922. Because of the uncertainty regarding utilization of the Dutch foreign tax credit carryforward, a valuation allowance was established.

A valuation allowance for the remaining deferred tax assets is not required since it is more likely than not that they will be realized through carryback to taxable income in prior years, future reversals of existing taxable temporary differences and future taxable income.

Our effective income tax rate varied from the U.S. federal statutory tax rate for the three years ended December 31, as follows:



	2013		2012		2011
Tax at statutory rate	35.0	%	35.0	%	35.0	%
Increases (decreases) in the tax rate from:
State and local taxes, net of federal benefit	1.7		1.0		2.0
Effect of foreign operations	(3.3	)	(6.2	)	0.5
Effect of changes in valuation allowances	3.7		2.3		—
Domestic production activities deduction	(1.6	)	(1.5	)	(1.6	)
Other, net	(2.7	)	—		(3.0	)
Effective income tax rate	32.8	%	30.6	%	32.9	%

Deferred tax assets and liabilities were comprised of the following as of December 31:



	2013			2012			2011
Deferred Tax Assets:
Inventories, principally due to additional costs inventoried for tax purposes and changes in inventory reserves	$	—		$	28		$	426
Employee wages and benefits, principally due to accruals for financial reporting purposes	14,831			18,608			20,910
Warranty reserves accrued for financial reporting purposes	2,803			2,641			2,625
Receivables, principally due to allowance for doubtful accounts and tax accounting method for equipment rentals	1,593			1,540			1,464
Tax loss carryforwards	8,696			6,619			5,915
Tax credit carryforwards	4,078			6,720			8,554
Other	2,523			2,329			1,777
Gross Deferred Tax Assets	$	34,524		$	38,485		$	41,671
Less: valuation allowance	(7,243		)	(4,719		)	(3,229		)
Total Net Deferred Tax Assets	$	27,281		$	33,766		$	38,442
Deferred Tax Liabilities:
Inventories, principally due to changes in inventory reserves	$	306		$	—		$	—
Property, Plant and Equipment, principally due to differences in depreciation and related gains	7,446			7,945			9,167
Goodwill and Intangible Assets	6,253			6,818			7,093
Total Deferred Tax Liabilities	$	14,005		$	14,763		$	16,260
Net Deferred Tax Assets	$	13,276		$	19,003		$	22,182

The valuation allowance at December 31, 2013 principally applies to Dutch tax loss and tax credit carryforwards that, in the opinion of management, are more likely than not to expire unutilized. However, to the extent that tax benefits related to these carryforwards are realized in the future, the reduction in the valuation allowance will reduce income tax expense.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	2013			2012
Balance at January 1,	$	3,480		$	3,424
Increases as a result of tax positions taken during a prior period	155			—
Increases as a result of tax positions taken during the current year	508			611
Reductions as a result of a lapse of the applicable statute of limitations	(295		)	(447		)
Decreases as a result of foreign currency fluctuations	(188		)	(108		)
Balance at December 31,	$	3,660		$	3,480

Included in the balance of unrecognized tax benefits at December 31, 2013 and 2012 are potential benefits of $3,384 and $3,259, respectively, that if recognized, would affect the effective tax rate from continuing operations.

We recognize potential accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. In addition to the liability of $3,660 and $3,480 for unrecognized tax benefits as of December 31, 2013 and 2012 was approximately $525 and $462, respectively, for accrued interest and penalties. To the extent interest and penalties are not assessed with respect to uncertain tax positions, the amounts accrued will be revised and reflected as an adjustment to income tax expense.

We are subject to U.S. federal income tax as well as income tax of numerous state and foreign jurisdictions. We are generally no longer subject to U.S. federal tax examinations for taxable years before 2011 and, with limited exceptions, state and foreign income tax examinations for taxable years before 2007.

We are currently undergoing income tax examinations in various state and foreign jurisdictions covering 2007 to 2011. Although the final outcome of these examinations cannot be currently determined, we believe that we have adequate reserves with respect to these examinations.

We do not anticipate that total unrecognized tax benefits will change significantly within the next 12 months.