Income Taxes

The components of Income from continuing operations before income taxes and Income taxes follow:



	2011			2010			2009
Income (loss) from continuing operations before income taxes:
U.S.	$	19,341		$	(8,545	)	$	(7,920	)
International	97,548			72,350			50,880
Income from continuing operations before income taxes	$	116,889		$	63,805		$	42,960
Income tax provision:
Current:
U.S. – federal	$	11,829		$	578		$	(30	)
U.S. – state	805			758			203
International	11,695			9,958			7,486
	24,329			11,294			7,659
Deferred:
U.S. – federal	831			(423		)	(2,236		)
U.S. – state	928			(434		)	290
International	(772		)	(610		)	(5,583		)
	987			(1,467		)	(7,529		)
Income taxes	$25,316			$9,827			$130

Deferred income tax assets and liabilities at December 31 consist of the tax effects of temporary differences related to the following:



	Assets						Liabilities
	2011			2010			2011			2010
Allowance for doubtful accounts	$	767		$	1,171		$	71		$	70
Depreciation and amortization	708			2,541			12,359			12,060
Inventory valuation	12,890			11,018			1,109			992
Other postretirement/postemployment costs	20,945			20,889			(354		)	(321		)
Tax loss carryforwards	39,238			58,692			—			(1,349		)
Pension	43,998			20,747			23			125
Accrued compensation	6,885			11,073			—			—
Goodwill	(31,807		)	(28,337		)	633			635
Swedish tax incentive	—			—			3,922			4,169
Contingent convertible debt interest	(10,089		)	(25,046		)	—			—
Unrealized foreign currency (loss) gain	—			—			2,463			2,652
Other	9,636			10,459			1,867			3,664
	93,171			83,207			22,093			22,697
Valuation allowance	(16,681		)	(30,036		)	—			—
	$	76,490		$	53,171		$	22,093		$	22,697
Current deferred income taxes	$	28,829		$	10,449		$	1,431		$	1,667
Non-current deferred income taxes	47,661			42,722			20,662			21,030
	$	76,490		$	53,171		$	22,093		$	22,697

The standards related to accounting for income taxes require that deferred tax assets be reduced by a valuation allowance if, based on all available evidence, it is more likely than not that the deferred tax asset will not be realized. Available evidence includes the reversal of existing taxable temporary differences, future taxable income exclusive of temporary differences, taxable income in carryback years and tax planning strategies. The valuation allowance decreased $13,355 in 2011 primarily due to the sale of the BDE business.

Management believes that sufficient taxable income should be earned in the future to realize the remaining net deferred tax assets including tax operating loss carryforwards, principally in the United States. The realization of these assets is dependent in part on the amount and timing of future taxable income in the jurisdictions where deferred tax assets reside during the tax operating loss carryforward period. The Company has tax loss carryforwards of $118,149: $71,568 which relates to U.S. tax loss carryforwards which have carryforward periods ranging from 16 to 19 years for federal purposes and one to 19 years for state purposes; $45,598 which relates to international tax loss carryforwards with carryforward periods ranging from three to fifteen years; and $983 which relates to windfall tax benefits which will be recorded to additional paid-in capital when realized. In addition, the Company has tax credit carryforwards of $3,613 with remaining carryforward periods ranging from one year to unlimited. In the United States, the Company is not in a cumulative loss position (defined as pre-tax book income plus permanent tax items) over the last three years and does not currently project to be in a cumulative loss position through 2012. As the ultimate realization of the remaining net deferred tax assets is dependent upon future taxable income, if such future taxable income is not earned and it becomes necessary to recognize a valuation allowance, it could result in a material increase in the Company’s tax expense which could have a material adverse effect on the Company’s financial condition and results of operations.

The Company has not recognized deferred income taxes on $591,630 of undistributed earnings of its international subsidiaries, since such earnings are considered to be reinvested indefinitely. If the earnings were distributed in the form of dividends, the Company would be subject, in certain cases, to both U.S. income taxes and foreign withholding taxes. Determination of the amount of this unrecognized deferred income tax liability is not practicable. During 2011, the Company repatriated a dividend from a portion of current year foreign earnings to the U.S. in the amount of $17,500. As a result of the dividend, tax expense increased by $6,898 and the 2011 annual consolidated effective income tax rate increased by 5.9 percentage points.

A reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate from continuing operations follows:



	2011		2010		2009
U.S. federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State taxes (net of federal benefit)	0.9		0.4		0.7
Foreign losses without tax benefit	0.3		3.0		6.0
Foreign operations taxed at lower rates	(20.6	)	(28.0	)	(42.7	)
ESOP dividend	(0.3	)	(0.7	)	(1.7	)
Repatriation from current year foreign earnings	5.9		4.7		—
Other	0.5		1.0		3.0
Consolidated effective income tax rate	21.7	%	15.4	%	0.3	%

The Company was awarded multi-year Pioneer tax status by the Ministry of Trade and Industry in Singapore for the production of certain engine components by the aerospace aftermarket business of Logistics and Manufacturing Services, the earliest of which was granted in August 2005 retroactive to October 2003. Tax benefits of $7,185 ($0.13 per diluted share), $6,043 ($0.11 per diluted share) and $7,178 ($0.13 per diluted share) were realized in 2011, 2010 and 2009, respectively. In 2010, the Pioneer tax status for certain of the Company’s engine components was awarded a two-year extension. The Pioneer tax status is generally awarded for periods of seven to nine years from the effective date and the first two of which are scheduled to expire in the second half of 2012.

Income taxes paid globally, net of refunds, were $11,613, $9,599 and $11,372 in 2011, 2010 and 2009, respectively.

As of December 31, 2011, 2010 and 2009, the total amount of unrecognized tax benefits recorded in the consolidated balance sheet was $6,965, $7,102 and $7,017, respectively, which, if recognized, would have reduced the effective tax rate in those years. A reconciliation of the unrecognized tax benefits for 2011, 2010 and 2009 follows:



	2011			2010			2009
Balance at January 1	$	7,102		$	7,017		$	7,611
Increase (decrease) in unrecognized tax benefits due to:
Tax positions taken during prior periods	—			240			—
Tax positions taken during the current period	215			17			59
Settlements with taxing authorities	(175		)	—			(320		)
Lapse of the applicable statute of limitations	(177		)	(172		)	(333		)
Balance at December 31	$	6,965		$	7,102		$	7,017

The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense. The liability for unrecognized tax benefits included accrued interest of $0, $39 and $29 at December 31, 2011, 2010 and 2009, respectively.

The Company or its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by various taxing authorities, including the IRS in the U.S. and the taxing authorities in other major jurisdictions such as Brazil, Canada, France, Germany, Mexico, Singapore, Sweden, Switzerland and the United Kingdom. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2003. See Note 20 of the Consolidated Financial Statements for a discussion of current IRS matters.