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INCOME TAXES | 12 Months Ended
--- | ---
Dec. 31, 2012
INCOME TAXES |
INCOME TAXES | NOTE 5 INCOME TAXES Income before income taxes consists of:
Years Ended December 31, |  | 2012 |  | 2011 |  | 2010 |
United States |  | $ | 58,250 |  | $ | 54,161 |  | $ | 43,485 |
International |  |  | 183,123 |  |  | 220,781 |  |  | 210,900 |
Total |  | $ | 241,373 |  | $ | 274,942 |  | $ | 254,385 |
The provision for income taxes is comprised of:
Years Ended December 31, |  | 2012 |  | 2011 |  | 2010 |
--- | --- | --- | --- | --- | --- | --- | ---
Current: |  |  |  |  |  |  |  |  |  |
U.S. Federal |  | $ | 17,027 |  | $ | 21,974 |  | $ | 24,371 |
State/Local |  |  | 491 |  |  | 1,008 |  |  | (501 | )
International |  |  | 70,450 |  |  | 66,326 |  |  | 56,423 |
|  | $ | 87,968 |  | $ | 89,308 |  | $ | 80,293 |
Deferred: |  |  |  |  |  |  |  |  |  |
U.S. Federal/State |  | $ | 8,757 |  | $ | 2,976 |  | $ | (3,055 | )
International |  |  | (17,772 | ) |  | (972 | ) |  | 3,558 |
|  | $ | (9,015 | ) | $ | 2,004 |  | $ | 503 |
Total |  | $ | 78,953 |  | $ | 91,312 |  | $ | 80,796 |
The difference between the actual income tax provision and the tax provision computed by applying the statutory federal income tax rate of 35.0% in 2012, 2011 and 2010 to income before income taxes is as follows:
Years Ended December 31, |  | 2012 |  | 2011 |  | 2010 |
Income tax at statutory rate |  | $ | 84,481 |  | $ | 96,230 |  | $ | 89,035 |
State income taxes, net of federal benefit |  |  | 717 |  |  | 1,074 |  |  | (469 | )
Provision for distribution of current foreign earnings |  |  | 9,552 |  |  | 10,325 |  |  | 9,037 |
Rate differential on earnings of foreign operations |  |  | (14,865 | ) |  | (14,497 | ) |  | (14,440 | )
Other items, net |  |  | (932 | ) |  | (1,820 | ) |  | (2,367 | )
Actual income tax provision |  | $ | 78,953 |  | $ | 91,312 |  | $ | 80,796 |
Effective income tax rate |  |  | 32.7 | % |  | 33.2 | % |  | 31.8 | %
The tax provision for 2012 reflects the benefit of $0.7 million in Brazil related to claims filed under a program to encourage equity funding of Brazilian entities and deferred tax benefits of $1.8 million, due in part to the merger of some of the company's Indian operations. These benefits were partially offset by $0.7 million of additional expense created by tax law changes enacted in 2012 in France. The tax provision for 2011 reflects the benefit of $0.7 million in Brazil related to claims filed under a program to encourage equity funding of Brazilian entities. An income tax surcharge enacted in France in December 2011 resulted in additional tax expense of $1.2 million in 2011. The tax provision for 2010 reflects the benefit of $2.0 million in Brazil related to claims filed under a program intended to encourage equity funding of Brazilian entities. Additional U.S. state R&D credits of $1.4 million were also realized during 2010 as a result of increased profitability. Significant deferred tax assets and liabilities as of December 31, 2012 and 2011 are comprised of the following temporary differences:
|  | 2012 |  | 2011 |
--- | --- | --- | --- | --- | ---
Deferred Tax Assets: |  |  |  |  |  |  |
Pension liabilities |  | $ | 36,376 |  | $ | 23,005 |
Stock options |  |  | 15,700 |  |  | 6,704 |
Net operating loss carryforwards |  |  | 7,084 |  |  | 6,631 |
Vacation |  |  | 5,325 |  |  | 4,449 |
Inventory |  |  | 4,567 |  |  | 3,718 |
Workers compensation |  |  | 4,511 |  |  | 3,405 |
U.S. state tax credits |  |  | 3,441 |  |  | 2,697 |
Accruals |  |  | 2,502 |  |  | 3,104 |
Other |  |  | 8,213 |  |  | 5,495 |
Total gross deferred tax assets |  |  | 87,719 |  |  | 59,208 |
Less valuation allowance |  |  | (7,033 | ) |  | (6,326 | )
Net deferred tax assets |  |  | 80,686 |  |  | 52,882 |
Deferred Tax Liabilities: |  |  |  |  |  |  |
Depreciation and amortization |  |  | 50,683 |  |  | 40,063 |
Acquisition related intangibles |  |  | 19,346 |  |  | 2,288 |
Leases |  |  | 7,904 |  |  | 7,559 |
Total gross deferred tax liabilities |  |  | 77,933 |  |  | 49,910 |
Net deferred tax assets |  | $ | 2,753 |  | $ | 2,972 |
There is no expiration date on $5.4 million of the tax-effected net operating loss carryforwards. Of the remaining net operating loss carryforwards, $1.7 million (tax effected) will expire in the years 2013 to 2023. The U.S. state tax credit carryforwards of $3.4 million (tax effected) will expire in the years 2014 to 2027. The Company evaluates the deferred tax assets and records a valuation allowance when it is believed it is more likely than not that the benefit will not be realized. The Company has established a valuation allowance of $4.8 million of the $7.1 million of tax effected net operating loss carry forwards. These losses are in start-up jurisdictions or locations that have not produced an operating profit to date. A valuation allowance of $1.2 million has been established against the $3.4 million of U.S. state tax credit carry forwards. A valuation allowance of $1.0 million has been established related to other future tax deductions in non-U.S. jurisdictions, the benefit of which management believes will not be realized. The Company repatriated a portion of non-U.S. subsidiary earnings in 2012, 2011, and 2010 in the amounts of $79 million, $82 million, and $81 million, respectively. All of these amounts were received from our European operations except for $1.3 million from Canada in 2012. All repatriations from Europe were from current year earnings and not from funds previously considered permanently reinvested. The $1.3 million of Canadian funds were distributed as completion of our 2009 restructuring activities within Canada. The tax effects related to these repatriations were recorded in the period the repatriation decision was made. As of December 31, 2012, the Company had $1.1 billion of undistributed earnings from non-U.S. subsidiaries which have been designated as permanently reinvested. The Company has not made a provision for U.S. or additional foreign taxes on this amount as it is not practical to estimate the amount of additional tax that might be payable on these undistributed non-U.S. earnings. These earnings will continue to be reinvested indefinitely and could become subject to additional tax if they were remitted as dividends or lent to a U.S. affiliate, or if the Company should sell its stock in the subsidiaries. The Company has not provided for taxes on certain tax-deferred income of a foreign operation. The income arose predominately from government grants. Taxes of approximately $2.4 million would become payable in the event the terms of the grant are not fulfilled. In January 2013, the United States Congress passed The American Taxpayer Relief Act of 2012. Among other changes, this Act extended the federal research and development tax credit through December 31, 2013. The income tax provision for the first quarter of 2013 will include a discrete net tax benefit for the changes associated with the law changes. The Company does not expect the changes to have a material effect on the first quarter or annual effective tax rate. INCOME TAX UNCERTAINTIES The Company provides a liability for the amount of tax benefits realized from uncertain tax positions. A reconciliation of the beginning and ending amount of income tax uncertainties is as follows:
|  |  | 2012 |  | 2011 |  | 2010 |
--- | --- | --- | --- | --- | --- | --- | --- | ---
| Balance at January 1 |  | $ | 9,071 |  | $ | 10,893 |  | $ | 10,806 |
| Increases based on tax positions for the current year |  |  | 245 |  |  | 150 |  |  | 643 |
| Increases based on tax positions of prior years |  |  | 107 |  |  | 128 |  |  | 2,309 |
| Decreases based on tax positions of prior years |  |  | (257 | ) |  | (1,090 | ) |  | (1,362 | )
| Settlements |  |  | (21 | ) |  | (457 | ) |  | (381 | )
| Lapse of statute of limitations |  |  | (681 | ) |  | (553 | ) |  | (1,122 | )
| Balance at December 31 |  | $ | 8,464 |  | $ | 9,071 |  | $ | 10,893 |
The amount of income tax uncertainties that, if recognized, would impact the effective tax rate is $8.1 million. The Company estimates that it is reasonably possible that the liability for uncertain tax positions will decrease no more than $5 million in the next twelve months from the resolution of various uncertain positions as a result of the completion of tax audits, litigation and the expiration of the statute of limitations in various jurisdictions. The Company recognizes interest and penalties accrued related to unrecognized tax benefits as a component of income taxes. As of December 31, 2012, 2011 and 2010, the Company had approximately $1.3 million, $1.4 million and $1.6 million, respectively, accrued for the payment of interest and penalties, of which approximately ($0.1) million, ($0.2) million and ($0.2) million was recognized in income tax expense in the years ended December 31, 2012, 2011 and 2010, respectively. The Company or its subsidiaries file income tax returns in the U.S. Federal jurisdiction and various state and foreign jurisdictions. The major tax jurisdictions the Company files in, with the years still subject to income tax examinations, are listed below:
| Major Tax Jurisdiction |  | Tax Years Subject to Examination
--- | --- | --- | ---
| United States — Federal |  | 2009 – 2012
| United States — State |  | 2004 – 2012
| France |  | 2009 – 2012
| Germany |  | 2011 – 2012
| Italy |  | 2007 – 2012
| Switzerland |  | 2002 – 2012

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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