
14.	Income Taxes

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



	2012		2011		2010
U.S. operations	$	47,220	$	40,282	$	26,297
Foreign operations	12,670		8,448		8,430
Total	$	59,890	$	48,730	$	34,727

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



	2012			2011			2010
Current:
Federal	$	8,158		$	10,321		$	6,756
Foreign	4,633			2,277			3,005
State	1,089			1,450			1,214
	$	13,880		$	14,048		$	10,975
Deferred:
Federal	$	4,423		$	2,330		$	(10,541	)
Foreign	(126		)	(203		)	(248		)
State	129			(158		)	(262		)
	$	4,426		$	1,969		$	(11,051	)
Total:
Federal	$	12,581		$	12,651		$	(3,785	)
Foreign	4,507			2,074			2,757
State	1,218			1,292			952
	$	18,306		$	16,017		$	(76	)

U.S. income taxes have not been provided on approximately $21,277 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 $10,136 and $15,292, 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 2012 due to results of operations.

We have foreign tax credit carryforwards of approximately $6,034. If unutilized, foreign tax credit carryforwards will expire in 2020. Based upon evaluation, as of December 31, 2012, no valuation allowance has been recorded. We have Dutch foreign tax credit carryforwards of $687. Because of the uncertainty regarding utilization of the Dutch foreign tax credit carryforward, a valuation allowance was established during 2012 that impacted Net Earnings by $687.

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, was as follows:



	2012		2011		2010
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	1.0		2.0		0.7
Effect of foreign operations	(6.2	)	0.5		0.5
International restructuring	—		—		(31.4	)
Effect of changes in valuation allowances	2.3		—		0.1
Domestic production activities deduction	(1.5	)	(1.6	)	(3.0	)
Other, net	—		(3.0	)	(2.1	)
Effective income tax rate	30.6	%	32.9	%	(0.2	)%

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



	2012			2011			2010
Deferred tax assets:
Inventories, principally due to additional costs inventoried for tax purposes and changes in inventory reserves	$	28		$	426		$	1,081
Employee wages and benefits, principally due to accruals for financial reporting purposes	18,608			20,910			17,948
Warranty reserves accrued for financial reporting purposes	2,641			2,625			2,175
Accounts receivable, principally due to allowance for doubtful accounts and tax accounting method for equipment rentals	1,540			1,464			1,252
Tax loss carryforwards	6,619			5,915			12,725
Valuation allowance	(4,719		)	(3,229		)	(9,170		)
Tax credit carryforwards	6,720			8,554			10,119
Other	2,329			1,777			1,937
Total deferred tax assets	$	33,766		$	38,442		$	38,067
Deferred tax liabilities:
Property, Plant and Equipment, principally due to differences in depreciation and related gains	$	7,945		$	9,167		$	8,562
Goodwill and Intangible Assets	6,818			7,093			8,390
Total deferred tax liabilities	$	14,763		$	16,260		$	16,952
Net deferred tax assets	$	19,003		$	22,182		$	21,115

The valuation allowance at December 31, 2012, 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:



	2012			2011
Balance at January 1,	$	3,424		$	5,272
Decreases as a result of tax positions taken during a prior period	—			(765		)
Increases as a result of tax position taken during the current year	611			828
Decreases relating to settlements with taxing authorities	—			(193		)
Reductions as a result of a lapse of the applicable statute of limitations	(447		)	(1,551		)
Decreases as a result of foreign currency fluctuations	(108		)	(167		)
Balance at December 31,	$	3,480		$	3,424

Included in the balance of unrecognized tax benefits at December 31, 2012 and 2011 are potential benefits of $3,259 and $3,209, 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 $3,480 and $3,424 for unrecognized tax benefits as of December 31, 2012 and 2011 was approximately $462 and $427, 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 2004.

The Internal Revenue Service completed its examination of the U.S. income tax returns for the years 2009 and 2010 during the third quarter of 2012. The IRS's adjustments to certain tax positions were not material and were fully reserved. We are currently undergoing income examinations in various state and foreign jurisdictions covering 2004 to 2010. 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.