7. Taxes on Income

The components of income before taxes and the related provision (benefit) for taxes on income for 2012, 2011 and 2010 are as follows:

	2012			2011			2010

Income (loss) before taxes and equity investee earnings:
Domestic	$	29,445		$	52,091		$	(71,012	)
International		75,369			113,192			114,804

Total	$	104,814		$	165,283		$	43,792

Federal income taxes (benefits):
Current provision	$	(7,298	)	$	13,265		$	36,221
Deferred provision		11,456			9,793			(57,016	)
International income taxes (benefits):
Current provision		23,835			24,420			10,139
Deferred provision		(20,436	)		(16,921	)		(8,110	)
State and other income taxes (benefits):
Current provision		2,397			2,626			940
Deferred provision		145			391			(5,829	)

Income tax provision (benefit)	$	10,099		$	33,574		$	(23,655	)

The differences between the provision for income taxes and income taxes computed using the Federal statutory income tax rate for 2012, 2011 and 2010 are as follows:



Taxes at statutory rate	35.0	%	35.0	%	35.0	%
State and local taxes, net of Federal benefit	1.6		1.2		1.1
Impact of international operations	(20.5	)	(17.0	)	(62.8	)
Previously unrecognized tax benefits	(10.1	)	(0.3	)	(31.0	)
Other, net	3.6		1.4		3.7

Total	9.6	%	20.3	%	(54.0	)%

Previously unrecognized tax benefits consist primarily of tax benefits recorded in connection with the favorable resolution of income tax audits and tax benefits resulting from tax positions taken in returns filed in each respective year.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2012 and 2011 are as follows:

	2012			2011

Current deferred taxes:
Liabilities/expenses not currently deductible	$	39,450		$	43,902
Deferred equity compensation		7,175			8,149
Net operating losses		—			943

Total current deferred tax assets		46,625			52,994

Current deferred tax liabilities:
Earnings not currently taxable		(1,722	)		(916	)

Net current deferred tax assets	$	44,903		$	52,078

Non-current deferred taxes:
Deferred tax assets:
Net operating losses	$	26,279		$	10,668
Deferred equity compensation		17,868			13,738
Liabilities/expenses not currently deductible		564			2,252

Total non-current deferred tax assets		44,711			26,658

Deferred tax liabilities:
Property and equipment		(61,950	)		(59,795	)
Earnings not currently taxable		(10,673	)		(9,158	)

Total non-current deferred tax liabilities		(72,623	)		(68,953	)

Net non-current deferred tax liabilities	$	(27,912	)	$	(42,295	)

As of December 31, 2012, Covance has foreign net operating loss carryforwards of $106.8 million. The net operating loss carryforwards have no expiration and it is expected that all loss carryforwards will be realized. Accordingly, no valuation allowance has been provided.

Covance currently provides income taxes on the earnings of foreign subsidiaries to the extent those earnings are taxable or are expected to be remitted. Covance's historical policy has been to leave its unremitted foreign earnings invested indefinitely outside the United States. Covance intends to continue to leave its unremitted foreign earnings invested indefinitely outside the United States. It is not practical to estimate the amount of additional tax that might be payable if such accumulated earnings were remitted. Additionally, if such accumulated earnings were remitted, certain countries impose withholding taxes that, subject to certain limitations, are available for use as a tax credit against any Federal income tax liability arising from such remittance. As a result, taxes have not been provided on accumulated foreign unremitted earnings totaling approximately $765 million at December 31, 2012.

The Company recognizes a tax benefit from an uncertain tax position only if the Company believes it is more likely than not to be sustained upon examination based on the technical merits of the position. The amount of the accrual for which an exposure exists is measured as the largest amount of benefit determined on a cumulative probability basis that the Company believes is more likely than not to be realized upon ultimate settlement of the position. Components of the reserve are classified as either a current or long-term liability in the consolidated balance sheet based on when the Company expects each of the items to be settled. Covance accrues interest and penalties in relation to unrecognized tax benefits as a component of income tax expense.

As of December 31, 2012 and 2011, the balance of the reserve for unrecognized tax benefits was $9.4 million and $16.4 million, respectively, which is recorded as a long-term liability in other liabilities on the consolidated balance sheet. Included in the balance of the reserve for unrecognized tax benefits at December 31, 2012 and 2011 is accrued interest of $0.6 million and $1.6 million, respectively. This reserve relates to exposures for income tax matters such as transfer pricing, nexus and deemed income. During the year ended December 31, 2012, the reserve for unrecognized tax benefits decreased by $7.0 million, primarily associated with the settlement of various income tax audits, partially offset by the accrual of additional reserves of $2.4 million, primarily relating to transfer pricing and the accrual of interest on existing reserves.

Following is a reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding accrued interest, for the years ended December 31, 2012, 2011 and 2010:

(dollars in millions)

Unrecognized tax benefits as of December 31, 2009	$	16.0
Additions related to tax positions in the prior year		3.8
Additions related to tax positions in the current year		1.9
Reductions due to settlements and payments		(7.2	)
Reductions due to statute expiration		(0.5	)

Unrecognized tax benefits as of December 31, 2010		14.0
Additions related to tax positions in the current year		3.0
Reductions due to settlements and payments		(1.9	)
Reductions due to statute expiration		(0.3	)

Unrecognized tax benefits as of December 31, 2011		14.8
Additions related to tax positions in the current year		2.2
Reductions due to settlements and payments		(7.9	)
Reductions due to statute expiration		(0.3	)

Unrecognized tax benefits as of December 31, 2012	$	8.8

Any future changes in the liability for unrecognized tax benefits, resulting from the recognition of tax benefits, would impact the effective tax rate. Over the next twelve months, it is reasonably possible that the uncertainty surrounding up to $1.0 million, including accrued interest of $0.1 million, of the reserve for unrecognized tax benefits related to certain income taxes, deemed income and transfer pricing will be resolved as a result of the expiration of the statute of limitations or the conclusion of various federal, state and foreign tax audits.

The following tax years remain open to investigation as of December 31, 2012, for the Company's major jurisdictions:

Tax Jurisdiction		Years

U.S. Federal and State			2007-2012
United Kingdom			2011-2012
Switzerland			2007-2012
Germany			2009-2012