INCOME TAXES

12 Months Ended

Dec. 31, 2012

IncomeTaxDisclosureAbstract

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13.       INCOME TAXES

Earnings before income taxes for the years ended December 31 consist of:

(In thousands)			2012		2011		2010
	Domestic	$	54,941	$	94,805	$	87,806
	Foreign		80,421		72,077		57,347
		$	135,362	$	166,882	$	145,153

The provision for income taxes for the years ended December 31 consists of:

(In thousands)			2012		2011		2010
Current:
	Federal	$	18,825	$	19,771	$	21,811
	State		5,086		5,519		6,974
	Foreign		23,033		19,632		15,663
			46,944		44,922		44,448
Deferred:
	Federal		758		6,840		5,517
	State		(1,122)		(697)		(208)
	Foreign		(5,172)		(3,235)		(1,630)
			(5,536)		2,908		3,679
Valuation allowance			1,665		432		(858)
Provision for income taxes		$	43,073	$	48,262	$	47,269

The effective tax rate varies from the U.S. federal statutory tax rate for the years ended December 31, principally:

	2012		2011		2010
U.S. federal statutory tax rate	35.0	%	35.0	%	35.0	%
Add (deduct):
State and local taxes, net of federal benefit	1.6		2.1		2.6
Rate changes	(0.2)		(0.3)		0.0
R&D tax credits	(1.0)		(4.7)		(3.9)
Foreign rate differential	(4.3)		(3.2)		(2.0)
All other, net	0.7		0.0		0.9
Effective tax rate	31.8	%	28.9	%	32.6	%

The 2012 effective tax rate was primarily impacted from a full year of income in certain foreign jurisdictions as well as changes in the amounts of domestic and foreign earnings. During 2011, a $4.1 million U.S. research and development tax credit was recognized in the current year that did not occur in the prior year. The 2011 rate change is primarily due to the U.K. decreasing it's statutory rate from 27% to 25%. The 2010 effective tax rate included a tax benefit of $4.2 million due to foreign cash repatriation. This was offset by a $0.8 million charge to write off a portion of deferred tax assets related to postretirement health care obligations. Health care legislation impacting the tax deductible prescription drug costs related to Medicare Part D will reduce the amount of the federal subsidy beginning in 2013 and reduce the deductible temporary difference relating to the benefit obligation. There was also a favorable impact as a result of a U.K. tax rate change which was offset by an unfavorable change in state tax rates. During 2010, the Company recorded a decrease of $1.0 million in the valuation allowance primarily related to the utilization of net operating loss carryforwards.

The components of the Corporation's deferred tax assets and liabilities at December 31 are as follows:

(In thousands)		2012		2011
Deferred tax assets:
	Environmental reserves	$	10,086	$	7,837
	Inventories		20,051		17,788
	Postretirement/postemployment benefits		13,992		13,757
	Incentive compensation		10,299		10,477
	Accrued vacation pay		5,373		5,227
	Warranty reserves		4,776		4,350
	Legal reserves		618		3,853
	Share-based payments		9,442		9,608
	Pension plans		92,736		77,193
	Net operating loss		10,017		6,817
	Deferred revenue		-		6,390
	Other		16,423		12,005
Total deferred tax assets			193,813		175,302
Deferred tax liabilities:
	Depreciation		50,469		47,434
	Goodwill amortization		53,949		47,156
	Other intangible amortization		76,008		30,318
	Other		4,596		5,722
Total deferred tax liabilities			185,022		130,630
	Valuation allowance		8,531		5,518
Net deferred tax assets		$	260	$	39,154

Deferred tax assets and liabilities are reflected on the Corporation's consolidated balance sheet at December 31 as follows:

(In thousands)		2012		2011
Net current deferred tax assets	$	50,760	$	54,275
Net current deferred tax liabilities		1,759		2,278
Net noncurrent deferred tax assets		1,709		12,137
Net noncurrent deferred tax liabilities		50,450		24,980
Net deferred tax assets	$	260	$	39,154

The Corporation has income tax net operating loss carryforwards related to international operations of approximately $26.7 million of which $19.2 million have an indefinite life and $7.5 million expire through 2021. The Corporation has state income tax net operating loss carryforwards of approximately $25.6 million which expire through 2032. The Corporation has recorded a deferred tax asset of $10 million reflecting the benefit of the loss carryforwards.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2012 in certain of the Corporation's foreign locations. Such objective evidence limits the ability to consider other subjective evidence such as projections for future growth. The Corporation has a valuation allowance of $8.5 million, as of December 31, 2012,in order to measure only the portion of the deferred tax asset that more likely than not will be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as projections for growth.

Income tax payments of $42.7 million were made in 2012, $47.6 million in 2011, and $55.7 million in 2010.

No provision has been made for U.S. federal or foreign taxes on certain foreign subsidiaries' undistributed earnings considered to be permanently reinvested, which at December 31, 2012 was $248.7 million. It is not practicable to estimate the amount of tax that would be payable if these amounts were repatriated to the United States; however, it is expected there would be minimal or no additional tax because of the availability of foreign tax credits.

The Corporation has recognized a liability for interest of $1.2 million and penalties of $0.8 million as of December 31, 2012.

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

(In thousands)		2012		2011		2010
Balance at January 1,	$	5,769	$	4,490	$	3,374
Additions for tax positions of prior periods		4,591		915		6
Additions for tax positions related to the current year		1,019		533		1,954
Settlements		(53)		(66)		(161)
Lapses of statute of limitations		(28)		(101)		(680)
Foreign currency translation		3		(2)		(3)
Balance at December 31,	$	11,301	$	5,769	$	4,490

In many cases the Corporation's uncertain tax positions are related to tax years that remain subject to examination by tax authorities. The following describes the open tax years, by major tax jurisdiction, as of December 31, 2012:

United States (Federal)	2008 - present
United States (Various states)	1998 - present
United Kingdom	2005 - present
Canada	2006 - present

It is reasonably possible that the amount of the remaining liability for unrecognized tax benefits could decrease by $3.9 through the next twelve months. Included in the total unrecognized tax benefits at December 31, 2012, 2011, and 2010 is $9.0 million, $4.0 million, and $2.9 million, respectively, which, if recognized,would favorably affect the effective income tax rate.