Income Taxes

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



	2012			2011			2010
Income (loss) from continuing operations before income taxes:
U.S.	$	34,393		$	19,341		$	(8,545	)
International	87,254			97,548			72,350
Income from continuing operations before income taxes	$	121,647		$	116,889		$	63,805
Income tax provision:
Current:
U.S. – federal	$	75		$	11,829		$	578
U.S. – state	1,215			805			758
International	13,417			11,695			9,958
	14,707			24,329			11,294
Deferred:
U.S. – federal	13,794			831			(423		)
U.S. – state	566			928			(434		)
International	(5,717		)	(772		)	(610		)
	8,643			987			(1,467		)
Income taxes	$	23,350		$	25,316		$	9,827

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



	Assets						Liabilities
	2012			2011			2012			2011
Allowance for doubtful accounts	$	946		$	767		$	78		$	71
Depreciation and amortization	(13,881		)	708			35,245			12,359
Inventory valuation	15,486			12,890			1,288			1,109
Other postretirement/postemployment costs	20,841			20,945			(350		)	(354		)
Tax loss carryforwards	48,402			39,238			—			—
Pension	41,854			43,998			(262		)	23
Accrued compensation	12,611			6,885			—			—
Goodwill	(35,236		)	(31,807		)	53			633
Swedish tax incentive	—			—			3,898			3,922
Contingent convertible debt interest	(10,846		)	(10,089		)	—			—
Unrealized foreign currency gain	—			—			2,613			2,463
Other	8,626			9,636			7,921			1,867
	88,803			93,171			50,484			22,093
Valuation allowance	(24,936		)	(16,681		)	—			—
	$	63,867		$	76,490		$	50,484		$	22,093
Current deferred income taxes	$	33,906		$	28,829		$	1,777		$	1,431
Non-current deferred income taxes	29,961			47,661			48,707			20,662
	$	63,867		$	76,490		$	50,484		$	22,093

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 increased $8,255 in 2012 primarily due to the acquisition of the Synventive 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 $150,126: $69,709 which relates to U.S. tax loss carryforwards which have carryforward periods ranging from 17 to 19 years for federal purposes and one to 19 years for state purposes; $74,225 which relates to international tax loss carryforwards with carryforward periods ranging from three to 15 years; and $6,192 which relates to international tax loss carryforwards with unlimited carryforward periods. Of the total tax loss carryforwards in the US, $12,977 are a result of the acquisition of Synventive in the third quarter. These acquired tax loss carryforwards are subject to certain IRS limitations. The acquired tax loss carryforwards have not been reserved as a result of these limitations as it is not expected to affect the utilization of those assets. In addition, the Company has tax credit carryforwards of $3,730 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 2013. 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 $665,924 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 income and withholding taxes. Determination of the amount of this unrecognized deferred income tax liability is not practicable. During 2012, the Company repatriated a dividend from a portion of current year foreign earnings to the U.S. in the amount of $8,000. As a result of the dividend, tax expense increased by $2,131 and the 2012 annual consolidated effective income tax rate increased by 1.8 percentage points.

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



	2012		2011		2010
U.S. federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State taxes (net of federal benefit)	0.9		0.9		0.4
Foreign losses without tax benefit	0.6		0.3		3.0
Foreign operations taxed at lower rates	(18.3	)	(20.6	)	(28.0	)
ESOP dividend	(0.4	)	(0.3	)	(0.7	)
Repatriation from current year foreign earnings	1.8		5.9		4.7
Other	(0.4	)	0.5		1.0
Consolidated effective income tax rate	19.2	%	21.7	%	15.4	%

The Company was awarded a number of multi-year Pioneer tax status certificates (the "certificates") by the Ministry of Trade and Industry in Singapore for the production of certain engine components by the Aerospace aftermarket business, the earliest of which was granted in August 2005 retroactive to October 2003. Tax benefits of $6,026 ($0.11 per diluted share), $7,185 ($0.13 per diluted share) and $6,043 ($0.11 per diluted share) were realized in 2012, 2011 and 2010, respectively. The certificates are subject to the Company meeting certain capital expenditure and workforce commitments. The first certificate expired in September of 2012, the next certificate is scheduled to expire in the first quarter of 2013 and the remaining certificates are scheduled to expire in the subsequent two years, unless extensions are granted.

Income taxes paid globally, net of refunds, were $15,876, $11,613 and $9,599 in 2012, 2011 and 2010, respectively.

As of December 31, 2012, 2011 and 2010, the total amount of unrecognized tax benefits recorded in the consolidated balance sheet was $9,321, $6,965 and $7,102, respectively, which, if recognized, would have reduced the effective tax rate in those years. A reconciliation of the unrecognized tax benefits for 2012, 2011 and 2010 follows:



	2012			2011			2010
Balance at January 1	$	6,965		$	7,102		$	7,017
Increase (decrease) in unrecognized tax benefits due to:
Tax positions taken during prior periods	—			—			240
Tax positions taken during the current period	—			215			17
Acquisition	2,528			—			—
Settlements with taxing authorities	(172		)	(175		)	—
Lapse of the applicable statute of limitations	—			(177		)	(172		)
Balance at December 31	$	9,321		$	6,965		$	7,102

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, $0 and $39 at 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. 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, China, 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 19 of the Consolidated Financial Statements for a discussion of current IRS matters.