ManageMent’s Discussion anDanalysis of financial conDition anD Results of opeRations Income taxes: Other loss reserves: OThER DIsclOsuREs: Foreign Currency Trade Law Enforcement The Company, which is subject to income taxes in the United States and numerous non-U.S. jurisdictions, accounts for income taxes in  accordance with ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recorded for the future tax consequences attributable  to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well  as net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected  to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The Company records  valuation allowances against deferred tax assets by tax jurisdiction when it is more likely than not that such assets will not be  realized. In determining the need for a valuation allowance, the historical and projected financial performance of the entity recording  the net deferred tax asset is considered along with any other pertinent information. Net deferred tax assets relate primarily to  pension and postretirement benefit obligations in the United States, which the Company believes are more likely than not to result  in future tax benefits. In the ordinary course of the Company’s business, there are many transactions and calculations where the ultimate income tax  determination is uncertain. The Company is regularly under audit by tax authorities. Accruals for uncertain tax positions are provided  for in accordance with the requirements of ASC 740-10. The Company records interest and penalties related to uncertain tax positions  as a component of income tax expense. Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, valuation  allowances against deferred tax assets, and accruals for uncertain tax positions. The Company has a number of loss exposures that are incurred in the ordinary course of business such as environmental claims,  product liability, product warranty, litigation and accounts receivable reserves. Establishing loss reserves for these matters requires  management’s estimate and judgment with regards to risk exposure and ultimate liability or realization. These loss reserves are  reviewed periodically and adjustments are made to reflect the most recent facts and circumstances. Assets and liabilities of subsidiaries are translated at the rate of exchange in effect on the balance sheet date; income and expenses  are translated at the average rates of exchange prevailing during the reporting period. Related translation adjustments are reflected as  a separate component of accumulated other comprehensive loss. Foreign currency gains and losses resulting from transactions are  included in the Consolidated Statements of Income. The Company recognized a foreign currency exchange loss of $1.4 million for the year ended December 31, 2011 after recognizing  foreign currency exchange gains of $4.3 million and $8.2 million during the years ended December 31, 2010 and 2009, respectively.  For the year ended December 31, 2011, the Company recorded a negative non-cash foreign currency translation adjustment of $48.5  million that decreased shareholders’ equity, compared to a negative non-cash foreign currency translation adjustment of $5.2 million  that decreased shareholders’ equity for the year ended December 31, 2010. The foreign currency translation adjustments for the year  ended December 31, 2011 were negatively impacted by the strengthening of the U.S. dollar relative to other currencies such as the  Indian rupee, the South African rand, the Polish zloty, the Brazilian real, the Canadian dollar and the Euro. The U.S. government has an antidumping duty order in effect covering tapered roller bearings from China. The Company is a producer of  these bearings in the United States. The U.S. government is currently conducting a review of whether or not this order should continue  in place for an additional five years. The U.S. government also had antidumping duty orders in effect on ball bearings from France,  Germany, Italy, Japan, and the United Kingdom. The Company produces ball bearings in the U.S. The ball bearing orders on France,  Germany, and Italy were sunset effective September, 2011 and are hence revoked. The ball bearing orders on Japan and the U.K. were  sunset by a court order in July, 2011. That court decision, however, is now under appeal by the U.S. International Trade Commission, and  the Company. 40 THE TIMKEN COMPANY