The following table is the reconciliation between the provision (benefit) for income taxes and the amount computed by applying the U.S.  Federal income tax rate of 35% to income before taxes: In connection with various investment arrangements, the Company has been granted a “holiday” from income taxes at one affiliate in  Asia for 2011 and two Asian affiliates in 2010 and 2009. These agreements began to expire at the end of 2010, with full expiration in 2018.  In total, the agreements reduced income tax expense by $1.0 million in 2011, $1.1 million in 2010 and had no effect on the 2009 income  tax expense. These savings resulted in an increase to earnings per diluted share of $0.01 in 2011 and $0.01 in 2010. Income tax expense includes U.S. and international income taxes. Except as required under U.S. tax law, management does not provide  U.S. taxes on our undistributed earnings of foreign subsidiaries that have not been previously taxed since management intends to invest  such undistributed earnings indefinitely outside the United States. Undistributed earnings of foreign subsidiaries that are indefinitely  outside of the U.S. were $559.0 million and $484.0 million at December 31, 2011 and December 31, 2010, respectively. Determination  of the unrecognized deferred tax liability that would be incurred if such amounts were repatriated is not practicable. The effect of temporary differences giving rise to deferred tax assets and liabilities at December 31, 2011 and 2010 was as follows: 2011 2010 2009 Income tax at the U.S. federal statutory rate  $ 243.9 $ 141.9 $ (33.0) Adjustments:  State and local income taxes, net of federal tax benefit   11.2   2.5   (2.6) Tax on foreign remittances and U.S. tax on foreign income  15.3   5.8   4.3  Foreign losses without current tax benefits  7.7   5.4   13.3  Foreign earnings taxed at different rates including tax holidays  (26.4)  (12.2)  (3.7) U.S. domestic manufacturing deduction  (6.6)  (3.5)  1.3  U.S. research tax credit   (1.5)  (2.2)  (3.0) Accruals and settlements related to tax audits  1.2   2.5   (1.7) Patient Protection and Affordable Care Act  –   21.6   –  Contributions to voluntary employee benefits association  –   (19.8)  –  Other items, net  (4.6)  (6.0)  (3.1) Provision (benefit) for income taxes  $ 240.2 $ 136.0 $ (28.2) Effective income tax rate  34.5% 33.5 % 29.9% 2011 2010 Deferred tax assets: Accrued postretirement benefits cost $ 144.5 $ 190.2 Accrued pension cost  254.3   185.6  Inventory  18.1   27.9  Other employee benefit accruals  10.1   7.1  Tax loss and credit carryforwards  141.7   140.4  Other, net  74.0   60.4  Valuation allowances  (179.7)  (174.9)  463.0   436.7  Deferred tax liabilities – principally depreciation and amortization  (218.0)  (221.5) Net deferred tax assets $ 245.0 $ 215.2 FINANCIAls ANd FOOTNOTEs THE TIMKEN COMPANY 79 Note 15 – Income Taxes (continued)