Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Abstract]  
Income Taxes
INCOME TAXES
Consolidated income from continuing operations before income taxes consisted of the following (in thousands):
 
 
Year Ended December 31,
 
 
2012
 
2011
 
2010
U.S. operations
 
$
73,625

 
$
68,412

 
$
59,881

Foreign operations
 
60,282

 
69,268

 
45,010

Income before income tax
 
$
133,907

 
$
137,680

 
$
104,891


The components of the provision (benefit) for income taxes consisted of the following (in thousands):
 
 
Year Ended December 31,
 
 
2012
 
2011
 
2010
Current:
 
 
 
 
 
 
Federal
 
$
14,365

 
$
16,384

 
$
24,419

State and local
 
876

 
1,995

 
4,060

Non-U.S.
 
12,448

 
19,508

 
23,253

 
 
27,689

 
37,887

 
51,732

Deferred:
 
 
 
 
 
 
Federal
 
5,806

 
407

 
(18,405
)
State and local
 
690

 
229

 
(1,223
)
Non-U.S.
 
(137
)
 
(4,322
)
 
(4,250
)
 
 
6,359

 
(3,686
)
 
(23,878
)
Income tax expense
 
$
34,048

 
$
34,201

 
$
27,854


The following is a reconciliation of the statutory federal income tax rate to the effective rate reported in the financial statements:
 
 
Year Ended December 31,
 
 
2012
 
2011
 
2010
 
 
(percent of income)
Provision for federal income taxes at the statutory rate
 
35.0
 %
 
35.0
 %
 
35.0
 %
State and local income taxes, net of federal benefit
 
1.7

 
1.5

 
2.7

Non-U.S. income taxed at different rates
 
(5.4
)
 
(6.5
)
 
(2.3
)
Foreign tax credits
 
—

 
(1.8
)
 
(3.5
)
Reduction of unrecognized tax benefits
 
(4.3
)
 
(3.5
)
 
(4.0
)
Research credits
 
(1.7
)
 
(0.6
)
 
(0.6
)
Other
 
0.1

 
0.7

 
(0.7
)
Actual provision for income taxes
 
25.4
 %
 
24.8
 %
 
26.6
 %

Significant components of the Company’s deferred taxes consisted of the following (in thousands):
 
 
December 31,
 
 
2012
 
2011
Deferred tax assets:
 
 
 
 
Non-deductible accruals and allowances
 
$
31,139

 
$
30,307

Capitalized inventory costs
 
25,294

 
25,814

Stock compensation
 
6,633

 
6,283

Net operating loss carryforwards
 
6,198

 
6,364

Depreciation and amortization
 
1,568

 
1,693

Tax credits
 
10,398

 
12,702

Other
 
755

 
1,121

Gross deferred tax assets
 
81,985

 
84,284

Valuation allowance
 
(6,935
)
 
(6,690
)
Net deferred tax assets
 
75,050

 
77,594

Deferred tax liabilities:
 
 
 
 
Deductible accruals and allowance
 
—

 
(801
)
Depreciation and amortization
 
(16,802
)
 
(12,320
)
Foreign currency loss
 
(2,313
)
 
(2,494
)
Other
 
(587
)
 
(596
)
Gross deferred tax liabilities
 
(19,702
)
 
(16,211
)
Total net deferred taxes
 
$
55,348

 
$
61,383


We record net deferred tax assets to the extent we believe these assets will more likely than not be realized.  In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. The Company had net operating loss carryforwards at December 31, 2012 and 2011 in certain international tax jurisdictions of $56,749,000 and $58,272,000, respectively, which will begin to expire in 2015. The net operating losses result in a deferred tax asset of $6,198,000 and $6,364,000 at December 31, 2012 and 2011, respectively, both of which were subject to a 100% valuation allowance. To the extent that the Company reverses a portion of the valuation allowance, the adjustment would be recorded as a reduction to income tax expense.
Non-current deferred tax assets of $6,293,000 and $11,605,000 are included as a component of other non-current assets in the consolidated balance sheet at December 31, 2012 and 2011, respectively.
The Company had undistributed earnings of foreign subsidiaries of approximately $284,611,000 at December 31, 2012 for which deferred taxes have not been provided. Such earnings are considered indefinitely invested outside of the United States. If these earnings were repatriated to the United States, the earnings would be subject to U.S. taxation. The amount of the unrecognized deferred tax liability associated with the undistributed earnings was approximately $70,218,000 at December 31, 2012. The unrecognized deferred tax liability approximates the excess of the United States tax liability over the creditable foreign taxes paid that would result from a full remittance of undistributed earnings.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):
 
 
December 31,
 
 
2012
 
2011
 
2010
Balance at beginning of period
 
$
14,316

 
$
18,694

 
$
20,183

Increases related to prior year tax positions
 
3,208

 
43

 
893

Decreases related to prior year tax positions
 
(19
)
 
(141
)
 
(27
)
Increases related to current year tax positions
 
2,049

 
1,388

 
1,278

Settlements
 
(1,817
)
 
(649
)
 
—

Expiration of statute of limitations
 
(5,306
)
 
(5,019
)
 
(3,633
)
Balance at end of period
 
$
12,431

 
$
14,316

 
$
18,694


Unrecognized tax benefits of $10,328,000 and $12,735,000 would affect the effective tax rate if recognized at December 31, 2012 and 2011, respectively.
The Company conducts business globally, and as a result, the Company or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Canada, China, France, Germany, Hong Kong, Italy, Japan, South Korea, Switzerland, the United Kingdom and the United States. The Company has effectively settled U.S. tax examinations of all years through 2008, with the exception of a 2008 income tax refund claim filed in 2012. The Company received a notification from the Internal Revenue Service ("IRS") dated February 15, 2013 indicating that its 2011 United States federal income tax return and its 2008-2010 amended federal income tax returns filed during 2012 have been selected for audit. Internationally, the Company has effectively settled Canadian and Korean tax examinations of all years through 2008, Swiss and French tax examinations of all years through 2009 and Japanese tax examinations of all years through 2010.  The Company is not currently under examination in any major jurisdictions. The Company does not anticipate that adjustments relative to ongoing tax audits will result in a material change to its consolidated financial position, results of operations or cash flows.
Due to the potential for resolution of income tax audits currently in progress, and the expiration of various statutes of limitation, it is reasonably possible that the unrecognized tax benefits balance may change within the twelve months following December 31, 2012 by a range of zero to $10,136,000. Open tax years, including those previously mentioned, contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing, or inclusion of revenue and expenses or the sustainability of income tax credits for a given examination cycle.
The Company recognizes interest expense and penalties related to income tax matters in income tax expense. The Company recognized a net reversal of accrued interest and penalties of $357,000 in 2012, a net reversal of accrued interest and penalties of $501,000 in 2011 and net accrued interest and penalties of $780,000 in 2010, all related to uncertain tax positions. The Company had $3,077,000 and $3,434,000 of accrued interest and penalties related to uncertain tax positions at December 31, 2012 and 2011, respectively.