Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.8
Income Taxes
 12 Months Ended
Dec. 31, 2013
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,
 
 
2013
 
2012
 
2011
U.S. operations
 
$
88,561

 
$
73,625

 
$
68,412

Foreign operations
 
42,865

 
60,282

 
69,268

Income before income tax
 
$
131,426

 
$
133,907

 
$
137,680


The components of the provision (benefit) for income taxes consisted of the following (in thousands):
 
 
Year Ended December 31,
 
 
2013
 
2012
 
2011
Current:
 
 
 
 
 
 
Federal
 
$
14,953

 
$
14,365

 
$
16,384

State and local
 
1,999

 
876

 
1,995

Non-U.S.
 
14,178

 
12,448

 
19,508

 
 
31,130

 
27,689

 
37,887

Deferred:
 
 
 
 
 
 
Federal
 
11,363

 
5,806

 
407

State and local
 
(120
)
 
690

 
229

Non-U.S.
 
(4,550
)
 
(137
)
 
(4,322
)
 
 
6,693

 
6,359

 
(3,686
)
Income tax expense
 
$
37,823

 
$
34,048

 
$
34,201


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,
 
 
2013
 
2012
 
2011
 
 
(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
 
1.5

 
1.7

 
1.5

Non-U.S. income taxed at different rates
 
(3.7
)
 
(5.4
)
 
(6.5
)
Foreign tax credits
 
(0.5
)
 
—

 
(1.8
)
Reduction of unrecognized tax benefits
 
(1.9
)
 
(4.3
)
 
(3.5
)
Research credits
 
(2.1
)
 
(1.7
)
 
(0.6
)
Other
 
0.5

 
0.1

 
0.7

Actual provision for income taxes
 
28.8
 %
 
25.4
 %
 
24.8
 %

Significant components of the Company’s deferred taxes consisted of the following (in thousands):
 
 
December 31,
 
 
2013
 
2012
Deferred tax assets:
 
 
 
 
Non-deductible accruals and allowances
 
$
37,986

 
$
31,139

Capitalized inventory costs
 
22,589

 
25,294

Stock compensation
 
6,329

 
6,633

Net operating loss carryforwards
 
9,683

 
6,198

Depreciation and amortization
 
2,413

 
1,568

Tax credits
 
198

 
10,398

Other
 
1,055

 
755

Gross deferred tax assets
 
80,253

 
81,985

Valuation allowance
 
(8,633
)
 
(6,935
)
Net deferred tax assets
 
71,620

 
75,050

Deferred tax liabilities:
 
 
 
 
Depreciation and amortization
 
(20,243
)
 
(16,802
)
Foreign currency loss
 
(2,540
)
 
(2,313
)
Other
 
(810
)
 
(587
)
Gross deferred tax liabilities
 
(23,593
)
 
(19,702
)
Total net deferred taxes
 
$
48,027

 
$
55,348


The Company records 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, 2013 and 2012 in certain international tax jurisdictions of $76,525,000 and $56,749,000, respectively, which will begin to expire in 2015. The net operating losses result in deferred tax assets of $9,683,000 and $6,198,000 at December 31, 2013 and 2012, respectively. These deferred tax assets were subject to valuation allowances of $8,297,000 and $6,198,000 at December 31, 2013 and 2012, respectively. 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 $3,994,000 and $6,293,000 are included as a component of other non-current assets in the consolidated balance sheet at December 31, 2013 and 2012, respectively.
The Company had undistributed earnings of foreign subsidiaries of approximately $320,708,000 at December 31, 2013 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 $77,825,000 at December 31, 2013. 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.
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. Internationally, the Company has effectively settled Canadian and Korean tax examinations of all years through 2008, French tax examinations of all years through 2009 and Swiss and Japanese tax examinations of all years through 2010.  The Company received notification from the Korean National Tax Service on February 11, 2014, indicating that its 2009 and 2010 income tax returns have been selected for audit. The Company has effectively settled U.S. tax examinations of all years through 2009, with the exception of amended 2008 and 2009 income tax refund claims that are being reviewed by the Internal Revenue Service ("IRS"). The IRS commenced an examination of the Company's U.S. income tax returns for 2011 and 2012 in the second quarter and fourth quarter of 2013, respectively. It is anticipated that these examinations will be completed by the end of 2014. The Company does not anticipate that adjustments relative to ongoing tax audits will result in a material changes to its consolidated financial position, results of operations or cash flows.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):
 
 
December 31,
 
 
2013
 
2012
 
2011
Balance at beginning of period
 
$
12,431

 
$
14,316

 
$
18,694

Increases related to prior year tax positions
 
252

 
3,208

 
43

Decreases related to prior year tax positions
 
(332
)
 
(19
)
 
(141
)
Increases related to current year tax positions
 
4,281

 
2,049

 
1,388

Settlements
 
(84
)
 
(1,817
)
 
(649
)
Expiration of statute of limitations
 
(1,909
)
 
(5,306
)
 
(5,019
)
Balance at end of period
 
$
14,639

 
$
12,431

 
$
14,316


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, 2013 by a range of zero to $14,077,000. 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.
Unrecognized tax benefits of $12,679,000 and $10,328,000 would affect the effective tax rate if recognized at December 31, 2013 and 2012, respectively.
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 $253,000, $357,000 and $501,000 in 2013, 2012 and 2011, respectively, all of which related to uncertain tax positions. The Company had $2,823,000 and $3,077,000 of accrued interest and penalties related to uncertain tax positions at December 31, 2013 and 2012, respectively.