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Income Taxes | 12 Months Ended
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Oct. 31, 2012
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Cooper's effective tax rate (ETR) (provision for income taxes divided by pretax income) for the fiscal year 2012 was 9.7%. Our results include the fiscal year ETR, plus any discrete items. The ETR used to record the provision for income taxes for the fiscal year 2011 was 9.0%. The ETR is below the United States statutory rate as a majority of our income is earned in foreign jurisdictions with lower tax rates reflecting the shift in the geographic mix of income during recent periods with income earned in foreign jurisdictions increasing as compared to income earned in the United States. As a result, the ratio of domestic income to worldwide income, primarily within CooperVision along with CooperSurigical's July 2012 acquisition of Origio, has decreased over recent fiscal periods. A reduction in the ratio of domestic income to worldwide income effectively lowers the overall tax rate due to the fact that the tax rates in the majority of foreign jurisdictions where the Company operates are significantly lower than the statutory rate in the United States. The completion of the Company's restructuring plan to close a CooperVision manufacturing facility, located in Norfolk, Virginia, with the manufacturing demand subsequently absorbed by our plants in the United Kingdom and Puerto Rico contributed to this change in the geographic mix of income. As a result of this restructuring, substantially all of CooperVision's contact lens products are manufactured outside of the United States. Additionally, in fiscal 2011, the Company recorded a $16.5 million domestic loss on the repurchase of its Senior Notes that included the write off of about $4.4 million of unamortized costs and the redemption premium of $12.1 million. This impacted the Company's tax provision and further reduced the overall effective tax rate. The components of income from continuing operations before income taxes and extraordinary items and the income tax provision (benefit) related to income from all operations in our Consolidated Statements of Income consist of:
Years Ended October 31, (In thousands) | 2012 |  | 2011 |  | 2010
Income (loss) before income taxes: |  |  |  |  |
United States | $ | 40,650 |  |  | $ | 5,449 |  |  | $ | (613 | )
Foreign | 234,802 |  |  | 187,315 |  |  | 125,039 |
| $ | 275,452 |  |  | $ | 192,764 |  |  | $ | 124,426 |
Income tax provision | $ | 26,808 |  |  | $ | 17,334 |  |  | $ | 11,623 |
The income tax provision (benefit) related to income from continuing operations in our Consolidated Statements of Income consists of:
Years Ended October 31, (In thousands) | 2012 |  | 2011 |  | 2010
Current: |  |  |  |  |
Federal | $ | 17,863 |  |  | $ | 11,448 |  |  | $ | 3,963 |
State | 1,400 |  |  | 606 |  |  | 1,602 |
Foreign | 14,351 |  |  | 9,700 |  |  | 7,813 |
| 33,614 |  |  | 21,754 |  |  | 13,378 |
Deferred: |  |  |  |  |
Federal | (3,573 | ) |  | (1,859 | ) |  | (1,731 | )
State | (851 | ) |  | (270 | ) |  | (1,287 | )
Foreign | (2,382 | ) |  | (2,291 | ) |  | 1,263 |
| (6,806 | ) |  | (4,420 | ) |  | (1,755 | )
Income tax provision | $ | 26,808 |  |  | $ | 17,334 |  |  | $ | 11,623 |
We reconcile the provision for income taxes attributable to income from operations and the amount computed by applying the statutory federal income tax rate of 35% to income before income taxes as follows:
Years Ended October 31, (In thousands) | 2012 |  | 2011 |  | 2010
Computed expected provision for taxes | $ | 96,408 |  |  | $ | 67,468 |  |  | $ | 43,549 |
(Decrease) increase in taxes resulting from: |  |  |  |  |
Income earned outside the United States subject to different tax rates | (71,282 | ) |  | (56,877 | ) |  | (33,912 | )
State taxes, net of federal income tax benefit | 294 |  |  | 218 |  |  | 206 |
Research and development credit | (131 | ) |  | (1,183 | ) |  | (525 | )
Incentive stock option compensation and non-deductible employee compensation | 347 |  |  | (119 | ) |  | (50 | )
Tax accrual adjustment | 665 |  |  | 7,167 |  |  | 2,640 |
Other, net | 507 |  |  | 660 |  |  | (285 | )
Actual provision for income taxes | $ | 26,808 |  |  | $ | 17,334 |  |  | $ | 11,623 |
The tax effects of temporary differences that give rise to the deferred tax assets and liabilities are:
October 31, (In thousands) | 2012 |  | 2011
Deferred tax assets: |  |  |
Accounts receivable, principally due to allowances for doubtful accounts | $ | 1,073 |  |  | $ | 1,017 |
Inventories | 4,916 |  |  | 4,325 |
Litigation settlements | 199 |  |  | 183 |
Accrued liabilities, reserves and compensation accruals | 41,760 |  |  | 31,856 |
Restricted stock | 19,395 |  |  | 19,341 |
Net operating loss carryforwards | 3,563 |  |  | 8,159 |
Plant and equipment | 3,999 |  |  | 2,778 |
Research and experimental expenses - Section 59(e) | 6,815 |  |  | 8,311 |
Tax credit carryforwards | 8,700 |  |  | 7,629 |
Total gross deferred tax assets | 90,420 |  |  | 83,599 |
Less valuation allowance | (1,107 | ) |  | — |
Deferred tax assets | 89,313 |  |  | 83,599 |
Deferred tax liabilities: |  |  |
Tax deductible goodwill | (19,038 | ) |  | (16,804 | )
Transaction cost | (1,144 | ) |  | (1,144 | )
Foreign deferred tax liabilities | (19,365 | ) |  | (11,005 | )
Other intangible assets | (24,548 | ) |  | (15,610 | )
Bonus adjustments under new accounting method | (2,601 | ) |  | (3,901 | )
Total gross deferred tax liabilities | (66,696 | ) |  | (48,464 | )
Net deferred tax assets | $ | 22,617 |  |  | $ | 35,135 |
Current deferred tax liabilities of $0.3 million at October 31, 2012, and $0.3 million at October 31, 2011, are included in other accrued liabilities on the balance sheet. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at October 31, 2012. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. During the year ended October 31, 2012, the Company recorded deferred tax assets in purchase accounting in connection with its acquisition of Origio a/s and subsidiaries. Also, a valuation allowance of $1.1 million was recorded for Origio's capital loss arising from a building write-down expense related to its former headquarters location in Jyllig, Denmark. The Company has not provided for federal income tax on approximately $1.1 billion of undistributed earnings of its foreign subsidiaries since the Company intends to reinvest this amount outside the U.S. indefinitely. At October 31, 2012, the Company had federal net operating loss carryforwards of $2.7 million and state net operating loss carryforwards of $34.6 million. The Company also had federal net operating loss carryforwards of $7.9 million related to share option exercises as of October 31, 2012. A tax benefit and a credit to additional paid-in capital for the excess deduction would not be recognized until such deduction reduces taxes payable. Additionally, the Company had $6.5 million of federal alternative minimum tax credits, $2.0 million of federal research credits and $0.3 million of California research credits. The federal net operating loss and federal research credits carryforwards expire on various dates between 2026 through 2032, and the federal alternative minimum tax credits carry forward indefinitely. The state net operating loss carryforwards expire on various dates between 2019 through 2022, and the California research credits carry forward indefinitely. The net operating loss and other tax credits may be subject to certain limitations upon utilization under Section 382 of the Internal Revenue Code. The Company adopted the provisions of the interpretation of ASC 740-10-25-5 through 25-17, Basic Recognition Threshold , formerly FIN 48, on November 1, 2007. As a result of the adoption, the Company reduced its net liability for unrecognized tax benefits (UTB), previously classified in current taxes payable, by $5.3 million, which was accounted for as an increase to retained earnings. The interpretation also provides guidance on how the interest and penalties related to tax positions may be recorded and classified within our Consolidated Statements of Income and presented in the Consolidated Balance Sheet. We classify interest expense and penalties related to uncertain tax positions as additional income tax expense. The aggregated changes in the balance of gross unrecognized tax benefits were as follows:
(In millions) |
Balance at October 31, 2010 | $ | 19.7 |
Increase from prior year's UTB's | — |
Increase from current year's UTB's | 8.9 |
UTB (decrease) from tax authorities' settlements | — |
UTB (decrease) from expiration of statute of limitations | (1.2 | )
Increase of unrecorded UTB's | — |
Balance at October 31, 2011 | 27.4 |
(Decrease) from prior year's UTB's | (1.0 | )
Increase from current year's UTB's | 4.6 |
UTB (decrease) from tax authorities' settlements | (0.9 | )
UTB (decrease) from expiration of statute of limitations | (2.0 | )
Increase of unrecorded UTB's | — |
Balance at October 31, 2012 | $ | 28.1 |
As of October 31, 2012, the Company had $29.5 million of unrecognized tax benefits, including $2.6 million of related accrued interest and penalties that, if recognized, would affect our effective tax rate. It is the Company's policy to recognize interest and penalties directly related to incomes taxes as additional income tax expense. Included in the balance of unrecognized tax benefits at October 31, 2012, is $5.0 million related to tax positions for which it is reasonably possible that the total amounts could significantly change during the next twelve months. This amount represents a decrease in unrecognized tax benefits related to expiring statutes in various jurisdictions worldwide and is comprised of transfer pricing and other items. The Company is required to file income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions, and many foreign jurisdictions. On April 1, 2011, the Internal Revenue Service (IRS) issued a Notice of Deficiency to the Company in connection with its audit of the Company’s income tax returns for the years 2005 and 2006. The Notice asserted that the Company is subject to additional taxes due for its tax year 2005 under the anti-deferral provisions of Subpart F of the Internal Revenue Code. A settlement concerning the 2005 claimed deficiency was subsequently reached with District Counsel for the IRS which effectively settled all related matters. The decision document was filed with the U.S. Tax Court on January 19, 2012, with an agreed net deficiency of about $50 thousand. As of October 31, 2012, the tax years for which the Company remains subject to United States Federal income tax assessment upon examination are 2009 through 2011. The Company remains subject to income tax examinations in other major tax jurisdictions including the United Kingdom, France and Australia for the tax years 2007 through 2011.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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