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Income Taxes | 12 Months Ended
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Oct. 31, 2013
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 2013 was 4.9%. Our results include the fiscal year 2013 ETR, plus discrete items primarily the loss on divestiture of Aime, the decrease in the United Kingdom's tax rate and the reinstatement of the federal R&D credit. The ETR used to record the provision for income taxes for the fiscal year 2012 was 9.7%. 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 CooperSurgical'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. The components of income from continuing operations before income taxes and extraordinary items and the income tax provision related to income from all operations in our Consolidated Statements of Income consist of:
Years Ended October 31, (In thousands) | 2013 |  | 2012 |  | 2011
Income before income taxes: |  |  |  |  |
United States | $ | 38,911 |  |  | $ | 40,650 |  |  | $ | 5,449 |
Foreign | 273,360 |  |  | 234,802 |  |  | 187,315 |
| $ | 312,271 |  |  | $ | 275,452 |  |  | $ | 192,764 |
Income tax provision | $ | 15,365 |  |  | $ | 26,808 |  |  | $ | 17,334 |
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) | 2013 |  | 2012 |  | 2011
Current: |  |  |  |  |
Federal | $ | 21,605 |  |  | $ | 17,863 |  |  | $ | 11,448 |
State | 1,053 |  |  | 1,400 |  |  | 606 |
Foreign | 9,895 |  |  | 14,351 |  |  | 9,700 |
| 32,553 |  |  | 33,614 |  |  | 21,754 |
Deferred: |  |  |  |  |
Federal | (8,058 | ) |  | (3,573 | ) |  | (1,859 | )
State | (815 | ) |  | (851 | ) |  | (270 | )
Foreign | (8,315 | ) |  | (2,382 | ) |  | (2,291 | )
| (17,188 | ) |  | (6,806 | ) |  | (4,420 | )
Income tax provision | $ | 15,365 |  |  | $ | 26,808 |  |  | $ | 17,334 |
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) | 2013 |  | 2012 |  | 2011
Computed expected provision for taxes | $ | 109,295 |  |  | $ | 96,408 |  |  | $ | 67,468 |
(Decrease) increase in taxes resulting from: |  |  |  |  |
Income earned outside the United States subject to different tax rates | (97,002 | ) |  | (71,282 | ) |  | (56,877 | )
State taxes, net of federal income tax benefit | 525 |  |  | 294 |  |  | 218 |
Foreign source income subject to United States tax | 294 |  |  | — |  |  | — |
Research and development credit | (2,066 | ) |  | (131 | ) |  | (1,183 | )
Incentive stock option compensation and non-deductible employee compensation | 371 |  |  | 347 |  |  | (119 | )
Tax accrual adjustment | 2,854 |  |  | 665 |  |  | 7,167 |
Other, net | 1,094 |  |  | 507 |  |  | 660 |
Actual provision for income taxes | $ | 15,365 |  |  | $ | 26,808 |  |  | $ | 17,334 |
The tax effects of temporary differences that give rise to the deferred tax assets and liabilities are:
October 31, (In thousands) | 2013 |  | 2012
Deferred tax assets: |  |  |
Accounts receivable, principally due to allowances for doubtful accounts | $ | 1,145 |  |  | $ | 1,073 |
Inventories | 4,812 |  |  | 4,916 |
Litigation settlements | 184 |  |  | 199 |
Accrued liabilities, reserves and compensation accruals | 36,377 |  |  | 41,760 |
Restricted stock | 19,925 |  |  | 19,395 |
Net operating loss carryforwards | 5,514 |  |  | 3,563 |
Plant and equipment | 3,555 |  |  | 3,999 |
Research and experimental expenses - Section 59(e) | 5,318 |  |  | 6,815 |
Tax credit carryforwards | 11,091 |  |  | 8,700 |
Total gross deferred tax assets | 87,921 |  |  | 90,420 |
Less valuation allowance | (968 | ) |  | (1,107 | )
Deferred tax assets | 86,953 |  |  | 89,313 |
Deferred tax liabilities: |  |  |
Tax deductible goodwill | (21,575 | ) |  | (19,038 | )
Transaction cost | (1,144 | ) |  | (1,144 | )
Foreign deferred tax liabilities | (10,179 | ) |  | (19,365 | )
Other intangible assets | (20,195 | ) |  | (24,548 | )
Bonus adjustments under new accounting method | (1,300 | ) |  | (2,601 | )
Total gross deferred tax liabilities | (54,393 | ) |  | (66,696 | )
Net deferred tax assets | $ | 32,560 |  |  | $ | 22,617 |
Current deferred tax liabilities of $20 thousand at October 31, 2013, and $0.3 million at October 31, 2012, 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, 2013. 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 in purchase accounting deferred tax assets in connection with its acquisition of Origio a/s and subsidiaries. A valuation allowance of $1.1 million was recorded in the process for Origio's capital loss arising from a building write-down expense related to its former headquarters location in Jyllig, Denmark. During the fiscal third quarter of 2013, the Company revalued its deferred tax assets and liabilities residing in Denmark, along with the related valuation allowance, to reflect the newly enacted tax rate change that incrementally decreased the corporate tax rate. As a result, the valuation allowance was reduced to $1.0 million. The Company has not provided for federal income tax on approximately $1.4 billion of undistributed earnings of its foreign subsidiaries since the Company intends to reinvest this amount outside the United States indefinitely. At October 31, 2013, the Company had federal net operating loss carryforwards of $2.8 million and state net operating loss carryforwards of $33.9 million. The Company also had federal net operating loss carryforwards of $4.0 million related to share option exercises as of October 31, 2013. 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 also had $6.6 million of federal alternative minimum tax credits, $4.0 million of federal research credits and $0.5 million of California research credits. The federal net operating loss and federal research credits carryforwards expire on various dates between 2026 through 2033, and the federal alternative minimum tax credits carry forward indefinitely. The state net operating loss carryforwards expire on various dates between 2019 through 2023, 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 the Consolidated Statement 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, 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 |
(Decrease) from prior year's UTB's | (1.3 | )
Increase from current year's UTB's | 6.4 |
UTB (decrease) from tax authorities' settlements | — |
UTB (decrease) from expiration of statute of limitations | (6.8 | )
Increase of unrecorded UTB's | — |
Balance at October 31, 2013 | $ | 26.4 |
As of October 31, 2013, the Company had unrecognized tax benefits, that if recognized, would affect our effective tax rate, of $28.8 million, including $2.6 million of related accrued interest and penalties. 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, 2013, is $3.6 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 United States federal jurisdiction, various state and local jurisdictions, and many foreign jurisdictions. As of October 31, 2013, the tax years for which the Company remains subject to United States federal income tax assessment upon examination are 2010 through 2012. The Company remains subject to income tax examinations in other major tax jurisdictions including the United Kingdom, Japan, France and Australia for the tax years 2009 through 2012.

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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 Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 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=26873400&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 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: 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 6: 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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