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Income Taxes | 12 Months Ended
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Dec. 31, 2011
Income Taxes [Abstract] |
Income Taxes | 7. Income Taxes The following tables present components of income tax expense and income/(loss) before income taxes on continuing operations:
(in thousands) | 2011 |  | 2010 |  | 2009
Income tax based on income from continuing operations, at estimated tax rates of 34%, 31%, and 20%, respectively | $21,011 |  | $16,904 |  | ($11,730)
Provision for gain on extinguishment of debt | - |  | - |  | 20,276
Redemption of life insurance policies | - |  | 9,382 |  | -
Income tax from continuing operations before discrete items | 21,011 |  | 26,286 |  | 8,546
Discrete tax expense/(benefit): |  |  |  |  |
Change in tax status | (3,344) |  | (161) |  | 1,848
Enacted legislation change | 115 |  | 324 |  | -
Adjustments to prior period tax liabilities | (1,624) |  | 100 |  | (1,420)
Provision for/resolution of tax audits and contingencies, net | 289 |  | - |  | 5,267
Provision for/adjustment to beginning of year valuation allowances | 22,798 |  | - |  | (6)
Repatriation of non-U.S. prior years' earnings | - |  | (2,262) |  | -
Adjustment due to a prior year error | (3,553) |  | - |  | -
Other discrete tax adjustments, net | 87 |  | (742) |  | 205
Total income tax expense from continuing operations | $35,779 |  | $23,545 |  | $14,440
Income tax expense in 2011 includes a favorable adjustment of $3.5 million to correct errors from periods prior to 2006. The Company does not believe that the corrected item is or was material to any previously reported quarterly or annual financial statements. As a result, the Company has not restated its previously issued annual or quarterly financial statements.
(in thousands) | 2011 | 2010 | 2009
Income/(loss) before income taxes: |  |  |
U.S. | ($3,677) | $3,836 | $31,171
Non-U.S. | 65,909 | 51,093 | (38,224)
| $62,232 | $54,929 | ($7,053)
Income tax provision: |  |  |
Current: |  |  |
Federal | ($7,157) | ($602) | $0
State | 364 | 289 | 500
Non-U.S. | 18,701 | 9,748 | 6,645
| $11,908 | $9,435 | $7,145
Deferred: |  |  |
Federal | $3,519 | $11,838 | $15,084
State | 113 | 1,893 | 2,574
Non-U.S. | 20,239 | 379 | (10,363)
| $23,871 | $14,110 | $7,295
Total provision for income taxes from continuing operations | $35,779 | $23,545 | $14,440
The significant components of deferred income tax expense are as follows:
(in thousands) | 2011 | 2010 | 2009
Net effect of temporary differences | $ 1,044 | $ 7,882 | $16,724
Provision for gain on extinguishment of debt | - | (20,276) | 20,276
Changes in tax status | (3,344) | (161) | 1,848
Enacted changes in tax laws and rates | 115 | 324 | -
Adjustments to beginning-of-the-year valuation |  |  |
allowance balance for changes in circumstances | 22,798 | - | (6)
Net benefit of operating loss carryforwards | 3,258 | 26,341 | (31,547)
Total | $ 23,871 | $14,110 | $7,295
A reconciliation of the U.S. federal statutory tax rate to the Company's effective income tax rate is as follows:
| 2011 |  | 2010 |  | 2009
U.S. federal statutory tax rate | 35.0 | % | 35.0 | % | 35.0
State taxes, net of federal benefit | 0.7 |  | 3.4 |  | (23.7)
Other non-U.S. local income taxes | 2.0 |  | 2.5 |  | 36.7
Foreign rate differential | (22.0) |  | (28.2) |  | (93.5)
Changes in prior year non-U.S. estimated taxes | 5.0 |  | (4.6) |  | 7.7
U.S. tax on non-U.S. earnings and foreign withholding | 11.1 |  | 6.8 |  | (28.0)
Statutory tax rate changes | 0.2 |  | 0.6 |  | -
Net change to income tax contingencies | 2.0 |  | 1.8 |  | (98.2)
Research and development and other tax credits | (1.9) |  | (3.4) |  | 22.7
Net change to valuation allowances | 29.8 |  | 12.8 |  | (57.9)
Meals and entertainment | 0.7 |  | 0.8 |  | (5.7)
Officers life insurance | - |  | 15.6 |  | 14.9
Adjustment due to prior year error | (5.7) |  | - |  | -
Other | 0.6 |  | (0.2) |  | (14.8)
Effective income tax rate | 57.5 | % | 42.9 | % | (204.8)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of certain assets and liabilities for financial reporting and the amounts used for income tax expense purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
|  | U.S. |  | Non-U.S.
(in thousands) |  | 2011 |  | 2010 |  | 2011 |  | 2010
Current deferred tax assets: |  |  |  |  |  |  |  |  |  |  |  |
Accounts receivable |  | $1,713 |  |  | $2,165 |  |  | $2,279 |  |  | $1,538 |
Inventories |  | 3,049 |  |  | 2,637 |  |  | 1,919 |  |  | 944 |
Restructuring costs |  | 1,763 |  |  | 716 |  |  | - |  |  | - |
Deferred compensation |  | 236 |  |  | 285 |  |  | - |  |  | - |
Other |  | 1,816 |  |  | 1,803 |  |  | 7,351 |  |  | 6,839 |
Total current deferred tax assets |  | 8,577 |  |  | 7,606 |  |  | 11,549 |  |  | 9,321 |
Noncurrent deferred tax assets: |  |  |  |  |  |  |  |  |  |  |  |
Deferred compensation |  | 5,420 |  |  | 4,914 |  |  | - |  |  | - |
Depreciation and amortization |  | - |  |  | - |  |  | 2,502 |  |  | 3,197 |
Postretirement benefits |  | 45,547 |  |  | 45,749 |  |  | 8,984 |  |  | 7,166 |
Tax loss carryforwards |  | 2,002 |  |  | 5,742 |  |  | 70,510 |  |  | 77,485 |
Impairment of investment |  | 1,560 |  |  | 1,560 |  |  | - |  |  | - |
Tax credit carryforwards |  | 36,868 |  |  | 30,895 |  |  | 3,980 |  |  | 1,598 |
Original issue discount |  | 645 |  |  | 1,120 |  |  | - |  |  | - |
Other |  | 3,264 |  |  | 1,069 |  |  | 259 |  |  | 1,600 |
Noncurrent deferred tax assets |  |  |  |  |  |  |  |  |  |  |  |
before valuation allowance |  | 95,306 |  |  | 91,049 |  |  | 86,235 |  |  | 91,046 |
Less: valuation allowance |  | (739 | ) |  | - |  |  | (62,674 | ) |  | (42,140 | )
Total noncurrent deferred tax assets |  | 94,567 |  |  | 91,049 |  |  | 23,561 |  |  | 48,906 |
Total deferred tax assets |  | 103,144 |  |  | 98,655 |  |  | 35,110 |  |  | 58,227 |
Current deferred tax liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Accounts receivable |  | - |  |  | - |  |  | 210 |  |  | 1,644 |
Inventories |  | - |  |  | - |  |  | 1,514 |  |  | 2,721 |
Unrepatriated foreign earnings |  | 3,672 |  |  | 1,907 |  |  |  |  |  | - |
Total current deferred tax liabilities |  | 3,672 |  |  | 1,907 |  |  | 1,729 |  |  | 4,950 |
Noncurrent deferred tax liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization |  | 17,139 |  |  | 16,285 |  |  | 10,953 |  |  | 14,169 |
Postretirement benefits |  | - |  |  | - |  |  | 1,854 |  |  | 663 |
Debt discount |  | 471 |  |  | 766 |  |  | - |  |  | - |
Branch losses subject to recapture |  | - |  |  | - |  |  | 14,176 |  |  | 13,096 |
Total noncurrent deferred tax liabilities |  | 17,610 |  |  | 17,051 |  |  | 26,983 |  |  | 27,928 |
Total deferred tax liabilities |  | 21,282 |  |  | 18,958 |  |  | 28,712 |  |  | 32,878 |
Net deferred tax asset |  | $81,862 |  |  | $79,697 |  |  | $6,398 |  |  | $25,349 |
Deferred income tax assets, net of valuation allowances, are expected to be realized through the reversal of existing taxable temporary differences and future taxable income. In 2011, the Company recorded a net increase in its valuation allowance of $21.2 million, principally related to deferred tax assets for net operating loss carryforwards in Germany. The German reserve was recorded as a result of the sale of Albany Door Systems, which had significant operations in Germany, and the fact that future income in Germany will now be significantly lower because of the sale of this business. The Company intends to maintain valuation allowances for those net operating loss carryforwards until sufficient evidence exists to support the reversal of the valuation allowance. In March of 2006, the Company issued $180.0 million principal amount of 2.25% convertible bonds. In connection with the offering, the Company entered into a convertible note hedge with respect to its Class A common stock at a cost of $47.7 million. The Company elected to integrate for tax purposes the notes and the hedge into a single synthetic instrument and deduct the full cost of the hedge over the expected life of the bond. In 2009, the Company resolved certain matters related to this election that resulted in the recognition of $19.2 million of prior year tax benefits and a deferred tax asset equivalent to the tax benefits to be recognized on future tax returns. The costs incurred to purchase the hedge were treated as expenditures associated with the issuance of capital stock and, as such, were considered an increase to contributed capital. As a result, the tax benefits associated with the hedge were recognized through additional paid-in capital. Other items charged to equity primarily pertain to pension and postretirement liability adjustments. At December 31, 2011, the Company had available approximately $786.1 million of net operating loss carryforwards with expiration dates ranging from one year to indefinite that may be applied against future taxable income. Included in the net operating loss carryforwards is approximately $1.0 million of U.S. federal net operating losses that will be limited under section 382 of the Internal Revenue Code and $52.8 million of state net operating loss carryforwards that are subject to various business apportionment factors and multiple jurisdictional requirements when utilized. In addition, the Company had available a foreign tax credit carryforward of $28.6 million that will begin to expire in 2012, research and development credit carryforwards of $7.0 million that will begin to expire in 2018, alternative minimum tax credit carryforwards of $1.3 million with no expiration date, and charitable contribution carryforwards of $1.4 million that will begin to expire in 2012. The Company reported a U.S. net deferred tax asset of $81.9 million at December 31, 2011, which contained $38.9 million of tax attributes with limited lives. Although the Company is in a cumulative book income position over the evaluation period (three-year period ending December 31, 2011), management has carefully considered its ability to utilize these tax attributes during the carry forward period and determined that $0.7 million of its foreign tax credits will expire unutilized. Accordingly, a valuation allowance has been established for the Company's expiring foreign tax credits. The Company anticipates that the future profits from operations coupled with the repatriation of non-U.S. earnings will generate income of sufficient character to utilize the remaining tax attributes. Based on management's assessment, it appears more likely than not that the remaining Company's U.S. deferred tax assets will be realized through future taxable earnings. Accordingly, no valuation allowance has been established for the remaining U.S. net deferred tax assets. Management will continue to assess the need for a valuation allowance during future periods. If future results are less than projected, and if tax planning alternatives do not offset those effects, a valuation allowance may be required, which could have a material impact on our results of operations in the period in which it is recorded. Except as noted below and where required by U.S. tax law, no provision was made for U.S. income taxes on the undistributed earnings of our foreign subsidiaries as we intend to utilize these earnings in the foreign operations for an indefinite period of time. Such undistributed earnings of foreign subsidiaries as of December 31, 2011, was approximately $281.0 million. If these earnings were distributed, the Company would be subject to both foreign withholding taxes and U.S. income taxes that may not be fully offset by foreign tax credits. A reasonable estimate of the deferred tax liability on these earnings is not practicable at this time. During 2011, the Company assessed the forecasted cash needs and overall financial position of their foreign subsidiaries. As a result, we determined that approximately $7.3 million was in excess of the amount that is expected to be utilized in the foreign operations for an indefinite period of time and, accordingly, we have established a deferred tax liability for U.S. income taxes with respect to such earnings as of December 31, 2011, and have recorded a related tax expense of $1.0 million. A reconciliation of the beginning and ending amount of unrecognized tax benefits, in accordance with applicable accounting guidance, is as follows:
(in thousands) | 2011 |  | 2010 |  | 2009
Unrecognized tax benefits balance at January 1 | $23,467 |  |  | $22,513 |  |  | $21,969 |
Increase in gross amounts of tax positions related to prior years | 8,040 |  |  | 23 |  |  | 4,357 |
Decrease in gross amounts of tax positions related to prior years | (37 | ) |  | (690 | ) |  | (366 | )
Increase in gross amounts of tax positions related to current year | 1,005 |  |  | 1,043 |  |  | 4,185 |
Decrease due to settlements with tax authorities | (4,576 | ) |  | - |  |  | (8,979 | )
Decrease due to lapse in statute of limitations | - |  |  | (76 | ) |  | (55 | )
Currency translation | (846 | ) |  | 654 |  |  | 1,402 |
Unrecognized tax benefits balance at December 31 | $27,053 |  |  | $23,467 |  |  | $22,513 |
The Company recognizes interest and penalties related to unrecognized tax benefits within its global operations as a component of income tax expense. The Company recognized interest and penalties of $1.1 million, and $0.3 million in the Statements of Operations and Retained Earnings in 2011 and 2010, respectively. As of December 31, 2011 and 2010, the Company had approximately $7.6 million and $7.5 million, respectively, of accrued interest and penalties related to uncertain tax positions. We conduct business globally and, as a result, the Company or one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. We are currently under audit in the U.S. and non-U.S. tax jurisdictions, including but not limited to Canada, Germany, France, Japan and Sweden. Tax reserves are recorded for the outcome of these uncertainties in accordance with U.S. GAAP. It is reasonably possible that over the next twelve months the amount of unrecognized tax benefits may change within a range of a net increase of $0 million to a net decrease of $20 million, from the reevaluation of uncertain tax positions arising in examinations, in appeals, or in the courts, or from the closure of tax statutes. Not included in the range is $24.3 million of tax benefits in Germany related to a 1999 reorganization that have been challenged by the German tax authorities in the course of an audit of tax years 2000-2003. In 2008 the German Federal Tax Court denied tax benefits to other taxpayers in a case involving German tax laws relevant to our reorganization. One of these cases involved a non-German party, and in the ruling in that case, the German Federal Tax Court acknowledged that the German law in question may be violative of European Union ("EU") principles and referred the issue to the European Court of Justice ("ECJ") for its determination. In September 2009, the ECJ issued an opinion in this case that is generally favorable to the other taxpayer and referred the case back to the German Federal Tax Court for further consideration. In May 2010 the German Federal Tax Court released its decision, in which it resolved certain tax issues that may be relevant to our audit and remanded the case to a lower court for further development. Although we were required to pay approximately $13.0 million to the German tax authorities in order to continue to pursue the position, we believe that it is more likely than not that the relevant German law is violative of EU principles and accordingly we have not accrued tax expense on this matter. As we continue to monitor developments, it may become necessary for us to accrue tax expense and related interest. In addition, we received reassessment notices comprising tax, interest and penalties in the amount of $61.6 million from the Canadian Revenue Agency (CRA) for the tax years 2001 through 2008. Although management continues to believe that the reassessments were substantially without merit and have not accrued tax expense with regard to the full amount of these assessments, we were required to provide letters of credit to the CRA in the amount of $50.2 million. In the first quarter of 2012, the Company reached a settlement with the CRA regarding these matters and, accordingly, the Company will record the effect of this settlement in the first quarter of 2012. As of December 31, 2011 and 2010, current income taxes receivable and deferred consisted of the following:
(in thousands) | 2011 | 2010
Income taxes receivable | $9,884 | $22,653
Deferred income taxes | 20,126 | 16,927
Total current income taxes receivable and deferred | $30,010 | $39,580
As of December 31, 2011 and 2010, noncurrent taxes receivable and deferred consisted of the following:
(in thousands) | 2011 | 2010
Income taxes receivable | $16,516 | $0
Deferred income taxes | 118,128 | 139,955
Total noncurrent taxes receivable and deferred | $134,644 | $139,955
As of December 31, 2011 and 2010, current taxes payable and deferred consisted of the following:
(in thousands) | 2011 | 2010
Taxes payable | $3,365 | $2,431
Deferred income taxes | 5,401 | 6,857
Total current taxes payable and deferred | $8,766 | $9,288
Taxes paid, net of refunds, amounted to $13.7 million in 2011, $9.2 million in 2010, and $28.2 million in 2009.

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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 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: 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 3: 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 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: 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 Reference 6: 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 7: 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 8: 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 + Details
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