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Income Taxes | 12 Months Ended
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Dec. 31, 2012
Income Taxes [Abstract] |
Income Taxes | 7. Income Taxes The following tables present components of income tax (benefit)/expense and (loss)/income before income taxes on continuing operations:
(in thousands) | 2012 |  | 2011 |  | 2010
Income tax based on income from continuing operations, at estimated tax rates of 39%, 33%, and 30%, respectively | $19,769 |  |  | $17,814 |  |  | $14,381 |
Pension plan settlements | (39,460 | ) |  | - |  |  | - |
Redemption of life insurance policies | - |  |  | - |  |  | 9,382 |
Income tax before discrete items | (19,691 | ) |  | 17,814 |  |  | 23,763 |
Discrete tax (benefit)/expense: |  |  |  |  |  |  |  |
Provision for/resolution of tax audits and contingencies, net | (2,747 | ) |  | 289 |  |  | - |
Adjustments to prior period tax liabilities | (1,471 | ) |  | (1,624 | ) |  | 100 |
Enacted legislation change | (973 | ) |  | 115 |  |  | 324 |
Provision for/adjustment to beginning of year valuation allowances | (2,442 | ) |  | 22,798 |  |  | - |
Change in tax status | - |  |  | (3,344 | ) |  | (161 | )
Repatriation of non-U.S. prior years' earnings | - |  |  | - |  |  | (2,262 | )
Adjustment to correct a prior year error | - |  |  | (3,553 | ) |  | - |
Other discrete tax adjustments, net | (199 | ) |  | 87 |  |  | (742 | )
Total income tax (benefit)/expense | ($27,523 | ) |  | $32,582 |  |  | $21,022 |
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 2011 or 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) |  | 2012 |  | 2011 |  | 2010
(Loss)/income before income taxes: |  |  |  |  |  |  |  |  |
U.S. |  | ($84,624 | ) |  | ($9,748 | ) |  | ($1,481 | )
Non-U.S. |  | 16,258 |  |  | 63,596 |  |  | 49,926 |
|  | ($68,366 | ) |  | $53,848 |  |  | $48,445 |
Income tax provision: |  |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |  |
Federal |  | ($20,123 | ) |  | ($9,288 | ) |  | ($2,469 | )
State |  | (1,212 | ) |  | 120 |  |  | 75 |
Non-U.S. |  | 12,413 |  |  | 17,879 |  |  | 9,306 |
|  | ($8,922 | ) |  | $8,711 |  |  | $6,912 |
Deferred: |  |  |  |  |  |  |  |  |
Federal |  | ($12,851 | ) |  | $3,519 |  |  | $11,838 |
State |  | (1,538 | ) |  | 113 |  |  | 1,893 |
Non-U.S. |  | (4,212 | ) |  | 20,239 |  |  | 379 |
|  | ($18,601 | ) |  | $23,871 |  |  | $14,110 |
Total provision for income taxes |  | ($27,523 | ) |  | $32,582 |  |  | $21,022 |
The significant components of deferred income tax (benefit)/expense are as follows:
(in thousands) |  | 2012 |  | 2011 |  | 2010
Net effect of temporary differences |  |  | $(7,557 | ) |  |  | $1,593 |  |  |  | $12,035 |
Foreign tax credits |  |  | 9,468 |  |  |  | (5,668 | ) |  |  | (14,262 | )
Postretirement benefits |  |  | (18,337 | ) |  |  | 5,119 |  |  |  | 3,216 |
Net impact to operating loss carryforwards |  |  | 1,240 |  |  |  | 3,258 |  |  |  | 26,341 |
Enacted changes in tax laws and rates |  |  | (973 | ) |  |  | 115 |  |  |  | 324 |
Adjustments to beginning-of-the-year valuation |  |  |  |  |  |  |  |  |  |  |  |
allowance balance for changes in circumstances |  |  | (2,442 | ) |  |  | 22,798 |  |  |  | - |
Changes in tax status |  |  | - |  |  |  | (3,344 | ) |  |  | (161 | )
Recognition of deferred gain on extinguished debt |  |  | - |  |  |  | - |  |  |  | (13,383 | )
Total |  |  | $(18,601 | ) |  |  | $23,871 |  |  |  | $14,110 |
A reconciliation of the U.S. federal statutory tax rate to the Company's effective income tax rate is as follows:
| 2012 |  | 2011 |  | 2010
U.S. federal statutory tax rate |  | 35.0 | % |  |  | 35.0 | % |  |  | 35.0 | %
State taxes, net of federal benefit |  | 3.5 |  |  |  | 0.3 |  |  |  | 3.3 |
Non-U.S. local income taxes |  | 0.5 |  |  |  | 0.4 |  |  |  | 0.8 |
Foreign rate differential |  | (1.7 | ) |  |  | (14.3 | ) |  |  | (28.2 | )
U.S. tax on non-U.S. earnings and foreign withholdings |  | (1.2 | ) |  |  | 12.8 |  |  |  | 7.7 |
Provision for/resolution of beginning of year tax contingencies |  | 4.0 |  |  |  | 0.5 |  |  |  | 0.0 |
Net Change in valuation allowances |  | (3.7 | ) |  |  | 42.1 |  |  |  | 14.5 |
Change in tax status |  | - |  |  |  | (6.2 | ) |  |  | (0.3 | )
Adjustment to correct prior year error |  | - |  |  |  | (6.4 | ) |  |  | - |
Officers life insurance |  | - |  |  |  | - |  |  |  | 17.4 |
Other |  | 3.9 |  |  |  | (3.7 | ) |  |  | (6.7 | )
Effective income tax rate |  | 40.3 | % |  |  | 60.5 | % |  |  | 43.5 | %
The Company has operations which constitute a taxable presence in 16 countries outside of the United States. All of these countries except one had income tax rates that were lower than the United States federal tax rate during the periods reported. The jurisdictional location of earnings is a significant component of our effective tax rate each year. The rate impact of this component is influenced by the specific location of non-U.S. earnings and the level of our total earnings. From period to period, the jurisdictional mix of earnings can vary as a result of operating fluctuations in the normal course of business, as well as the extent and location of other income and expense items, such as pension settlement and restructuring charges. The foreign income tax rate differential that is included above in the reconciliation of the effective tax rate includes the difference between tax expense calculated at the U.S. federal statutory tax rate of 35% and the expense accrued based on lower statutory tax rates that apply in the jurisdictions where the income or loss is earned. During the periods reported, income outside of the U.S. was heavily concentrated within Switzerland (8% tax rate) and Brazil (25% tax rate) and as a result, the foreign income tax rate differential was primarily attributable to these tax rate differences. Also, in 2012 the income tax rate differential was significantly reduced by the pension settlement and restructuring charges outside of the U.S. that resulted in a lower tax rate benefit, as compared to the benefit calculated using the higher U.S. tax rate. 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.
|  | 2012 |  | 2011 |  | 2012 |  | 2011
(in thousands) |  |  |  |  |  |  |  |
Current deferred tax assets: |  |  |  |  |  |  |  |  |  |  |  |
Accounts receivable |  | $1,733 |  |  | $1,713 |  |  | $2,437 |  |  | $2,279 |
Inventories |  | 1,589 |  |  | 3,049 |  |  | 2,052 |  |  | 1,919 |
Tax credit carryforwards |  | 3,000 |  |  | - |  |  | - |  |  | - |
Other |  | 3,413 |  |  | 3,815 |  |  | 6,370 |  |  | 7,351 |
Total current deferred tax assets |  | 9,735 |  |  | 8,577 |  |  | 10,859 |  |  | 11,549 |
Noncurrent deferred tax assets: |  |  |  |  |  |  |  |  |  |  |  |
Deferred compensation |  | 5,668 |  |  | 5,420 |  |  | - |  |  | - |
Depreciation and amortization |  | 5,004 |  |  | - |  |  | 2,958 |  |  | 2,502 |
Postretirement benefits |  | 38,632 |  |  | 45,547 |  |  | 4,480 |  |  | 8,984 |
Tax loss carryforwards |  | 1,032 |  |  | 2,002 |  |  | 78,968 |  |  | 70,510 |
Tax credit carryforwards |  | 24,504 |  |  | 36,868 |  |  | 1,561 |  |  | 3,980 |
Other |  | 4,119 |  |  | 5,469 |  |  | 557 |  |  | 259 |
Noncurrent deferred tax assets |  |  |  |  |  |  |  |  |  |  |  |
before valuation allowance |  | 78,959 |  |  | 95,306 |  |  | 88,524 |  |  | 86,235 |
Less: valuation allowance |  | - |  |  | (739 | ) |  | (60,348 | ) |  | (62,674 | )
Total noncurrent deferred tax assets |  | 78,959 |  |  | 94,567 |  |  | 28,176 |  |  | 23,561 |
Total deferred tax assets |  | $88,694 |  |  | $103,144 |  |  | $39,035 |  |  | $35,110 |
Current deferred tax liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Unrepatriated foreign earnings |  | $1,521 |  |  | $3,672 |  |  | $ - |  |  | $ - |
Inventories |  | - |  |  | - |  |  | 1,383 |  |  | 1,514 |
Other |  | - |  |  | - |  |  | 12 |  |  | 215 |
Total current deferred tax liabilities |  | 1,521 |  |  | 3,672 |  |  | 1,395 |  |  | 1,729 |
Noncurrent deferred tax liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization |  | 15,296 |  |  | 17,139 |  |  | 10,106 |  |  | 10,953 |
Postretirement benefits |  | - |  |  | - |  |  | 4,726 |  |  | 1,854 |
Branch losses subject to recapture |  | - |  |  | - |  |  | 12,959 |  |  | 14,176 |
Other |  | 68 |  |  | 471 |  |  | 2,473 |  |  | - |
Total noncurrent deferred tax liabilities |  | 15,364 |  |  | 17,610 |  |  | 30,264 |  |  | 26,983 |
Total deferred tax liabilities |  | 16,885 |  |  | 21,282 |  |  | 31,659 |  |  | 28,712 |
Net deferred tax asset |  | $71,809 |  |  | $81,862 |  |  | $7,376 |  |  | $6,398 |
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 2012, the Company recorded a net decrease in its valuation allowance of $3.1 million. At December 31, 2012, the Company had available approximately $633.8 million of net operating loss carryforwards, for which we have a deferred tax asset of $80.0 million, 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 $31.4 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 $19.2 million that will begin to expire in 2015, research and development credit carryforwards of $7.0 million that will begin to expire in 2023, and alternative minimum tax credit carryforwards of $1.3 million with no expiration date. The Company reported a U.S. net deferred tax asset of $71.8 million at December 31, 2012, which contained $28.5 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, 2012), management has evaluated its ability to utilize these tax attributes during the carryforward period. The Company's 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. Accordingly, no valuation allowance has been established for the remaining U.S. net deferred tax assets. The Company records the residual U.S. and foreign taxes on certain amounts of current foreign earnings that have been targeted for repatriation to the U.S. As a result, such amounts are not considered to be permanently reinvested, and the Company accrued for the residual taxes on these earnings to the extent they cannot be repatriated in a tax-free manner. At December 31, 2012 the Company reported a deferred tax liability of $1.5 million on $19.4 million of non-U.S. earnings that have been targeted for future repatriation to the U.S. Included in these amounts are $0.5 million of tax expense on approximately $12.1 million of foreign earnings that were generated in 2012. The accumulated undistributed earnings of the Company's foreign operations were approximately $375.0 million, and are intended to remain permanently invested in foreign operations. Accordingly, no taxes have been provided on these earnings at December 31, 2012. 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. A reconciliation of the beginning and ending amount of unrecognized tax benefits, in accordance with applicable accounting guidance, is as follows:
(in thousands) | 2012 |  | 2011 |  | 2010
Unrecognized tax benefits balance at January 1 | $27,053 |  |  | $23,467 |  |  | $22,513 |
Increase in gross amounts of tax positions related to prior years | 9,454 |  |  | 8,040 |  |  | 23 |
Decrease in gross amounts of tax positions related to prior years | - |  |  | (37 | ) |  | (690 | )
Increase in gross amounts of tax positions related to current year | 381 |  |  | 1,005 |  |  | 1,043 |
Decrease due to settlements with tax authorities | (13,099 | ) |  | (4,576 | ) |  | - |
Decrease due to lapse in statute of limitations | (20 | ) |  | - |  |  | (76 | )
Currency translation | 617 |  |  | (846 | ) |  | 654 |
Unrecognized tax benefits balance at December 31 | $24,386 |  |  | $27,053 |  |  | $23,467 |
At December 31, 2012, we had gross tax-effected unrecognized tax benefits of $24.4 million, all of which, if recognized, would impact the effective tax rate. 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 ($6.4) million, $1.1 million and $.3 million in the Statements of Income and Retained Earnings in 2012, 2011 and 2010, respectively. The 2012 amount includes the reversal of $4.4M of interest and penalties related to the settlement of audits. As of December 31, 2012 and 2011, the Company had approximately $1.4 million and $7.6 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. In the normal course of business we are subject to examination by taxing authorities throughout the world, including major jurisdictions as the United States, Brazil, Canada, France, Germany, Italy, Mexico, and Switzerland. Open tax years in these jurisdictions range from 2000 to 2012. We are currently under audit in the U.S. and non-U.S. tax jurisdictions, including but not limited to Canada, Germany, and France. 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 $13.9 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 $22.5 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 (FTC) 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 FTC 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 on this issue. 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 FTC for further consideration. In May 2010 the FTC 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. In 2012, the lower court decided in favor of the taxpayer and the government appealed the findings to the FTC. Although we were required to pay approximately $13.2 million to the German tax authorities in order to continue to pursue the position; when taking into consideration the ECJ decision, the latest FTC decision and the lower court decision, 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. As of December 31, 2012 and 2011, current income taxes receivable and deferred consisted of the following:
(in thousands) |  | 2012 |  | 2011
Income taxes receivable |  | $ - |  |  | $9,884 |
Deferred income taxes |  | 20,594 |  |  | 20,126 |
Total current income taxes receivable and deferred |  | $20,594 |  |  | $30,010 |
As of December 31, 2012 and 2011, noncurrent taxes receivable and deferred consisted of the following:
(in thousands) |  | 2012 |  | 2011
Income taxes receivable |  | $16,751 |  |  | $16,516 |
Deferred income taxes |  | 107,135 |  |  | 118,128 |
Total noncurrent deferred taxes and taxes receivable |  | $123,886 |  |  | $134,644 |
As of December 31, 2012 and 2011, current taxes payable and deferred consisted of the following:
(in thousands) |  | 2012 |  | 2011
Taxes payable |  | $10,636 |  |  | $3,365 |
Deferred income taxes |  | 2,916 |  |  | 5,401 |
Total current income taxes payable and deferred |  | $13,552 |  |  | $8,766 |
Taxes paid, net of refunds, amounted to $15.1 million in 2012, $13.7 million in 2011, and $9.2 million in 2010.

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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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