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Income Taxes
 12 Months Ended
Dec. 31, 2011
Income Taxes  
Income Taxes

8. Income Taxes

U.S. and foreign income (loss) before income taxes consist of the following (in thousands):

 
   2011
   2010
   2009
 

United States

   $56,836   $(2,886)   $3,916

Foreign

   181,367   180,416   145,993
 

 

   $238,203   $177,530   $149,909
 

The income tax provision (benefit) related to income before taxes consists of the following components (in thousands):

 
   2011
   2010
   2009
 
Current:            
U.S. federal statutory tax   $7,685   $12,245   $—
State   2,767   1,358   (242)
Foreign   27,514   22,367   20,897
 
    37,966   35,970   20,655
 
Deferred:            
U.S. federal statutory tax   6,218   (3,776)   5,126
State   2,194   (1,926)   625
Foreign   (6,771)   (1,677)   2,168
 
    1,641   (7,379)   7,919
 
Non-current tax (income) expense   (606)   2,436   3,772
 
    $39,001   $31,027   $32,346
 

Non-current tax (income) expense is primarily related to tax associated with the reserve for uncertain tax positions.

A reconciliation of the U.S. federal statutory tax rate to our effective income tax rate is as follows:

 
   2011
   2010
   2009
 

U.S. federal statutory tax rate

   35.0%   35.0%   35.0%

Foreign earnings, net of foreign taxes

   (18.7)   (18.6)   (16.9)

State income taxes, net of U.S. federal income tax benefit

   1.3   0.1   —

Other permanent differences

   (1.2)   1.0   3.5
 

Effective income tax rate

   16.4%   17.5%   21.6%
 

For 2011, our effective tax rate was 16.4%, for an income tax provision of $39.0 million, as compared to an effective tax rate of 17.5% and an income tax provision of $31.0 million for 2010. The lower effective tax rate for 2011 resulted primarily from differences in the actual results of our subsidiaries in tax jurisdictions with different tax rates as compared to 2010 and the reduction of certain tax reserves for uncertain tax positions due to statute of limitation lapses.

For 2010, our effective tax rate was 17.5%, for an income tax provision of $31.0 million, as compared to an effective tax rate of 21.6% and an income tax provision of $32.3 million for 2009. The lower effective tax rate for 2010 resulted primarily from differences in the actual results of our subsidiaries in tax jurisdictions with different tax rates as compared to 2009.

U.S. income taxes have not been provided on undistributed earnings of foreign subsidiaries. As of December 31, 2011 and 2010, we had $794.0 million and $574.4 million, respectively, of earnings attributable to foreign subsidiaries. Our intention is to reinvest these earnings permanently in active non-U.S. business operations. Therefore, no tax liability has been accrued for these earnings. Because of the availability of U.S. foreign tax credits, it is not practicable to determine the amount of U.S. income tax payable if such earnings are not reinvested indefinitely.

The temporary differences which comprise our net deferred income tax assets are as follows (in thousands):

 
   As of December 31,
 
   2011
   2010
 

Excess of provision for bad debts over charge-offs

   $4,744   $4,400

Net operating loss

   66   113

Excess of tax over financial reporting for depreciation of fixed assets

   (4,650)   (2,101)

Excess of tax over financial reporting amortization of identifiable intangible assets and goodwill

   (15,772)   (12,729)

Accrued compensation expenses recognized for financial reporting purposes, not currently deductible for tax purposes

   20,099   17,181

Accrued expenses

   1,680   6,800

Prepaid expenses deductible for tax purposes

   (1,204)   (1,341)

Unrealized derivative gains

   (5,572)   (743)

Customer deposits

   6,154   2,489

Unrealized foreign exchange

   906   (974)

Other

   (834)   (1,372)
 

 

   5,617   11,723

Valuation allowance

   —   —
 

Total deferred income tax assets, net

   $5,617   $11,723
 

Deferred income tax assets, current

   $13,238   $13,492
 

Deferred income tax assets, non-current

   $2,661   $5,135
 

Deferred income tax liabilities, current

   $1,009   $1,068
 

Deferred income tax liabilities, non-current

   $9,273   $5,836
 

In the accompanying consolidated balance sheets, the current deferred income tax assets are included in other current assets, the non-current income tax assets are included in non-current other assets, the current deferred income tax liabilities are included in accrued expenses and other current liabilities and the non-current deferred income tax liabilities are included in non-current income tax liabilities, net.

As of December 31, 2011 and 2010, we had foreign net operating losses ("NOLs") of $0.2 million and $0.4 million, respectively. The foreign NOLs have an unlimited carryforward period.

In addition, as a result of certain realization requirements of accounting guidance on stock compensation, the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets as of December 31, 2011 and 2010 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting. As of December 31, 2011 and 2010, we had no foreign tax credits related to the excess stock compensation deductions that resulted in a tax deduction or credit before the realization of the tax benefit from the deduction or credit. We use the "with and without" method for purposes of determining when excess tax benefits have been realized.

As of December 31, 2011, 2010 and 2009, our annual capital in excess of par value pool of windfall tax benefits related to employee compensation was estimated to be $6.0 million, $10.4 million and $3.1 million, respectively.

We operate under a special tax concession in Singapore which is effective through 2012 and is conditional upon our meeting certain employment and investment thresholds during the effective period. If the employment and investment thresholds are not met in accordance with our agreement, the tax concession may be eliminated retroactively to the beginning of 2008. This special tax concession may be extended beyond 2012 if certain additional requirements are satisfied. The tax concession reduces the tax rate on qualified sales and the impact of this tax concession decreased foreign taxes by $8.4 million, $7.8 million and $6.5 million for 2011, 2010 and 2009, respectively. The impact of the tax concession on diluted earnings per common share was $0.12 per common share for 2011 and 2010 and $0.11 per common share for 2009.

Tax Contingencies

We recorded a decrease of $0.9 million of liabilities related to unrecognized tax benefits ("Unrecognized Tax Liabilities") and a decrease of $0.3 million of assets related to unrecognized tax benefits ("Unrecognized Tax Assets") during 2011. In addition, during 2011, we recorded a decrease of $0.2 million to our Unrecognized Tax Liabilities related to a foreign currency translation gain, which is included in other (expense) income, net, in the accompanying consolidated statements of income. As of December 31, 2011, our Unrecognized Tax Liabilities were $38.4 million and our Unrecognized Tax Assets were $6.9 million.

We recorded an increase of $1.8 million of additional liabilities related to Unrecognized Tax Liabilities and a decrease of $0.8 million of assets related to Unrecognized Tax Assets during 2010. In addition, during 2010, we recorded an increase of $0.2 million to our Unrecognized Tax Liabilities related to a foreign currency translation expense, which is included in other (expense) income, net, in the accompanying consolidated statements of income. As of December 31, 2010, our Unrecognized Tax Liabilities were $39.5 million and our Unrecognized Tax Assets were $7.2 million.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the year:

 
   2011
   2010
   2009
 
Unrecognized tax benefit – opening balance   $26,293   $27,158   $21,624
Gross decreases – tax positions in prior period   —   —   (275)
Gross increases – tax positions in current period   5,890   4,095   6,596
Gross decreases – tax positions in current period   (64)   (1,629)   —
Settlements   (62)   —   —
Lapse of statute of limitations   (6,483)   (3,331)   (787)
 
Unrecognized tax benefit – ending balance   $25,574   $26,293   $27,158
 

If our uncertain tax positions as of December 31, 2011 are settled by the taxing authorities in our favor, our income tax expense would be reduced by $19.4 million in the period the matter is considered settled in accordance with ASC 740. As of December 31, 2011, it does not appear that the total amount of our unrecognized tax benefits will significantly increase or decrease within the next 12 months.

We record accrued interest and penalties related to unrecognized tax benefits as income tax expense. Related to the uncertain tax benefits noted above, for interest we recorded income of $0.6 million and expense of $1.4 million and $0.8 million during 2011, 2010 and 2009, respectively. For penalties, we recorded expense of $0.2 million, $1.2 million and $0.8 million during 2011, 2010 and 2009, respectively. As of December 31, 2011 and 2010, we had recognized liabilities of $6.2 million and $6.8 million for interest and $6.6 million and $6.4 million for penalties, respectively.

In many cases, our uncertain tax positions are related to tax years that remain subject to examination by the relevant tax authorities. The following table summarizes these open tax years by jurisdiction with major uncertain tax positions:

Open Tax Year
Jurisdiction
   Examination in progress
   Examination not yet initiated
 
United States   2008   2009-2011
Singapore   None   2008-2011
United Kingdom   None   2005-2011
Brazil   None   2007-2011
South Korea   None   2006-2011
Netherlands   None   2007-2011
Chile   None   2005-2011
Denmark   None   2005-2011