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Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2012
Income Taxes |
Income Taxes | 8. Income Taxes U.S. and foreign income (loss) before income taxes consist of the following (in thousands):
|  | 2012 |  | 2011 |  | 2010 |
--- | --- | --- | --- | --- | --- | --- | ---
United States |  | $ | 49,021 |  | $ | 56,836 |  | $ | (2,886) |
Foreign |  |  | 190,574 |  |  | 181,367 |  |  | 180,416 |
|  | $ | 239,595 |  | $ | 238,203 |  | $ | 177,530 |
The income tax provision (benefit) related to income before income taxes consists of the following components (in thousands):
|  | 2012 |  | 2011 |  | 2010 |
--- | --- | --- | --- | --- | --- | --- | ---
Current: |  |  |  |  |  |  |  |  |  |
U.S. federal statutory tax |  | $ | 6,858 |  | $ | 7,685 |  | $ | 12,245 |
State |  |  | 938 |  |  | 2,767 |  |  | 1,358 |
Foreign |  |  | 24,649 |  |  | 27,514 |  |  | 22,367 |
|  |  | 32,445 |  |  | 37,966 |  |  | 35,970 |
Deferred: |  |  |  |  |  |  |  |  |  |
U.S. federal statutory tax |  |  | 7,642 |  |  | 6,218 |  |  | (3,776) |
State |  |  | 1,380 |  |  | 2,194 |  |  | (1,926) |
Foreign |  |  | 643 |  |  | (6,771) |  |  | (1,677) |
|  |  | 9,665 |  |  | 1,641 |  |  | (7,379) |
Non-current tax (income) expense |  |  | (3,866) |  |  | (606) |  |  | 2,436 |
|  | $ | 38,244 |  | $ | 39,001 |  | $ | 31,027 |
Non-current tax (income) expense is primarily related to income tax associated with the reserve for uncertain tax positions. A reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate is as follows:
|  | 2012 |  | 2011 |  | 2010
--- | --- | --- | --- | --- | --- | ---
U.S. federal statutory tax rate |  | 35.0% |  | 35.0% |  | 35.0%
Foreign earnings, net of foreign taxes |  | (16.7) |  | (18.7) |  | (18.6)
State income taxes, net of U.S. federal income tax benefit |  | 0.6 |  | 1.3 |  | 0.1
Other permanent differences |  | (2.9) |  | (1.2) |  | 1.0
Effective income tax rate |  | 16.0% |  | 16.4% |  | 17.5%
For 2012, our effective income tax rate was 16.0%, for an income tax provision of $38.2 million, as compared to an effective income tax rate of 16.4% and an income tax provision of $39.0 million for 2011. The lower effective income tax rate for 2012 resulted primarily from differences in the actual results of our subsidiaries in tax jurisdictions with different income tax rates as compared to 2011, the reduction of certain income tax reserves for uncertain tax positions due to a discrete item related to a change in estimate, statute of limitation lapses, and the settlement of an income tax audit. For 2011, our effective income tax rate was 16.4%, for an income tax provision of $39.0 million, as compared to an effective income tax rate of 17.5% and an income tax provision of $31.0 million for 2010. The lower effective income tax rate for 2011 resulted primarily from differences in the actual results of our subsidiaries in tax jurisdictions with different income tax rates as compared to 2010 and the reduction of certain income tax reserves for uncertain tax positions due to statute of limitation lapses. U.S. income taxes have not been provided on undistributed earnings of foreign subsidiaries. As of December 31, 2012 and 2011, we had $934.5 million and $794.0 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 income 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 (liabilities) assets are as follows (in thousands):
|  | As of December 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |
Gross Deferred Income Tax Assets: |  |  |  |  |  |  |
Excess of provision for bad debts over charge-offs |  | $ | 4,573 |  | $ | 4,744 |
Net operating loss |  |  | 675 |  |  | 66 |
Accrued compensation expenses recognized for financial reporting purposes, not currently deductible for tax purposes |  |  | 14,909 |  |  | 20,099 |
Accrued expenses |  |  | 2,069 |  |  | 1,680 |
Unrealized derivative losses |  |  | 316 |  |  | — |
Customer deposits |  |  | 7,545 |  |  | 6,154 |
Unrealized foreign exchange |  |  | 914 |  |  | 906 |
Total gross deferred income tax assets |  |  | 31,001 |  |  | 33,649 |
Less: Valuation allowance |  |  | — |  |  | — |
Gross deferred income tax assets, net of valuation allowance |  |  | 31,001 |  |  | 33,649 |
Deferred Income Tax Liabilities: |  |  |  |  |  |  |
Excess of tax over financial reporting for depreciation of fixed assets |  |  | (11,999) |  |  | (4,650) |
Excess of tax over financial reporting amortization of identifiable intangible assets and goodwill |  |  | (23,108) |  |  | (15,772) |
Prepaid expenses, deductible for tax purposes |  |  | (1,719) |  |  | (1,204) |
Unrealized derivative gains |  |  | — |  |  | (5,572) |
Other |  |  | (1,330) |  |  | (834) |
Gross deferred income tax liabilities |  |  | (38,156) |  |  | (28,032) |
Net deferred income tax (liabilities) assets |  | $ | (7,155) |  | $ | 5,617 |
Reported on the consolidated balance sheets as: |  |  |  |  |  |  |
Other current assets for deferred income tax assets, current |  | $ | 15,282 |  | $ | 13,238 |
Non-current other assets for deferred income tax assets, non-current |  | $ | 5,406 |  | $ | 2,661 |
Accrued expenses and other current liabilities for deferred income tax liabilities, current |  | $ | 6,084 |  | $ | 1,009 |
Non-current income tax liabilities, net for deferred income tax liabilities, non-current |  | $ | 21,759 |  | $ | 9,273 |
As of December 31, 2012 and 2011, we had foreign net operating losses ("NOLs") of $2.8 million and $0.2 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 income tax assets and liabilities shown above does not include certain deferred income tax assets as of December 31, 2012 and 2011 that arose directly from income tax deductions related to equity compensation in excess of compensation recognized for financial reporting. As of December 31, 2012 and 2011, we had no foreign tax credits related to the excess stock compensation deductions that resulted in an income tax deduction or credit before the realization of the income tax benefit from the deduction or credit. We use the "with and without" method for purposes of determining when excess income tax benefits have been realized. As of December 31, 2012, 2011 and 2010, our annual capital in excess of par value pool of windfall income tax benefits related to employee compensation was estimated to be $3.7 million, $6.0 million and $10.4 million, respectively. We operated under a special income tax concession in Singapore which was effective from January 1, 2008 through December 31, 2012. The income tax concession reduces the income tax rate on qualified sales and the impact of this income tax concession decreased foreign income taxes by $5.5 million, $8.4 million and $7.8 million for 2012, 2011 and 2010, respectively. The impact of the income tax concession on diluted earnings per common share was $0.08 for 2012 and $0.12 for 2011 and 2010. We anticipate that we will continue to operate under the same special income tax concession in Singapore for the next five years, subject to final approval. The special income tax concession will be conditional upon our meeting certain employment and investment thresholds which, if not met in accordance with our agreement, may eliminate the benefit beginning with the first year in which the conditions are not satisfied. Income Tax Contingencies We recorded a decrease of $5.6 million of liabilities related to unrecognized income tax benefits ("Unrecognized Tax Liabilities") and a decrease of $1.7 million of assets related to unrecognized income tax benefits ("Unrecognized Tax Assets") during 2012. In addition, during 2012, we recorded a decrease of $0.1 million to our Unrecognized Tax Liabilities related to a foreign currency translation loss, which is included in other income (expense), net, in the accompanying consolidated statements of income and comprehensive income. As of December 31, 2012, our Unrecognized Tax Liabilities were $33.0 million and our Unrecognized Tax Assets were $5.1 million. We recorded a decrease of $0.9 million of liabilities related to Unrecognized Tax Liabilities and a decrease of $0.3 million of assets related to 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 and comprehensive income. As of December 31, 2011, our Unrecognized Tax Liabilities were $38.4 million and our Unrecognized Tax Assets were $6.9 million. The following is a tabular reconciliation of the total amounts of unrecognized income tax benefits for the year:
|  | 2012 |  | 2011 |  | 2010 |
--- | --- | --- | --- | --- | --- | --- | ---
Unrecognized tax benefit – opening balance |  | $ | 25,574 |  | $ | 26,293 |  | $ | 27,158 |
Gross decreases – tax positions in prior period |  |  | (7,659) |  |  | — |  |  | — |
Gross increases – tax positions in current period |  |  | 5,730 |  |  | 5,890 |  |  | 4,095 |
Gross decreases – tax positions in current period |  |  | — |  |  | (64) |  |  | (1,629) |
Settlements |  |  | — |  |  | (62) |  |  | — |
Lapse of statute of limitations |  |  | (1,251) |  |  | (6,483) |  |  | (3,331) |
Unrecognized tax benefit – ending balance |  | $ | 22,394 |  | $ | 25,574 |  | $ | 26,293 |
If our uncertain tax positions as of December 31, 2012 are settled by the taxing authorities in our favor, our income tax expense would be reduced by $18.0 million of income tax (exclusive of interest and penalties) in the period the matter is considered settled in accordance with ASC 740. This would have the impact of reducing our 2012 effective income tax rate by 7.5%. As of December 31, 2012, it does not appear that the total amount of our unrecognized income tax benefits will significantly increase or decrease within the next 12 months. We record accrued interest and penalties related to unrecognized income tax benefits as income tax expense. Related to the uncertain income tax benefits noted above, for interest we recorded income of $0.7 million and $0.6 million and expense of $1.4 million during 2012, 2011 and 2010, respectively. For penalties, we recorded income of $1.5 million and expense of $0.2 million and $1.2 million during 2012, 2011 and 2010, respectively. As of December 31, 2012 and 2011, we had recognized liabilities of $5.5 million and $6.2 million for interest and $5.1 million and $6.6 million for penalties, respectively. In many cases, our uncertain tax positions are related to tax years that remain subject to examination by the relevant taxing authorities. The following table summarizes these open tax years by jurisdiction with major uncertain tax positions:
Jurisdiction |  | Examination in progress |  | Open Tax Year
--- | --- | --- | --- | ---
United States |  | None |  | 2008-2012
Singapore |  | None |  | 2009-2012
United Kingdom |  | None |  | 2007-2012
Brazil |  | 2009 |  | 2008-2012
South Korea |  | None |  | 2007-2012
Netherlands |  | None |  | 2010-2012
Chile |  | None |  | 2009-2012
Denmark |  | None |  | 2004-2012

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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 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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