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Income taxes | 12 Months Ended
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Dec. 31, 2012
Income Tax Disclosure [Abstract] |
Income taxes |
14. | Income taxes
The provision for (benefit from) income taxes on continuing operations in the accompanying consolidated statements of operations consists of the following:
|  | Year Ended December 31, |
(U.S. Dollars, in thousands) |  | 2012 |  |  | 2011 |  |  | 2010 |
|  | (Restated) |  |  | (Restated) |  |  | (Restated) |
U.S. |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | 17,897 |  |  | $ | 25,148 |  |  | $ | 19,336 |
Deferred |  |  | 1,788 |  |  |  | (12,657 | ) |  |  | 2,282 |
Total U.S |  |  | 19,685 |  |  |  | 12,491 |  |  |  | 21,618 |
Non-U.S. |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | 4,609 |  |  |  | 2,735 |  |  |  | 253 |
Deferred |  |  | 844 |  |  |  | (1,061 | ) |  |  | 2,160 |
|  |  | 5,453 |  |  |  | 1,674 |  |  |  | 2,413 |
Total tax expense |  | $ | 25,138 |  |  | $ | 14,165 |  |  | $ | 24,031 |
The tax effects of the significant temporary differences, which comprise the deferred tax assets and liabilities, are as follows:
|  | Year Ended December 31, |
(U.S. Dollars, in thousands) |  | 2012 |  |  | 2011 |
|  | (Restated) |  |  | (Restated) |
Intangible assets and goodwill |  | $ | 5,346 |  |  | $ | 5,300 |
Inventories and related reserves |  |  | 14,020 |  |  |  | 13,756 |
Deferred revenue and cost of sales |  |  | 11,682 |  |  |  | 7,631 |
Other accruals and reserves |  |  | 3,868 |  |  |  | 10,287 |
Accrued compensation |  |  | 3,817 |  |  |  | 4,444 |
Allowance for doubtful accounts |  |  | 3,718 |  |  |  | 4,029 |
Accrued interest |  |  | 18,229 |  |  |  | 16,123 |
Net operating loss carryforwards |  |  | 27,231 |  |  |  | 20,849 |
Other, net |  |  | 539 |  |  |  | (349 | )
|  |  | 88,450 |  |  |  | 82,070 |
Valuation allowance |  |  | (26,361 | ) |  |  | (19,124 | )
Deferred tax asset |  | $ | 62,089 |  |  | $ | 62,946 |
Withholding taxes |  |  | (11,456 | ) |  |  | (9,778 | )
Property, plant and equipment |  |  | (9,758 | ) |  |  | (9,892 | )
Deferred tax liability |  |  | (21,214 | ) |  |  | (19,670 | )
Net deferred tax assets |  | $ | 40,875 |  |  | $ | 43,276 |
The valuation allowance as of December 31, 2012 and 2011 was $26.4 million and $19.1 million, respectively. The net increase in the valuation allowance of $7.3 million during the year principally relates to certain current period foreign losses not benefitted. The valuation allowance is attributable to net operating loss carryforwards and certain temporary differences in certain foreign jurisdictions, the benefit for which is dependent upon the generation of future taxable income in those foreign jurisdictions. 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 the Company will realize the benefits of these temporary differences, net of the existing valuation allowances at December 31, 2012. The Company has state net operating loss carryforwards of approximately $21.9 million that begin to expire in 2013. The Company has net operating losses of foreign taxing jurisdictions of approximately $102.7 million with the majority of the losses related to the Company’s Netherlands operations expiring in various amounts in tax years beginning in 2013. The Company has provided a valuation allowance against a significant portion of these net operating loss carryforwards since it does not believe that this deferred tax asset can be realized prior to expiration. The rate reconciliation for continuing operations presented below is based on the U.S. federal income tax rate, rather than the parent company’s country of domicile tax rate. Management believes, given the large proportion of taxable income earned in the United States, such disclosure is more meaningful.
(US$ in thousands, except percentages) |  | 2012 |  |  | 2011 |  |  | 2010 |
|  | Amount |  |  | Percent |  |  | Amount |  |  | Percent |  |  | Amount |  |  | Percent |
|  | (Restated) |  |  | (Restated) |  |  | (Restated) |  |  | (Restated) |  |  | (Restated) |  |  | (Restated) |
Statutory U.S. federal income tax rate |  | $ | 24,565 |  |  |  | 35.0 | % |  | $ | (719 | ) |  |  | 35.0 | % |  | $ | 19,261 |  |  |  | 35.0 | %
State taxes, net |  |  | 1,708 |  |  |  | 2.4 | % |  |  | 1,896 |  |  |  | (92.4 | )% |  |  | 2,051 |  |  |  | 3.7 | %
Foreign rate differential |  |  | (3,115 | ) |  |  | (4.4 | )% |  |  | 1,585 |  |  |  | (77.2 | )% |  |  | 251 |  |  |  | 0.5 | %
Valuation allowance—foreign losses |  |  | 6,183 |  |  |  | 8.8 | % |  |  | 4,882 |  |  |  | (237.8) | % |  |  | 3,497 |  |  |  | 6.4 | %
SRL Intangible |  |  | (2,214 | ) |  |  | (3.2 | )% |  |  | (2,421 | ) |  |  | 117.9 | % |  |  | (2,607 | ) |  |  | (4.7 | )%
Domestic manufacturing deduction |  |  | (1,694 | ) |  |  | (2.4 | )% |  |  | (1,703 | ) |  |  | 82.9 | % |  |  | (1,529 | ) |  |  | (2.8 | )%
Withholding Taxes |  |  | 1,679 |  |  |  | 2.4 | % |  |  | 1,676 |  |  |  | (81.6 | )% |  |  | 1,687 |  |  |  | 3.1 | %
Settlement of U.S. Government resolutions |  |  | (1,260 | ) |  |  | (1.8 | )% |  |  | 9,520 |  |  |  | (463.7 | )% |  |  | — |  |  |  | — | %
Other items, net |  |  | (714 | ) |  |  | (1.0 | )% |  |  | (551 | ) |  |  | 26.9 | % |  |  | 1,420 |  |  |  | 2.5 | %
Income tax expense/effective rate |  | $ | 25,138 |  |  |  | 35.8 | % |  | $ | 14,165 |  |  |  | (690.0 | )% |  | $ | 24,031 |  |  |  | 43.7 | %
The effective tax rate of 35.8% for 2012 was impacted by change in the estimate of the tax deduction associated with the settlement of the U.S. Government investigation of the Company’s bone growth stimulation business. The income tax expense and effective tax rate for the year ended 2011 reflects a disproportionate ratio to the $25.1 million of income tax expense and effective tax rate of 35.8% for 2012. The Company did not record tax benefit on certain expenses associated with the Company’s estimate of the charges related to U.S. Government resolutions. The effective tax rate was approximately 42.0% in 2012 and 149.1% in 2011 excluding the impact of the charges related to the U.S. Government resolutions and the foreign rate differential. On January 2, 2013, the American Taxpayer Relief Act of 2012 (“Act”) was enacted. The Act provides tax relief for businesses by reinstating certain tax benefits and credits retroactively to January 1, 2012. There are several provisions of the Act that impact the Company, most notably the extension of the Research and Development credit. Income tax accounting rules require tax law changes to be recognized in the period of enactment; as such, the associated tax benefits of the Act will be recognized in the Company’s provision for income taxes in the first quarter of 2013. The Company’s unrecognized tax benefit was $1.2 million and $0.6 million for the years ended December 31, 2012 and 2011, respectively. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within its global operations in income tax expense. The Company had approximately $0.8 million and $0.6 million accrued for payment of interest and penalties as of December 31, 2012 and 2011, respectively. The entire amount of unrecognized tax benefits, including interest, would favorably impact the Company’s effective tax rate if recognized. As of December 31, 2012, the Company does not expect the amount of unrecognized tax benefits to change significantly over the next twelve months. A reconciliation of the gross unrecognized tax benefits (excluding interest and penalties) for the years ended December 31, 2012 and December 31, 2011 follows:
(U.S. Dollars, in thousands) |  | 2012 |  |  | 2011 |
|  | (Restated) |  |  | (Restated) |
Balance as of January 1, |  | $ | 610 |  |  | $ | 569 |
Additions for current year tax positions |  |  | 793 |  |  |  | 86 |
Decreases for prior year tax positions |  |  | (106 | ) |  |  | (17 | )
Expiration of statutes |  |  | (108 | ) |  |  | (28 | )
Balance as of December 31, |  | $ | 1,189 |  |  | $ | 610 |
The Company files a consolidated income tax return in the U.S. federal jurisdiction, the U.K., Italy and numerous consolidated and separate income tax returns in many state and other foreign jurisdictions. The statute of limitations with respect to federal tax authorities is closed for years prior to December 31, 2009. The statute of limitations for the various state tax filings is closed in most instances for the years prior to December 31, 2008. The statute of limitations with respect to the major foreign tax filing jurisdictions is closed for years prior to December 31, 2007. The Company’s intention is to reinvest the total amount of its unremitted foreign earnings (residing outside Curaçao) in the local jurisdiction, to the extent they are generated and available, or to repatriate the earnings only when tax-effective. As an entity incorporated in Curaçao, “foreign subsidiaries” refer to both U.S. and non-U.S. subsidiaries. Furthermore, only income sourced in the U.S. is subject to U.S. income tax. Unremitted foreign earnings increased from $285.3 million at December 31, 2011 to $292 million at December 31, 2012. The $292 million includes $293.8 million in U.S subsidiaries. It is not practicable to determine the amounts of net additional income tax that may be payable if such earnings were repatriated. The Company does not anticipate any impact on income tax liabilities since earnings are permanently reinvested for both U.S and non-U.S. subsidiaries. Total cash and cash equivalents at December 31, 2012 were $52.3 million, of which $21.3 million is restricted under the senior secured credit agreement for use in the U.S. and is therefore classified as restricted cash on the balance sheet. The Company’s U.S. business generates sufficient cash flow and has borrowing capacity in the United States to fund its U.S. operations. Cash and cash equivalents of $31 million at December 31, 2012 was held by non-U.S. subsidiaries and is permanently reinvested for use in non-U.S. operations.

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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=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 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 Reference 7: 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 8: 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. + Details
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