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Income Taxes | 12 Months Ended
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Dec. 31, 2012
Income Taxes [Abstract] |
INCOME TAXES |
7. | INCOME TAXES
Income taxes are recognized for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. The effects of income taxes are measured based on enacted tax laws and rates. The provision/(benefit) for income taxes from operations consisted of the following:
|  | Year Ended December 31 |
In thousands |  | 2012 |  |  | 2011 |  |  | 2010 |
Current taxes |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 8,869 |  |  | $ | 6,943 |  |  | $ | (8,238 | )
State |  |  | 3,386 |  |  |  | (1,762 | ) |  |  | (392 | )
Foreign |  |  | 9,516 |  |  |  | 2,637 |  |  |  | 4,540 |
|  |  | 21,771 |  |  |  | 7,818 |  |  |  | (4,090 | )
Deferred taxes and other |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (5,456 | ) |  |  | (3,908 | ) |  |  | (17,530 | )
State |  |  | (920 | ) |  |  | (286 | ) |  |  | (131 | )
Foreign |  |  | 4,167 |  |  |  | 4,527 |  |  |  | 846 |
|  |  | (2,209 | ) |  |  | 333 |  |  |  | (16,815 | )
Income tax provision/(benefit) |  | $ | 19,562 |  |  | $ | 8,151 |  |  | $ | (20,905 | )
The amounts set forth above for total deferred taxes and other included a deferred tax benefit of $2.3 million, $1.5 million and $17.6 million in 2012, 2011 and 2010, respectively. Other taxes totaled an expense of $0.1 million, $1.8 million, and $0.8 million in 2012, 2011 and 2010, respectively, associated with the deferred tax impact of uncertain tax positions. The following are the domestic and foreign components of pretax income from operations:
|  | Year Ended December 31 |
In thousands |  | 2012 |  |  | 2011 |  |  | 2010 |
United States |  | $ | 24,525 |  |  | $ | (991 | ) |  | $ | 2,384 |
Foreign |  |  | 54,416 |  |  |  | 51,836 |  |  |  | 31,145 |
Total pretax income |  | $ | 78,941 |  |  | $ | 50,845 |  |  | $ | 33,529 |
A reconciliation between the income tax provision, computed by applying the statutory federal income tax rate of 35% to income before income taxes, and the actual income tax provision/(benefit) is as follows:
|  | Year Ended December 31 |
|  | 2012 |  |  | 2011 |  |  | 2010 |
Federal income tax provision at statutory rate |  |  | 35.0 | % |  |  | 35.0 | % |  |  | 35.0 | %
State income taxes, net of federal income tax benefit |  |  | 1.3 |  |  |  | 0.7 |  |  |  | 1.4 |
Foreign income tax rate differential |  |  | (3.9 | ) |  |  | (6.8 | ) |  |  | (4.9 | )
Change in statutory tax rates |  |  | (0.8 | ) |  |  | 0.9 |  |  |  | 1.5 |
Tax credits |  |  | (0.5 | ) |  |  | (2.0 | ) |  |  | (7.8 | )
Change in unrecognized tax benefits, net |  |  | 0.4 |  |  |  | (11.6 | ) |  |  | (12.4 | )
Cellulosic biofuel credit, net of incremental state tax and manufacturing deduction benefit |  |  | (6.1 | ) |  |  | – |  |  |  | (69.3 | )
Adjustment for prior year estimates |  |  | – |  |  |  | – |  |  |  | (6.8 | )
Valuation allowance |  |  | – |  |  |  | 3.2 |  |  |  | – |
Other |  |  | (0.6 | ) |  |  | (3.4 | ) |  |  | 1.0 |
Provision/(benefit) for income taxes |  |  | 24.8 | % |  |  | 16.0 | % |  |  | (62.3 | )%
The sources of deferred income taxes were as follows at December 31:
|  | 2012 |  |  | 2011 |
In thousands |  |  | Current Asset (Liability) |  |  |  | Non current Asset (Liability) |  |  |  | Current Asset (Liability) |  |  |  | Non current Asset (Liability) |
Reserves |  | $ | 6,871 |  |  | $ | 8,095 |  |  | $ | 5,908 |  |  | $ | 10,595 |
Compensation |  |  | 3,332 |  |  |  | 5,034 |  |  |  | 3,481 |  |  |  | 5,064 |
Post-retirement benefits |  |  | 1,285 |  |  |  | 22,642 |  |  |  | 1,325 |  |  |  | 18,467 |
Property |  |  | – |  |  |  | (92,144 | ) |  |  | – |  |  |  | (96,798 | )
Pension |  |  | 508 |  |  |  | (14,681 | ) |  |  | 342 |  |  |  | (18,190 | )
Inventories |  |  | 1,447 |  |  |  | – |  |  |  | 125 |  |  |  | – |
Other |  |  | 204 |  |  |  | 975 |  |  |  | (246 | ) |  |  | 1,985 |
Tax carryforwards |  |  | 5,218 |  |  |  | 43,409 |  |  |  | 3,313 |  |  |  | 47,294 |
Subtotal |  |  | 18,865 |  |  |  | (26,670 | ) |  |  | 14,248 |  |  |  | (31,583 | )
Valuation allowance |  |  | (3,233 | ) |  |  | (27,266 | ) |  |  | (1,586 | ) |  |  | (25,946 | )
Total |  | $ | 15,632 |  |  | $ | (53,936 | ) |  | $ | 12,662 |  |  | $ | (57,529 | )
Current and non-current deferred tax assets and liabilities are included in the following balance sheet captions:
|  | December 31 |
In thousands |  |  | 2012 |  |  |  | 2011 |
Prepaid expenses and other current assets |  | $ | 16,319 |  |  | $ | 12,662 |
Other long term assets |  |  | 8,110 |  |  |  | 12,262 |
Other current liabilities |  |  | 687 |  |  |  | – |
Deferred income taxes |  |  | 62,046 |  |  |  | 69,791 |
At December 31, 2012 we had state and foreign tax net operating loss (“NOL”) carryforwards of $68.7 million and $247.9 million, respectively. These NOL carryforwards are available to offset future taxable income, if any. The state NOL carryforwards expire between 2014 and 2031; certain foreign NOL carryforwards expire between 2013 and 2032. In addition, we had federal foreign tax credit carryforwards of $0.3 million, which expire in 2013, various state tax credit carryforwards totaling $0.4 million, which expire between 2014 and 2027, and foreign investment tax credits of $3.8 million which expire between 2019 and 2032. We have established a valuation allowance of $30.5 million against the net deferred tax assets, primarily due to the uncertainty regarding the ability to utilize state and foreign tax NOL carryforwards and certain deferred foreign tax credits. Tax credits and other incentives reduce tax expense in the year the credits are claimed. We recorded tax credits of $0.4 million, $1.0 million and $2.6 million in 2012, 2011 and 2010, respectively, related to research and development credits and the fuels tax credits. At December 31, 2012 and 2011, unremitted earnings of subsidiaries outside the United States deemed to be permanently reinvested totaled $236.3 million and $197.4 million, respectively. Because the unremitted earnings of subsidiaries are deemed to be permanently reinvested as of December 31, 2012 and because we have no need for or plans to repatriate such earnings, no deferred tax liability has been recognized in our consolidated financial statements. The determination of additional taxes that have not been provided is not practicable. In March 2010, our application to be registered as a cellulosic biofuel producer was approved by the Internal Revenue Service. The U.S. Internal Revenue Code provides a non refundable tax credit equal to $1.01 per gallon for taxpayers that produce cellulosic biofuel. In a memorandum issued in July 2010, the Internal Revenue Service issued guidance concluding that black liquor sold or used before January 1, 2010, qualifies for the cellulosic biofuel producer credit (“CBPC”) and no further certification of eligibility was needed. In connection with the filing of our 2009 income tax return, we claimed $23.2 million, net of taxes, of CBPC. The CBPC claimed is attributable to black liquor produced and burned from January 1, 2009 through February 19, 2009, after which we began mixing black liquor and diesel fuel to qualify for alternative fuel mixture credits. In 2012, we made the decision to convert a portion of the previously utilized refundable alternative fuel mixture credit, which was equal to $0.50 per gallon, to the non refundable CBPC. The conversion to the CBPC resulted in a net benefit for income taxes in 2012 of $4.0 million. During 2012, we amended our 2009 federal income tax return to claim the credit and this required us to return to the Internal Revenue Service $14.1 million, net of credits used to reduce estimated tax payments. We believe the credits are fully recognizable based on the Company’s projections and economic analysis performed. Our ability to convert additional credits expires March 15, 2013. As of December 31, 2012, 2011 and 2010, we had $30.4 million, $29.7 million and $38.7 million of gross unrecognized tax benefits, respectively. As of December 31, 2012, if such benefits were to be recognized, approximately $30.4 million would be recorded as a component of income tax expense, thereby affecting our effective tax rate. A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:
In millions |  |  | 2012 |  |  |  | 2011 |  |  |  | 2010 |
Balance at January 1 |  | $ | 29.7 |  |  | $ | 38.7 |  |  | $ | 40.1 |
Increases in tax positions for prior years |  |  | 1.4 |  |  |  | 0. 8 |  |  |  | 1.6 |
Decreases in tax positions for prior years |  |  | (1.0 | ) |  |  | (7.5 | ) |  |  | (1.8 | )
Acquisition related: |  |  |  |  |  |  |  |  |  |  |  |
Purchase Accounting |  |  | – |  |  |  | – |  |  |  | 3.2 |
Decrease for prior years(1) |  |  | – |  |  |  | – |  |  |  | (2.2 | )
Increases in tax positions for current year |  |  | 1.9 |  |  |  | 1.1 |  |  |  | 1.9 |
Settlements |  |  | (0.4 | ) |  |  | (0.1 | ) |  |  | – |
Lapse in statutes of limitation |  |  | (1.2 | ) |  |  | (3.3 | ) |  |  | (4.1 | )
Balance at December 31 |  | $ | 30.4 |  |  | $ | 29.7 |  |  | $ | 38.7 |
(1) | in connection with acquisition accounting for the Concert transaction, we recorded a $2.2 million reserve for an uncertain tax position and at the same time recorded a receivable from the seller due to an indemnification agreement. Prior to the end of 2010, a tax ruling was issued that eliminated this tax risk resulting in the elimination of both items.
We, or one of our subsidiaries, file income tax returns with the United States Internal Revenue Service, as well as various state and foreign authorities. The following table summarizes tax years that remain subject to examination by major jurisdiction:
|  | Open Tax Years |
Jurisdiction |  | Examinations not yet initiated |  | Examination in progress |
United States |  |  |  |  |  |
Federal |  | 2009 – 2012 |  |  | N/A |
State |  | 2008 – 2012 |  |  | 2004, 2006, 2008, 2009 |
Canada (1) |  | 2010 – 2012 |  |  | 2007 – 2011 |
Germany (1) |  | 2007, 2010 – 2012 |  |  | 2008 – 2010 |
France |  | 2010 – 2012 |  |  | N/A |
United Kingdom |  | 2009 – 2012 |  |  | N/A |
Philippines |  | 2011 – 2012 |  |  | 2010 |
(1) | includes provincial or similar local jurisdictions, as applicable.
The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Management performs a comprehensive review of its global tax positions on a quarterly basis and accrues amounts for uncertain tax positions. Based on these reviews and the result of discussions and resolutions of matters with certain tax authorities and the closure of tax years subject to tax audit, reserves are adjusted as necessary. However, future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are determined or resolved or as such statutes are closed. Due to potential for resolution of federal, state and foreign examinations, and the expiration of various statutes of limitation, it is reasonably possible our gross unrecognized tax benefits balance may decrease within the next twelve months by a range of zero to $17.9 million. Substantially all of this range relates to tax positions taken in the U.S., the U.K. and in Germany. We recognize interest and penalties related to uncertain tax positions as income tax expense. We recorded a benefit of $0.3 million during 2012, and in total, as of December 31, 2012, had recognized a liability for interest of $1.4 million. During 2011, we recorded a benefit of $2.1 million, and in total, as of December 31, 2011 had recognized a liability for interest of $1.7 million. During 2010, we accrued minimal interest expense and had recognized a liability for interest of $3.8 million at December 31, 2010. We did not record any penalties associated with uncertain tax positions during 2012, 2011 or 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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