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INCOME TAXES | 12 Months Ended
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Dec. 31, 2011
INCOME TAXES |
INCOME TAXES |
NOTE 10: INCOME TAXES Income from continuing operations before provision (benefit) for income taxes are taxed under the following jurisdictions:
Year Ended December 31, |  | 2011 |  | 2010 |  | 2009 |
Domestic |  | $ | 2,338 |  | $ | 4,453 |  | $ | 7,476 |
Foreign |  | 19,674 |  | 9,537 |  | 7,288 |
Total |  | $ | 22,012 |  | $ | 13,990 |  | $ | 14,764 |
Components of the provision (benefit) for income taxes from continuing operations for each of the three years in the period ended December 31, 2011 are as follows:
Year Ended December 31, |  | 2011 |  | 2010 |  | 2009 |
Current: |  |  |  |  |  |  |
Federal |  | $ | 4,094 |  | $ | 3,330 |  | $ | 6,812 |
State |  | 961 |  | (306 | ) | 599 |
Foreign |  | 4,429 |  | 369 |  | 4,767 |
Subtotal |  | 9,484 |  | 3,393 |  | 12,178 |
Deferred: |  |  |  |  |  |  |
Federal |  | (4,408 | ) | 2,149 |  | (4,593 | )
State |  | (719 | ) | 1,186 |  | 277 |
Foreign |  | 54 |  | (1,207 | ) | 348 |
Subtotal |  | (5,073 | ) | 2,128 |  | (3,968 | )
Total provision for income taxes |  | $ | 4,411 |  | $ | 5,521 |  | $ | 8,210 |
The provision for income taxes from continuing operations, as a percentage of income before provision for income taxes, differs from the statutory U.S. federal income tax rate due to the following:
Year Ended December 31, |  | 2011 |  | 2010 |  | 2009 |
Statutory U.S. federal income tax rate |  | 35.0 | % | 35.0 | % | 35.0 | %
State income taxes, net of U.S. federal income tax benefit |  | 0.7 |  | 4.1 |  | 4.0 |
U.S. tax impact of foreign operations |  | (15.1 | ) | 13.5 |  | (13.7 | )
Valuation allowance change |  | (0.3 | ) | 20.9 |  | 8.8 |
Tax contingencies |  | (1.4 | ) | 1.8 |  | (4.5 | )
Foreign exchange gains (losses) |  | — |  | (10.1 | ) | 2.0 |
Gain on sale of intercompany assets |  | — |  | 10.6 |  | 9.8 |
Charitable contributions |  | (0.3 | ) | (0.2 | ) | (0.1 | )
Foreign tax rate differential |  | (5.2 | ) | (5.2 | ) | 14.0 |
Unrecognized tax benefits |  | 8.2 |  | 4.1 |  | (1.4 | )
Meals and entertainment |  | 0.3 |  | 0.4 |  | 0.5 |
Tax adjustment for inflation |  | — |  | (0.3 | ) | (0.1 | )
Domestic manufacturing deduction |  | (1.1 | ) | — |  | (1.2 | )
One-time bad debt and worthless stock deduction |  | — |  | (33.0 | ) | — |
Nondeductible foreign expenses |  | (1.3 | ) | (0.1 | ) | 6.4 |
Other |  | 0.5 |  | (2.0 | ) | (3.9 | )
Effective income tax rate |  | 20.0 | % | 39.5 | % | 55.6 | %
Pretax earnings of a foreign subsidiary or affiliate are subject to U.S. taxation when effectively repatriated. The Company does not intend to reinvest undistributed earnings indefinitely in the Company’s foreign subsidiaries. The significant components of the deferred tax assets (liabilities) are as follows:
As of December 31, |  | 2011 |  | 2010 |
Inventory |  | $ | 1,635 |  | $ | 1,482 |
Accrued liabilities |  | 3,269 |  | 3,655 |
Impaired investments |  | 765 |  | 740 |
Deferred compensation |  | 2,514 |  | 1,199 |
Intangibles assets |  | 8,084 |  | 6,382 |
Bad debts |  | 59 |  | 124 |
Net operating losses |  | 4,547 |  | 4,866 |
Capital losses |  | — |  | 6 |
Foreign tax and withholding credits |  | 5,675 |  | 8,857 |
Non-income tax accruals |  | 170 |  | 522 |
Health insurance accruals |  | 171 |  | 359 |
Undistributed foreign earnings |  | 2,425 |  | 665 |
Other deferred tax assets |  | 2,265 |  | 1,264 |
Valuation allowance |  | (9,836 | ) | (12,282 | )
Total deferred tax assets |  | 21,743 |  | 17,839 |
Other deferred tax liabilities |  | (868 | ) | (385 | )
Total deferred tax liabilities |  | (868 | ) | (385 | )
Total deferred taxes, net |  | $ | 20,875 |  | $ | 17,454 |
The components of deferred tax assets (liabilities), net are as follows:
As of December 31, |  | 2011 |  | 2010 |
Net current deferred tax assets |  | $ | 3,945 |  | $ | 4,582 |
Net non-current deferred tax assets |  | 17,026 |  | 12,916 |
Total net deferred tax assets |  | 20,971 |  | 17,498 |
Net current deferred tax liabilities |  | (1 | ) | (5 | )
Net non-current deferred tax liabilities |  | (95 | ) | (39 | )
Total net deferred tax liabilities |  | (96 | ) | (44 | )
Total deferred taxes, net |  | $ | 20,875 |  | $ | 17,454 |
Net current deferred tax liabilities are included in accrued liabilities and net non-current deferred tax liabilities are included in other liabilities in the consolidated balance sheets. Management has provided a valuation allowance of $9,836 and $12,282 as of December 31, 2011 and 2010, respectively, for certain deferred tax assets, including foreign net operating losses and foreign tax credits, for which management cannot conclude it is more likely than not that they will be realized. The Company reviewed its tax positions and decreased its valuation allowance by approximately $2,446 in 2011 primarily due to additional domestic provisions of $2,390 and by foreign write-offs of $56. At December 31, 2011, foreign subsidiaries had unused operating loss carryovers for tax purposes of approximately $4,547. The net operating losses will expire at various dates from 2012 through 2021. For financial reporting purposes, the release of these valuation allowances would reduce income tax expenses. At December 31, 2011, the Company had approximately $5,675 of foreign tax credits which begin to expire at various times starting in 2019. The Company is subject to regular audits by federal, state and foreign tax authorities. These audits may result in additional tax liabilities. The Company believes it has appropriately provided for income taxes for all years. Several factors drive the calculation of its tax reserves. Some of these factors include: (i) the expiration of various statutes of limitations; (ii) changes in tax law and regulations; (iii) the issuance of tax rulings; and (iv) settlements with tax authorities. Changes in any of these factors may result in adjustments to the Company’s reserves, which would impact its reported financial results. The Company’s U.S. federal income tax returns for 2003 through 2010 are open to examination for federal tax purposes. The Company has several foreign tax jurisdictions that have open tax years from 2000 through 2010. The Internal Revenue Service (“IRS”) is currently conducting an audit of the Company’s U.S. federal income tax returns for the 2009 through 2010 tax years. In October 2009, the Internal Revenue Service (“IRS”) issued an examination report formally proposing adjustments with respect to the 2003 through 2005 taxable years, which primarily relate to the prices that were charged in intra-group transfers of property and the disallowance of related deductions. The Company challenged the IRS proposals, and took the matter before the Office of Appeals of the Internal Revenue Service. A verbal settlement was reached with IRS Appeals during 2011 and a proposed settlement agreement was signed by NSP in early January 2012. IRS Appeals sent a letter on January 30, 2012 indicating that the agreement with NSP had been approved and that they would complete the processing of these years. Also during 2011, the IRS issued an examination report formally proposing adjustments with respect to the 2006 through 2008 taxable years. As with the previous exam cycle discussed above, the adjustments relate primarily to the prices that were charged in intra-group transfers of property and the disallowance of related deductions. The Company was able to reach a verbal settlement of the issues with the IRS exam team during 2011 and an agreement was signed by the Company in January 2012. Management believes that the Company has appropriately reserved for these matters at an amount which it believes will ultimately be due upon resolution of the administrative proceedings. These estimates are based upon a more-likely-than-not recognition threshold. The Company is currently unable to determine the precise outcome of these matters and their related impact, if any, on the Company’s financial condition, results of operations or cash flows. The total outstanding balance for liabilities related to unrecognized tax benefits at December 31, 2011 and 2010 was $10,426 and $15,679, respectively, all of which would favorably impact the effective tax rate if recognized. Included in these amounts is approximately $1,460 and $6,308, respectively, of interest and penalties. The Company decreased interest and penalties approximately $321 and $316 for the years ended December 31, 2011 and 2010, respectively. The Company accounts for interest expense and penalties for unrecognized tax benefits as part of its income tax provision. During the years ended December 31, 2011, 2010 and 2009, the Company added approximately $2,379, $3,682 and $4,052, respectively, to its liability for unrecognized tax benefits. Included in these amounts are approximately $491, $1,250 and $2,047 for the years ended December 31, 2011, 2010 and 2009, respectively, related to interest expense and penalties. In addition, the Company recorded a benefit related to the lapse of applicable statute of limitations of approximately $1,728, $3,132 and $2,261 for the years ended December 31, 2011, 2010 and 2009, respectively, all of which favorably impacted the Company’s effective tax rate, as well as settlements with taxing authorities of $0, $0 and $5,817, for the years ended December 31, 2011, 2010 and 2009, respectively. A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax benefits, excluding interest and penalties, is as follows for the years:
Year Ended December 31, |  | 2011 |  | 2010 |  | 2009 |
Unrecognized tax benefits, opening balance |  | $ | 15,058 |  | $ | 19,687 |  | $ | 20,495 |
Tax positions taken in a prior period |  |  |  |  |  |  |
Settlement of liability reclassified as income tax payable |  | (4,479 | ) | — |  | — |
Payments on Liability |  | (2,590 | ) | — |  | — |
Gross increases |  | 541 |  | 2,432 |  | 5,649 |
Gross decreases |  | — |  | (980 | ) | (775 | )
Tax positions taken in the current period |  |  |  |  |  |  |
Gross increases |  | 1,347 |  | — |  | 1,255 |
Gross decreases |  | — |  | — |  | — |
Settlements with taxing authorities |  | — |  | — |  | (5,817 | )
Lapse of applicable statute of limitations |  | (914 | ) | (1,566 | ) | (1,273 | )
Currency translation adjustments |  | 3 |  | (4,515 | ) | 153 |
Unrecognized tax benefits, ending balance |  | $ | 8,966 |  | $ | 15,058 |  | $ | 19,687 |
The tabular roll forward ending balances do not include interest expense and penalties related to unrecognized tax benefits. At December 31, 2011 and 2010, other assets included $0 and $5,687, respectively, of amounts related to competent authority where the unrecognized tax liability and other assets are presented on a gross basis in the consolidated balance sheets as there is no right of offset between the Company and other tax jurisdictions. Based upon the Company’s recent negotiations with the IRS, it is not likely the Company would seek competent authority related to its current unrecognized tax reserves. The Company anticipates that unrecognized tax benefits will increase approximately $1,500 to $2,000 within the next twelve months due to additional transactions related to commissions and transfer pricing. The Company believes that it is reasonably possible that unrecognized tax benefits will decrease approximately $1,500 to $2,000 within the next twelve months due to the close of audits or the expiration of statutes of limitations in various foreign jurisdictions. Although the Company believes its estimates are reasonable, the Company can make no assurance that the final tax outcome of these matters will not be different from that which it has reflected in its historical income tax provisions and accruals. Such differences could have a material impact on the Company’s income tax provision and operating results in the period in which the Company makes such determination.

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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 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: 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 3: 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 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: 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 6: 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 7: 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 8: 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 + Details
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