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Income Taxes
 12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]

5. Income Taxes

 

The provision for income taxes included in the accompanying consolidated financial statements represents federal, state and foreign income taxes. The components of income before income taxes and the provision for income taxes consist of the following:

 

Years ended December 31   2012     2011     2010  
                   
Income (loss) before income taxes:                        
Domestic   $ 3,411     $ 62,510     $ (4,405 )
Foreign     1,149       9,132       16,429  
Total income before income taxes   $ 4,560     $ 71,642     $ 12,024  
                         
Provision for income taxes:                        
Current:                        
Federal   $ -     $ -     $ -  
State and foreign     3,545       2,167       1,147  
Total current provision     3,545       2,167       1,147  
                         
Deferred:                        
Federal     98       23,443       1,188  
State and foreign     (2,831 )     495       (1,657 )
Total deferred provision (benefit)     (2,733 )     23,938       (469 )
Total provision for income taxes   $ 812     $ 26,105     $ 678  

 

A reconciliation of the Company’s effective income tax rate to the statutory federal tax rate is as follows:

 

Years ended December 31   2012     2011     2010  
                   
Statutory U.S. deferal income tax rate     35.0 %     35.0 %     35.0 %
State income taxes, net of federal tax benefit     3.8       0.2       1.3  
Tax credits     -       (1.4 )     (7.5 )
Foreign rate differential     (16.1 )     (1.4 )     (51.4 )
Reduction (increase) of income tax accruals     0.5       0.1       (0.1 )
Tax on foreign dividends, net of foreign tax credits     45.6       1.1       39.0  
Reduction of deferred taxes     6.4       0.3       7.4  
Valuation allowances     (78.3 )     (1.4 )     (9.7 )
Loss of domestic flow-through entity not attributable to Stoneridge, Inc.     6.8       1.9       0.5  
Non-deductible compensation     12.8       0.3       4.9  
Other comprehensive income     -       -       (9.6 )
Other     1.3       1.7       (4.2 )
Effective income tax rate     17.8 %     36.4 %     5.6 %

 

The Company recognized a provision for income taxes of $812 or 17.8%, $26,105 or 36.4% and $678 or 5.6% of our income before income tax for federal, state and foreign income taxes for the years ended December 31, 2012, 2011 and 2010, respectively. The decrease in tax expense for the year ended December 31, 2012 compared to the same period for 2011 was primarily attributable to the tax provided in 2011 related to the gain recognized on the write-up to fair market value of the historic investment in PST. In addition, the overall tax expense related to the investment in PST was lower in 2012 as compared to 2011 due to the consolidation of PST effective December 31, 2011. Finally, the decrease in tax expense was partially offset by providing a valuation allowance against certain deferred tax assets related to our European operations in 2012. The effective tax rate for 2012 declined primarily due to the improvement in U.S. results which do not attract tax due to the valuation allowance.

 

Unremitted earnings of foreign subsidiaries were $14,962 as of December 31, 2012. Because these earnings have been indefinitely reinvested in foreign operations, no provision has been made for U.S. income taxes. It is impracticable to determine the amount of unrecognized deferred taxes with respect to these earnings; however, foreign tax credits may be available to reduce U.S. income taxes in the event of a distribution.

  

Significant components of the Company’s deferred tax assets and liabilities were as follows:

 

As of December 31   2012     2011  
             
Deferred tax assets:                
Inventories   $ 3,200     $ 3,128  
Employee salary and benefits     3,860       3,542  
Insurance     562       759  
Depreciation and amortization     10,029       14,448  
Net operating loss carryforwards     44,057       44,094  
General business credit carryforwards     11,897       10,987  
Reserves not currently deductible     5,420       6,315  
Gross deferred tax assets     79,025       83,273  
Less: Valuation allowance     (71,790 )     (78,211 )
Deferred tax assets less valuation allowance     7,235       5,062  
                 
Deferred tax liabilities:                
Depreciation and amortization     (29,615 )     (35,845 )
Basis difference - equity investee     (31,016 )     (31,016 )
Other     (4,315 )     (1,600 )
Gross deferred tax liabilities     (64,946 )     (68,461 )
                 
Net deferred tax liability   $ (57,711 )   $ (63,399 )

 

The Company has concluded based on objective evidence that at December 31, 2012 and 2011 it is more likely than not that sufficient taxable income will not be generated to utilize the remaining U.S. federal, and certain state and foreign, deferred tax assets before they expire and as such a valuation allowance has been recorded. The valuation allowance represents the amount of tax benefit related to U.S. federal, state and foreign net operating losses, credits and other deferred tax assets.

 

The Company has net operating loss carry forwards of $91,159, $92,797 and $15,517 for U.S. federal, state and foreign tax jurisdictions, respectively. The U.S. federal net operating losses, if unused, begin to expire in December 31, 2025, the state net operating losses expire at various times and the foreign net operating losses expire at various times or have indefinite expiration dates. The Company has general business and foreign tax credit carry forwards of $10,868, $2,144 and $1,810 for U.S. federal, state and foreign jurisdictions respectively. The U.S. federal general business credits, if unused, begin to expire in December 31, 2021, and the state and foreign tax credits expire at various times. The Company is required to provide a deferred tax liability corresponding to the difference between the financial reporting basis (which was remeasured to fair value upon the acquisition of an additional 24% of PST in 2011) and the tax basis in the previously held 50% ownership interest in PST (the “outside” basis difference). This outside basis difference will generally remain fixed until (1) dividends from the subsidiary exceed the parent’s share of earnings subsequent to the date it became a subsidiary or (2) there is a transaction that affects the Company’s ownership of PST.

 

During the fourth quarter of 2010 we undertook a secondary offering. As a result of the secondary offering a substantial change in our ownership occurred and we experienced an ownership change pursuant to Section 382 of the Code. There was no impact to current or deferred income taxes resulting from the ownership change.

 

The following is a reconciliation of the Company’s total gross unrecognized tax benefits:

 

    2012     2011     2010  
                   
Balance as of January 1   $ 3,452     $ 3,101     $ 2,838  
                         
Tax positions related to the current year:                        
Additions     93       381       387  
Tax positions related to prior years:                        
Additions     -       28       -  
Reductions     (58 )     -       (11 )
                         
Expiration of statutes of limitation     (71 )     (58 )     (113 )
                         
Balance as of December 31   $ 3,416     $ 3,452     $ 3,101  

 

At December 31, 2012 the Company has classified $889 as a noncurrent liability and $2,876 as a reduction to non-current deferred income tax assets. The amount of unrecognized tax benefits is not expected to change significantly during the next 12 months. Management is currently unaware of issues under review that could result in a significant change or a material deviation in this estimate.

 

If the Company’s tax positions are sustained by the taxing authorities in favor of the Company, approximately $3,278 would affect the Company’s effective tax rate.

 

Consistent with historical financial reporting, the Company has elected to classify interest expense and, if applicable, penalties which could be assessed related to unrecognized tax benefits as a component of income tax expense. For the years ended December 31, 2012, 2011 and 2010, the Company recognized approximately $64, $67 and $45 of gross interest and penalties, respectively. The Company has accrued approximately $706 and $740 for the payment of interest and penalties at December 31, 2012 and 2011, respectively.

 

The Company conducts business globally and, as a result, files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities throughout the world. The following table summarizes the open tax years for each important jurisdiction:

 

Jurisdiction   Open Tax Years  
       
U.S. Federal     2009-2012  
Brazil     2007-2012  
China     2009-2012  
France     2008-2012  
Mexico     2008-2012  
Spain     2008-2012  
Sweden     2007-2012  
United Kingdom     2008-2012