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Income Taxes | 12 Months Ended
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Dec. 31, 2012
Income Taxes [Abstract] |
Income Taxes |
13) | Income Taxes
As of December 31, 2011 and 2010, we had full valuation allowances against all the deferred tax assets of our U.S. units totaling $12,066 and $16,604, respectively, as we determined that it was more likely than not the U.S. locations would be unable to generate sufficient profits in the near future to allow realization of existing deferred tax assets at those period ends. The determination to place a valuation allowance on the tax benefits incurred by our U.S. based operations was made during 2009 due to the 2009 results of these entities being much more unfavorable than originally forecasted during the global economic recession of 2009. During the year ended December 31, 2010, we continued to place a valuation allowance on all of the deferred tax assets of our U.S. locations, based on the incurred net losses during the year ended December 31, 2010 at the U.S. Consolidated entities due to the restructuring at the Tempe Plant and the losses from operations at the Wellington Plants. During the year ended December 31, 2011, we continued to place a valuation allowance on all the deferred tax assets at our U.S. locations due to the uncertainty of realization of those deferred tax assets. While our U.S. entities generated pre-tax income of approximately $1,600 during the year ended December 31, 2011, the substantial cumulative losses in 2009 and 2010 outweighed the positive evidence of the 2011 taxable income. For the year ended 2012, the pretax profit of our U.S. based companies increased to approximately $7,400 due in large part to the operational improvements in our Precision Metal Components Segment. This brings the combined 2012 and 2011 pre-tax incomes to approximately $9,000. Additionally, during the fourth quarter of 2012, we utilized approximately $9,000 of net operating losses to offset tax expense related to certain previously earned income of our foreign holding company, as discussed below. This positive evidence coupled with estimates within our U.S. based businesses of fully utilizing our net operating losses within the next two years provided enough positive evidence, in the opinion of management, to overcome the negative evidence of the cumulative pre-tax losses in 2009 and 2010. Accordingly, after considering all relevant factors and objectively verifiable evidence having an impact on the likelihood of future realization of our U.S. companies’ deferred tax assets, as of December 31, 2012, management concluded that it is more likely than not that the majority of our deferred tax assets will be realized in future years. Accordingly, we reversed $8,512 of the amount of the valuation allowance on our tax effected deferred tax assets, with a credit to the provision for income taxes of $8,512 in our Consolidated Statements of Comprehensive Income (Loss). A valuation allowance of $2,252 will remain offsetting certain deferred tax assets as of December 31, 2012. These assets represent the portion of our previously recognized foreign tax credits which management estimates will not be realized in the future due to their relatively short remaining carry-forward periods. During the year ended December 31, 2012, we reduced the valuation allowance against these credits by $1,302 as we believe it is more likely than not these credits will be utilized before their carry forward period expires. The following tables reflect the effects of full valuation allowances on the net deferred tax assets of all U.S. based entities for the years ended December 31, 2011 and 2010 and the removal of $9,814 of these valuation allowances for the year ended December 31, 2012. Income (loss) before provision (benefit) for income taxes for the years ended December 31, 2012, 2011 and 2010 was as follows:
|  | Year ended December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
Income (loss) before provision (benefit) for income taxes: |  |  |  |  |  |  |  |  |  |  |  |
United States |  | $ | 7,385 |  |  | $ | 1,633 |  |  | $ | (9,528 | )
Foreign |  |  | 12,956 |  |  |  | 24,472 |  |  |  | 20,513 |
Total |  | $ | 20,341 |  |  | $ | 26,105 |  |  | $ | 10,985 |
Total income tax expense (benefit) for the years ended December 31, 2012, 2011, and 2010 was as follows:
|  | Year ended December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  | $ | (115 | ) |  | $ | — |  |  | $ | — |
State |  |  | 345 |  |  |  | 113 |  |  |  | 183 |
Non-U.S. |  |  | 2,910 |  |  |  | 6,023 |  |  |  | 3,968 |
Total current expense (benefit) |  |  | 3,140 |  |  |  | 6,136 |  |  |  | 4,151 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  |  | 2,789 |  |  |  | 534 |  |  |  | (2,732 | )
State |  |  | 12 |  |  |  | 170 |  |  |  | (160 | )
U.S. deferred tax valuation allowance |  |  | (9,814 | ) |  |  | (704 | ) |  |  | 2,892 |
Non-U.S. |  |  | (54 | ) |  |  | (968 | ) |  |  | 418 |
Total deferred expense (benefit) |  |  | (7,067 | ) |  |  | (968 | ) |  |  | 418 |
Total expense (benefit) |  | $ | (3,927 | ) |  | $ | 5,168 |  |  | $ | 4,569 |
A reconciliation of income taxes based on the U.S. federal statutory rate of 34% for each of the years ended December 31, 2012, 2011 and 2010 is summarized as follows:
|  | Year ended December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
Income taxes at the federal statutory rate |  | $ | 6,916 |  |  | $ | 8,876 |  |  | $ | 3,735 |
Impact of incentive stock options |  |  | 371 |  |  |  | 163 |  |  |  | 52 |
Increase (decrease) in U.S. valuation allowance |  |  | (12,740 | ) |  |  | (704 | ) |  |  | 2,892 |
Decrease in foreign valuation allowance |  |  | — |  |  |  | (1,219 | ) |  |  | (937 | )
Capital gain on return of basis |  |  | 3,079 |  |  |  | — |  |  |  | — |
State income taxes, net of federal taxes |  |  | 334 |  |  |  | 75 |  |  |  | 54 |
Non-U.S. earnings taxed at different rates |  |  | (1,606 | ) |  |  | (2,116 | ) |  |  | (1,650 | )
Change in uncertain tax positions |  |  | (115 | ) |  |  | — |  |  |  | — |
Other permanent differences, net |  |  | (166 | ) |  |  | 93 |  |  |  | 423 |
|  | $ | (3,927 | ) |  | $ | 5,168 |  |  | $ | 4,569 |
In conjunction with the periodic evaluation of the valuation allowance and the resulting reversal of the majority of it in the fourth quarter of 2012, we performed a comprehensive review of all domestic temporary differences. As a result of that review, our schedule of deferred tax assets reflects an increase in net deferred tax assets, prior to the effects on the valuation allowance, of approximately $2,926, which is included with the effect of the reversal of the valuation allowance in the above reconciliation table. Any portion of this correction attributable to prior years would have been offset by an equivalent change in the valuation allowance and therefore would have had no effect on comprehensive income (loss) or our financial position. During the year ended December 31, 2011, the decrease in the foreign valuation allowance was due to utilizing the net operating losses at certain foreign jurisdictions and to eliminating the valuation allowance on deferred tax assets at our Kysucke (Slovakia) Plant. The tax effects of the temporary differences as of December 31, 2012, 2011 and 2010 are as follows:
|  | December 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
Deferred income tax liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Tax in excess of book depreciation |  | $ | 6,670 |  |  | $ | 5,099 |  |  | $ | 5,208 |
Goodwill |  |  | 1,987 |  |  |  | 1,821 |  |  |  | 2,209 |
Allowance for bad debts |  |  | — |  |  |  | 18 |  |  |  | 62 |
Other deferred tax liabilities |  |  | 112 |  |  |  | 843 |  |  |  | 387 |
Gross deferred income tax liabilities |  |  | 8,769 |  |  |  | 7,781 |  |  |  | 7,866 |
Deferred income tax assets: |  |  |  |  |  |  |  |  |  |  |  |
Goodwill |  |  | 4,141 |  |  |  | 4,846 |  |  |  | 5,754 |
Inventories |  |  | 768 |  |  |  | 167 |  |  |  | 84 |
Pension/Personnel accruals |  |  | 921 |  |  |  | 503 |  |  |  | 1,084 |
Deductions for uncollectible Eltmann receivables |  |  | — |  |  |  | 310 |  |  |  | — |
Net operating loss carry forwards |  |  | 3,682 |  |  |  | 7,526 |  |  |  | 10,150 |
Foreign tax credits |  |  | 3,844 |  |  |  | 3,326 |  |  |  | 3,326 |
Guarantee claim deduction |  |  | 1,141 |  |  |  | — |  |  |  | — |
Accruals and reserves |  |  | 293 |  |  |  | — |  |  |  | — |
Other deferred tax assets |  |  | 550 |  |  |  | 421 |  |  |  | 356 |
Gross deferred income tax assets |  |  | 15,340 |  |  |  | 17,099 |  |  |  | 20,754 |
Valuation allowance on deferred tax assets |  |  | (2,252 | ) |  |  | (12,066 | ) |  |  | (16,604 | )
Net deferred income tax assets |  |  | 13,088 |  |  |  | 5,033 |  |  |  | 4,150 |
Net deferred income tax assets (liabilities) |  | $ | 4,319 |  |  | $ | (2,748 | ) |  | $ | (3,716 | )
As realization of certain deferred tax assets is not assured, management has placed valuation allowances against deferred tax assets it believes are not recoverable, as discussed above. For the remainder, management believes it is more likely than not that those net deferred tax assets will be realized. However, the amount of the deferred tax assets considered realizable could be reduced based on changing conditions. Below is a summary of the activity in the total valuation allowances during the years ended December 31, 2012, 2011 and 2010:
|  | Total Valuation Allowance Activity |
|  | Balance at Beginning of Year |  |  | Additions |  |  | Recoveries |  |  | Deconsolidation of Eltmann subsidiary |  |  | Balance at End of Year |
2012 |  | $ | 12,066 |  |  | $ | — |  |  | $ | (9,814 | ) |  | $ | — |  |  | $ | 2,252 |
2011 |  | $ | 16,604 |  |  | $ | — |  |  | $ | (2,425 | ) |  | $ | (2,113 | ) |  | $ | 12,066 |
2010 |  | $ | 14,649 |  |  | $ | 2,892 |  |  | $ | (937 | ) |  |  | — |  |  | $ | 16,604 |
The net operating loss carry forwards as of December 31, 2012, are composed of net operating losses at our U.S. operations during 2010, 2009 and 2008. The 2010 balance of net operating losses above includes $2,035 from our former Eltmann Plant which was deconsolidated on January 20, 2011. The losses of the U.S. based entities can be carried forward 20 years. The foreign tax credits relate to profits of certain foreign subsidiaries that were taxed as deemed dividends. These credits represent the foreign taxes paid by these subsidiaries at higher effective rates that will be used to offset future foreign source income. A full valuation allowance was placed against these credits as of December 31, 2008, based on estimates, at that time, of future levels of U.S. income tax and foreign source income to be generated that these credits could be used to offset. The valuation allowance will be periodically reviewed as our estimates of future foreign source income are revised based on actual foreign source income recognized in our tax returns and future changes in foreign source income. As of December 31, 2012 and 2011, management believed it was more likely than not we would only utilize $1,302 and $0, respectively, of these credits in the near future and placed a valuation allowance on the remaining $2,252 and $3,554, respectively. As of December 31, 2006, all of the Company’s foreign earnings had been previously taxed in the U.S. due to the application of IRC Sec. 956. Accordingly, no deferred taxes have been provided for undistributed earnings up to that time. On December 27, 2012, our foreign holding company declared a distribution of approximately $48,000 to its U.S. parent company NN, Inc. The vast majority of this distribution was a proportional return of investment basis in our Western European subsidiaries. Approximately $9,000 of the distribution pertained to earnings and profits earned by this holding company in previous years. The approximately $9,000 of earning and profits was included in our computation of year ended 2012 taxes and the tax rate resulting in an impact of $3,079. There were two main factors influencing our decision to consider this return of basis. First, there was a desire to reduce the amount of basis in our European subsidiaries recorded on the U.S. parent company’s financial statements considering the downsizing of our European production capacity over the last few years. The second factor was proposed federal tax legislation which, if enacted, could significantly increase the tax cost of returning this basis after 2012. Because there had been no change in our long term international expansion plans as of December 31, 2012, our intent to indefinitely reinvest foreign earnings accumulated through the year ended December 31, 2012 was not changed by these factors. As of the year ended December 31, 2012, we intend to keep indefinitely reinvesting our foreign earnings. We base this assertion on two factors. First, our intention to invest in foreign countries that are strategically important to our Metal Bearing Components Segment business and its customers. Second, we have sufficient access to funds in the U.S. through projected free cash flows and the availability of our credit facilities to fund currently anticipated domestic operational and investment needs. As such, we do not expect unrepatriated foreign earnings to become subject to U.S. taxation in the foreseeable future. If such earnings were distributed beyond the amount for which taxes have been provided, foreign tax credits would substantially offset the incremental U.S. tax liability. A deferred tax liability will be recognized should we expect we will recover these undistributed earnings in a taxable manner, such as through the receipt of dividends or sale of the investments. As we presently plan to permanently reinvest foreign undistributed earnings, we have not provided for U.S. income tax liabilities that would be payable if such earnings were not reinvested indefinitely. A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties for the years ended December 31, 2012, 2011 and 2010 is as follows:
|  | 2012 |  |  | 2011 |  |  | 2010 |
Beginning balance |  | $ | 988 |  |  | $ | 953 |  |  | $ | 988 |
Additions for tax positions of prior years |  |  | 428 |  |  |  | 35 |  |  |  | — |
Reductions for tax positions of prior years |  |  | (543 | ) |  |  | — |  |  |  | (35 | )
Ending balance |  | $ | 873 |  |  | $ | 988 |  |  | $ | 953 |
As of December 31, 2012, the $873 of unrecognized tax benefits would, if recognized, impact our effective tax rate. Interest and penalties related to federal, state, and foreign income tax matters are recorded as a component of the provision for income taxes in our statements of income. During 2010, we accrued $30 in foreign interest and penalties and removed $15 in interest and penalties for closed tax years as the previous uncertain tax accruals are no longer required. During 2011, we had a net reduction in foreign interest and penalties of $43 as older uncertain items were eliminated and newer uncertain items added. During 2012, we had an increase in foreign interest and penalties of $443 and a decrease in federal and state interest and penalties of $245 as older uncertain items were eliminated due to the tax years being closed or risk being mitigated. As of December 31, 2012, the total amount accrued for interest and penalties was $910. We or our subsidiaries file income tax returns in the U.S. federal jurisdiction, and in various states and foreign jurisdictions. With few exceptions, we are no longer subject to federal, state and local income tax examinations by tax authorities for years before 2009. We are no longer subject to non-U.S. income tax examinations within various European Union countries for years before 2007. We do not foresee any significant changes to our unrecognized tax benefits within the next twelve months.

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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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