Income Taxes

12 Months Ended

Dec. 28, 2012

Income Taxes [Abstract]

INCOME TAXES

14. INCOME TAXES

The U.S. and international components of income before provision for income taxes were as follows (in thousands):

	Year Ended
	December 28,		December 30,		December 31,
	2012		2011		2010
U.S.	$	36,057	$	43,610	$	46,217
International		(29,327)		4,782		3,108
	$	6,730	$	48,392	$	49,325

The provision for income taxes was comprised of the following (in thousands):
		Year Ended
		December 28,		December 30,		December 31,
		2012		2011		2010
Current:
	Federal	$	4,747	$	5,150	$	(671)
	State		381		(40)		179
	International		668		1,384		1,260
			5,796		6,494		768
Deferred:
	Federal		6,615		8,028		15,409
	State		175		599		300
	International		(1,057)		149		(290)
			5,733		8,776		15,419
		$	11,529	$	15,270	$	16,187

The provision for income taxes differs from the U.S. statutory rate due to the following:
	Year Ended
	December 28,		December 30,		December 31,
	2012		2011		2010
Statutory rate	35.0	%	35.0	%	35.0	%
Change in tax rate - loss of Swiss tax holiday	25.6		-		-
Federal tax credits	-		(3.7)		(2.6)
Foreign rate differential	50.7		0.3		(0.8)
Uncertain tax positions	(10.1)		(1.3)		(1.3)
State taxes, net of federal benefit	4.9		0.3		(0.3)
Valuation allowance	67.6		0.1		1.7
Other	(2.4)		0.9		1.1
Effective tax rate	171.3	%	31.6	%	32.8	%

Deferred tax assets (liabilities) consist of the following (in thousands):
	At
	December 28,		December 30,
	2012		2011
Tax credits	$	6,884	$	7,362
Net operating loss carryforwards		14,637		11,106
Inventories		3,911		4,441
Accrued expenses		4,129		2,961
Stock-based compensation		8,502		6,378
Other		465		1,052
Gross deferred tax assets		38,528		33,300
Less valuation allowance		(12,768)		(7,775)
Net deferred tax assets		25,760		25,525
Property, plant and equipment		(2,648)		(2,572)
Intangible assets		(59,774)		(54,874)
Convertible subordinated notes		(36,462)		(33,849)
Gross deferred tax liabilities		(98,884)		(91,295)
Net deferred tax liability	$	(73,124)	$	(65,770)
Presented as follows:
Current deferred tax asset	$	7,678	$	7,828
Current deferred tax liability		(874)		(845)
Noncurrent deferred tax asset		2,534		2,450
Noncurrent deferred tax liability		(82,462)		(75,203)
	$	(73,124)	$	(65,770)

As of December 28, 2012, the Company has the following carryforwards available:

	Tax		Amount	Begin to
Jurisdiction	Attribute		(in millions)	Expire
U.S.	Net Operating Loss	$	11.2(1)	2025
International	Net Operating Loss		38.1(1)	2013
State	Net Operating Loss		29.5(1)	Various
U.S. and State	R&D Tax Credit		1.7(1)	Various
State	Investment Tax Credit		5.4	Various

• The utilization of certain net operating losses and credits is subject to an annual limitation under Internal Revenue Code Section 382.

Certain federal tax credits reported on filed income tax returns included uncertain tax positions taken in prior years. Due to the application of the accounting for uncertain tax positions, the actual tax attributes are larger than the tax credits for which a deferred tax asset is recognized for financial statement purposes.

In assessing the realizability of deferred tax assets, management considers, within each taxing jurisdiction, whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the consideration of the weight of both positive and negative evidence, management has determined that a portion of the deferred tax assets as of December 28, 2012and December 30, 2011related to certain state investment tax credits and net operating losses will not be realized.

The Company files annual income tax returns in the U.S., various state and local jurisdictions, and in various foreign jurisdictions. A number of years may elapse before an uncertain tax position, for which the Company has unrecognized tax benefits, is examined and finally settled. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, the Company believes that its unrecognized tax benefits reflect the most probable outcome. The Company adjusts these unrecognized tax benefits, as well as the related interest, in light of changing facts and circumstances. The resolution of a matter could be recognized as an adjustment to the Provision for Income Taxes and the effective tax rate in the period of resolution.

Below is a summary of changes to the unrecognized tax benefit (in thousands):
	Year Ended
	December 28,		December 30,		December 31,
	2012		2011		2010
Balance, beginning of year	$	1,580	$	2,756	$	3,418
Additions based upon tax positions related to the current year		-		300		300
Additions recorded as part of business combinations		-		260		-
Additions related to prior period tax positions, net		210		-		222
Reductions relating to settlements with tax authorities		(522)		-		-
Reductions as a result of a lapse of applicable
statute of limitations		(298)		(1,736)		(1,184)
Balance, end of year	$	970	$	1,580	$	2,756

The tax years that remain open and subject to tax audits varies depending on the tax jurisdiction. An audit of the consolidated federal 2009 and 2010 tax returns were completed during 2012. It is reasonably possible that a reduction of approximately $0.1 million of the balance of unrecognized tax benefits may occur within the next 12 months as a result of the lapse of the statute of limitations and potential audit settlements. As of December 28, 2012, approximately $0.8million of unrecognized tax benefits would favorably impact the effective tax rate (net of federal impact on state issues), if recognized.

The American Taxpayer Relief Act of 2012 (the “Act”) was signed into law on January 2, 2013. The Act retroactively restored several expired business tax provisions, including the Section 41 research and experimentation credit that had expired on December 31, 2011. Under the American Taxpayer Relief Act of 2012, the section 41 research tax credit is extended for two years retroactively from January 1, 2012 through December 31, 2013. As the Act was signed into law on January 2, 2013, Greatbatch will record a benefit for the section 41 research tax credits earned in 2012 as a discrete item in the first quarter of fiscal 2013 and credits earned in 2013 will be recognized through the fiscal 2013 effective rate.