Note 8 - Income Taxes

Components of income from continuing operations before income taxes and noncontrolling shareholders’ interests were as follows:


	2010		2011		2012
United States	$	67,579	$	21,763	$	206,853
Foreign		92,247		112,383		161,597

Total	$	159,826	$	134,146	$	368,450

The provision (benefit) for income tax for continuing operations consisted of the following:


	2010			2011			2012
Current:
Federal	$	2,823		$	6,694		$	67,921
State and local		3,716			2,053			9,812
Foreign		10,731			24,486			38,082

		17,270			33,233			115,815
Deferred:
Federal		3,921			(139,697	)		(4,225	)
State and local		—			(28,893	)		(573	)
Foreign		(1,134	)		(100	)		5,007

		2,787			(168,690	)		209

	$	20,057		$	(135,457	)	$	116,024

A reconciliation of income tax expense (benefit) for continuing operations to the tax based on the U.S. statutory rate is as follows:


	2010			2011			2012
Income tax provision at 35%	$	55,939		$	46,951		$	128,958

State and local income tax, net of federal income tax effect		1,913			1,879			4,391

U.S. tax credits		(2,220	)		(1,732	)		—

Difference in effective tax rates of international operations		(20,608	)		(15,828	)		(16,545	)

Valuation allowance		(8,704	)		1,225			(181	)

Valuation allowance - domestic release		—			(167,224	)		—

Other - net		(6,263	)		(728	)		(599	)


Income tax expense	$	20,057		$	(135,457	)	$	116,024

In 2011, the Company released most of the valuation allowance recorded against U.S. deferred tax assets in the amount of $167,224 based upon the Company’s sustained positive operating performance, taxable income in carryback periods and the availability of expected future taxable income.

Payments, including discontinued operations, for income taxes in 2010, 2011 and 2012, net of refunds, were $30,186, $6,988 and $97,093, respectively.

Deferred tax assets and liabilities result from differences in the basis of assets and liabilities for tax and financial reporting purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31 were as follows:


	2011			2012
Deferred tax assets:
Postretirement and other employee benefits	$	243,222		$	269,471
Products liability		68,261			71,759
Net operating loss, capital loss, and tax credits carryforwards		36,924			30,043
All other items		41,635			49,103

Total deferred tax assets		390,042			420,376

Deferred tax liabilities:
Property, plant and equipment		(114,034	)		(116,879	)
All other items		(8,383	)		(7,348	)

Total deferred tax liabilities		(122,417	)		(124,227	)

		267,625			296,149
Valuation allowances		(28,271	)		(27,993	)

Net deferred tax asset	$	239,354		$	268,156

At December 31, 2012, the Company has apportioned state tax losses of $17,459 and foreign tax losses of $23,067 available for carryforward. The Company also has U.S. federal tax credits of $1,838 and state tax credits of $4,917 in addition to U.S. capital losses of $53,516 available for carryforward. Valuation allowances have been provided for those items which, based upon an assessment, it is more likely than not that some portion may not be realized. The U.S. federal and state tax loss carryforwards and other tax attributes will expire from 2013 through 2031. A portion of the foreign tax losses expired in 2012, with additional losses due to expire in 2013. The majority of the U.S. capital loss carryforward will expire in 2015.

The Company applies the rules under ASC 740-10 in its Accounting for Uncertainty in Income Taxes for uncertain tax positions using a “more likely than not” recognition threshold. Pursuant to these rules, the Company will initially recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits of the tax position, that such a position will be sustained upon examination by the relevant tax authorities. If the tax benefit meets the “more likely than not” threshold, the measurement of the tax benefit will be based on the Company’s estimate of the largest amount that meets the more likely than not recognition threshold. The Company’s unrecognized tax benefits for permanent and temporary book/tax differences for continuing operations, exclusive of interest, totaled approximately $5,138 at December 31, 2012, as itemized in the tabular roll forward below. In accordance with Company policy, the liability relating to pre 2011 years was released or reclassified following the effective settlement of a U.S. federal income tax examination for years prior to 2011. The unrecognized tax benefits at December 31, 2012 relate to 2011 and 2012 uncertain tax positions.


	2010			2011			2012
Balance at January 1	$	7,517		$	9,237		$	987
Settlements for tax positions of prior years		—			(15,969	)		—
Additions for tax positions of the current year		1,686			987			4,195
Additions for tax positions of prior years		62			7,837			181
Reductions for tax positions of prior years		(28	)		(572	)		(225	)
Reductions for lapse of statute of limitations		—			(533	)		—


Balance at December 31	$	9,237		$	987		$	5,138

Of this amount, the effective rate would change upon the recognition of approximately $4,728 of these unrecognized tax benefits. The Company accrued, through the tax provision, approximately $79, $226 and $27 of interest expense for 2010, 2011 and 2012, respectively. At December 31, 2012, the Company has $27 interest accrued as an ASC 740-10 reserve.

The Company generally considers the earnings of certain non-U.S. subsidiaries to be indefinitely invested outside the United States. In the event that the Company plans to repatriate foreign earnings, the income tax provision would be adjusted in the period it is determined that the earnings will no longer be indefinitely invested outside the United States. During 2013, the Company plans to remit dividends from two of its non-U.S. subsidiaries. As a result of this decision made in 2012, the Company provided incremental U.S. income and foreign withholding tax on these amounts. The remaining portion of the Company’s foreign earnings is considered to be indefinitely reinvested outside the United States. The Company has not recorded a deferred tax liability related to the U.S. federal and state income taxes and foreign withholding taxes on approximately $371,573 of these undistributed earnings. It is not practicable to determine the amount of additional U.S. income taxes that could be payable upon remittance of these earnings since taxes payable would be reduced by foreign tax credits based upon income tax laws and circumstances at the time of distribution, plus the uncertainty in estimating the impacts of future exchange rates.

The Company has ventures in the PRC that had been granted full and partial income tax holidays. This resulted in a $5,140 and $1,965 favorable impact to the Company in 2010 and 2011, respectively. All remaining PRC tax holidays expired in 2011.

The Company’s effective tax rate only incorporates the tax rules under currently enacted legislation. Several U.S. tax extender provisions expired at the end of 2011 and were reenacted in early January 2013. Because the legislation was not enacted before December 31, 2012, a U.S. tax benefit for these items (most significantly the research and development credit) was not included in the tax provision; however, the amount of tax benefit for these extenders would not be considered material to the overall tax provision this year. The tax benefit for the retroactive enactment of these items will be recorded in the first quarter of 2013.

In 2003 the Company initiated bilateral Advance Pricing Agreement (“APA”) negotiations with the Canadian and U.S. governments to change its intercompany transfer pricing process between a formerly owned subsidiary, CSA, and its Canadian affiliate. The governments settled the APA in 2009 and on August 3, 2009, Cooper-Standard Holdings Inc. filed a Bankruptcy petition. On August 19, 2009, the Company filed an action in the United States Bankruptcy Court, District of Delaware, in response to the tax refunds owed to the Company pursuant to the September 16, 2004 sale agreement of CSA for pre-disposition periods ending December 23, 2004. On March 17, 2010, the Company entered into a settlement agreement to resolve the subject proceedings, which became non-appealable on April 29, 2010. Pursuant to the settlement agreement, CSA paid the Company approximately $17,639, in addition to the resolution of other contingent liabilities between the parties. Based upon the settlement, the Company released liabilities recorded on its books relating to the disposition of CSA in the amount of $7,400 through Discontinued Operations, net of the tax impact, in the quarter ended June 30, 2010. There has been no activity relating to this item in 2011 or 2012.

The Company operates in multiple jurisdictions throughout the world. The Company has effectively settled U.S. federal tax examinations for years before 2011 and state and local examinations for years before 2006, with limited exceptions. Furthermore, the Company’s non-U.S. subsidiaries are no longer subject to income tax examinations in major foreign taxing jurisdictions for years prior to 2007. The income tax returns of various subsidiaries in various jurisdictions are currently under examination and it is possible that these examinations will conclude within the next twelve months. However, it is not possible to estimate net increases or decreases to the Company’s unrecognized tax benefits during the next twelve months.