Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Text Block]

10 — INCOME TAXES

Following is a summary of the components of income before income taxes for the years ended December 31 (in thousands):

	2012		2011		2010
U.S.	$	150,023	$	124,915	$	78,933
Non-U.S.		85,573		77,269		55,152
Income before income taxes	$	235,596	$	202,184	$	134,085

The expense for income taxes on the above income consists of the following components (in thousands):

	2012			2011			2010
Current tax expense:
U.S. federal	$	25,290		$	23,327		$	9,078
State and local		2,508			4,236			2,645
Foreign		18,889			13,845			10,341
Total current		46,687			41,408			22,064
Deferred tax (benefit) expense:
U.S. federal		8,494			(5,192	)		4,263
State and local		(753	)		1,269			72
Foreign		(8,080	)		(1,434	)		(6,013	)
Total deferred		(339	)		(5,357	)		(1,678	)
Total current and deferred		46,348			36,051			20,386
Benefit (expense) relating to interest rate swap used to increase (decrease) equity		51			3,134			(2,523	)
Benefit from stock transactions with employees used to increase equity		21,304			25,812			18,559
Benefit (expense) relating to defined-benefit pension adjustments used to increase (decrease) equity		1,926			285			375
Benefit (expense) of acquired tax assets (liabilities) used to decrease (increase) goodwill		64			—			1,003
Total tax expense	$	69,693		$	65,282		$	37,800

Current and long-term deferred tax assets and liabilities are comprised of the following (in thousands):

	December 31,
	2012			2011
Expense accruals	$	49,404		$	40,438
Loss and credit carryforwards		22,433			24,282
Assets relating to equity compensation		18,878			18,226
Other assets		7,613			8,949
Gross deferred tax asset		98,328			91,895
Depreciation		(8,995	)		(9,199	)
Intangible assets		(23,129	)		(17,024	)
Prepaid expenses		(10,500	)		(10,183	)
Gross deferred tax liability		(42,624	)		(36,406	)
Valuation allowance		(1,943	)		(1,869	)
Net deferred tax asset	$	53,761		$	53,620

Current net deferred tax assets and current net deferred tax liabilities were $32.6 million and $1.3 million as of December 31, 2012 and $31.4 million and $0.6 million as of December 31, 2011, respectively, and are included in Prepaid expenses and other current assets and Accounts payable and accrued liabilities in the Consolidated Balance Sheets. Long-term net deferred tax assets and long-term net deferred tax liabilities were $22.5 million and $0.1 million as of December 31, 2012 and $22.8 million and zero as of December 31, 2011, respectively, and are included in Other assets and Other liabilities in the Consolidated Balance Sheets. It is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.

The valuation allowances of $1.9 million as of December 31, 2012 and $1.9 million as of December 31, 2011, respectively, largely relates to net operating losses.

As of December 31, 2012, the Company had state and local tax net operating loss carryforwards of $108.8 million, of which $3.3 million expire within one to five years, $99.7 million expire within six to fifteen years, and $5.8 million expire within sixteen to twenty years. In addition, the Company had non-U.S. net operating loss carryforwards of $30.6 million, of which $2.1 million expire over the next 20 years and $28.5 million can be carried forward indefinitely. As of December 31, 2012 the Company also had foreign tax credit carryforwards of $6.7 million, the majority of which expire in 2018.

The differences between the U.S. federal statutory income tax rate and the Company’s effective tax rate on income before income taxes for the years ended December 31 follow:

	2012			2011			2010
Statutory tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal benefit		1.8			3.8			3.3
Foreign income taxed at different rates		(6.4	)		(5.9	)		(6.2	)
Subpart F/repatriation of foreign earnings		1.0			(0.4	)		8.5
Record (release) valuation allowance		—			(0.4	)		(12.7	)
Foreign tax credits		(1.0	)		(2.3	)		(0.8	)
Record (release) reserve for tax contingencies		0.7			3.1			2.0
Other items, net		(1.5	)		(0.6	)		(0.9	)
Effective tax rate		29.6	%		32.3	%		28.2	%

In 2012 state income taxes, net of federal tax benefit include approximately $2.6 million of benefit relating to economic development tax credits associated with the renovation of the Company’s Stamford headquarters facility.

As of December 31, 2012 and December 31 2011, the Company had gross unrecognized tax benefits of $17.6 million and $18.3 million, respectively. The decrease is primarily attributable to reductions for tax positions of prior years and settlements resulting from closure of tax audits, partially offset by additions in unrecognized tax benefits attributable to 2012. It is reasonably possible that the gross unrecognized tax benefits will be decreased by $4.5 million within the next 12 months due to anticipated closure of audits and the expiration of certain statutes of limitation. The unrecognized tax benefits relate primarily to the utilization of certain tax attributes.

The Company classifies uncertain tax positions not expected to be settled within one year as long term liabilities. As of December 31, 2012 and December 31, 2011, the Company had $13.1 million and $15.4 million, respectively, related to long term uncertain tax positions included in Other Liabilities.

The Company accrues interest and penalties related to unrecognized tax benefits in its income tax provision. As of December 31, 2012 and December 31, 2011, the Company had $4.6 million and $4.8 million of accrued interest and penalties respectively, related to unrecognized tax benefits. These amounts are in addition to the gross unrecognized tax benefits noted above. The total amount of interest and penalties recognized in the Consolidated Statements of Operations for years ending December 31, 2012 and December 31, 2011 was $0.4 million and $1.5 million, respectively.

The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, for the years ending December 31 (in thousands):

	2012			2011
Beginning balance	$	18,345		$	15,824
Additions based on tax positions related to the current year		4,301			2,269
Additions for tax positions of prior years		105			4,375
Reductions for tax positions of prior years		(3,427	)		(746	)
Reductions for expiration of statutes		(296	)		(269	)
Settlements		(1,372	)		(2,661	)
Change in foreign currency exchange rates		(104	)		(447	)
Ending balance	$	17,552		$	18,345

Included in the balance of unrecognized tax benefits at December 31, 2012 are potential benefits of $12.6 million that if recognized would reduce the effective tax rate on income from continuing operations.

The number of years with open statutes of limitation varies depending on the tax jurisdiction.  Generally, the Company’s statutes are open for tax years ended December 31, 2007 and forward, with the exception of India which is open for tax years 2003 and forward. Major taxing jurisdictions include the U.S. (federal and state), the United Kingdom, Canada, Japan, India, and Ireland.

During 2012, the Company closed the Internal Revenue Service (“IRS”) audit of its 2007 federal income tax return. The resolution of the audit did not have a material adverse effect on the consolidated financial position, cash flows, or results of operations of the Company.

In 2011 the IRS commenced an audit of the Company’s federal income tax returns for the 2008 and 2009 tax years. The IRS has proposed adjustments for both 2008 and 2009 and the Company expects to settle the audit in early 2013. Although the audit has not been fully resolved, the Company believes that the ultimate disposition will not have a material adverse effect on its consolidated financial position, cash flows, or results of operations.

Earnings of non-U.S. subsidiaries are generally subject to U.S. taxation when repatriated. The Company intends to reinvest these earnings outside the U.S. except in instances where repatriating such earnings would result in minimal additional tax. The Company currently has no plan to remit earnings which will result in a material tax cost. Accordingly, the Company has not recognized additional tax expense that may result from the remittance of such earnings. The accumulated undistributed earnings of non-U.S. subsidiaries approximated $85.0 million as of December 31, 2012. An estimate of the income tax liability that would be payable if such earnings were not indefinitely invested is $17.0 million.