Provision for Income Taxes

9 Months Ended

Sep. 30, 2012

Provision for Income Taxes [Abstract]

Provision for Income Taxes

Note 12. Provision for Income Taxes

As of September 30, 2012, we continued to place a valuation allowance on all of the net deferred tax assets at our U.S. locations, the balance of which approximated $9,800 at September 30, 2012. The ongoing necessity of this valuation allowance is based on the negative financial performance of our U.S. operations during the global economic recession of 2008 and 2009 and the negative financial performance during 2010 from losses incurred at the Precision Metal Components Segment. During the nine months ended September 30, 2012, the valuation allowance on a portion of these deferred tax assets was reversed to offset tax expense, as our U.S. based units had an approximate combined pre-tax income of $7,200. While our U.S. entities have generated approximate pre-tax incomes of $7,200 and $1,650 during the nine months ended September 30, 2012 and the year ended December 31, 2011, respectively, the substantial cumulative losses in 2009 and 2010 continue to outweigh the positive evidence of the year to date 2012 and 2011 taxable income. If the profitability of the U.S. entities continues, it is likely that a significant portion of the valuation allowance (except for the majority of the valuation allowance on the foreign tax credits of approximately $3,250) will be reversed. This will result in a material benefit to income tax expense and a resulting benefit to net income in the period in which the valuation allowances are reversed.

For the nine month period ended September 30, 2012, the difference between the U.S. federal statutory tax rate of 34% and our effective tax rate of 19% was primarily due to utilization of the fully reserved net operating losses to offset U.S. based taxable income, which lowered tax expense by $2,692. Additionally, the tax rate was impacted by non-U.S. based earnings being taxed at lower rates, which reduced tax expense by $777.

We do not foresee any significant changes to our unrecognized tax benefits within the next twelve months.