Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v2.4.0.6
INCOME TAXES
 12 Months Ended
Dec. 31, 2011
INCOME TAXES [Abstract]  
INCOME TAXES
NOTE 10-INCOME TAXES
 
Significant components of the provision for income tax expense (benefit) are as follows:
 
   
2011
    
2010
    
2009
  
   
(in thousands)
  
Current federal
   $ (23,340 )   $ 5,907     $ 184  
Current foreign
     38,328       29,150       13,397  
Current state
     4,391       5,118       6,003  
Total current
     19,379       40,175       19,584  
Deferred federal
     (29,153 )     (21,348 )     82  
Deferred foreign
     (13,463 )     (2,737 )     (5,947 )
Deferred state
     (2,987 )     (936 )     (2,386 )
Total deferred
     (45,603 )     (25,021 )     (8,251 )
Income tax expense (benefit)
   $ (26,224 )   $ 15,154     $ 11,333  
 
Current income tax expense decreased $20.8 million for the year ended December 31, 2011 as compared to the prior year due principally to the carryback of domestic net operating losses which generated $24.2 million of federal tax refunds received in the first quarter of 2012. Current income tax expense increased $20.6 million for the year ended December 31, 2010 as compared to the prior year due principally to the incremental current tax expense related to businesses acquired in the Merger.
 
Deferred income tax benefit increased $20.6 million for the year ended December 31, 2011 as compared to the prior year due principally to the reversal of valuation allowances recorded against United States federal and state deferred tax assets driven primarily by deferred tax attributes relating to the acquisition of the remaining interests in Front Line in the first quarter of 2011. Deferred income tax expense decreased $16.8 million for the year ended December 31, 2010 as compared to the prior year due principally to deferred tax benefit related to the amortization of intangibles which resulted from the Merger.
 
The domestic loss from continuing operations before income taxes was $200.4 million, $294.7 million and $195.7 million for 2011, 2010 and 2009, respectively. Non-United States income from continuing operations before income taxes was $103.8 million, $106.0 million and $81.0 million for 2011, 2010 and 2009, respectively.
 
Significant components of the Company's deferred tax liabilities and assets as of December 31, 2011 and 2010 are as follows:
 
   
2011
    
2010
  
   
(in thousands)
  
Deferred tax liabilities:
            
Intangible assets
   $ 317,862     $ 356,476  
Prepaid expenses
     2,067       3,677  
Long-term debt
     32,773       25,989  
Total deferred tax liabilities
     352,702       386,142  
Deferred tax assets:
                
Intangible and fixed assets
     75,353       98,733  
Accrued expenses
     59,346       62,932  
Net operating loss carryforwards
     225,379       197,600  
AMT and FTC carryforwards
     83,459       67,505  
Equity compensation
     39,249       33,029  
Investments in nonconsolidated affiliates
     5,125       5,125  
Other
     13,670       13,847  
Total gross deferred tax assets
     501,581       478,771  
Valuation allowance
     324,266       311,137  
Total deferred tax assets
     177,315       167,634  
Net deferred tax liabilities
   $ (175,387 )   $ (218,508 )
 
The valuation allowance was recorded due to the uncertainty of the ability to generate sufficient taxable income necessary to realize certain deferred tax assets in future years. If, at a later date, it is determined that due to a change in circumstances, the Company will utilize all or a portion of those deferred tax assets, the Company will reverse the corresponding valuation allowance with the offset to income tax benefit. In the first quarter of 2011, the Company recognized an income tax benefit of $39.5 million due to the partial release of its valuation allowance. This release is related to the Company's ability to consider Front Line's net deferred tax liabilities as a source of future taxable income within the consolidated federal tax provision as a result of the acquisition of the remaining Front Line equity interests. For further discussion of events involving Front Line, see Note 3-Acquisitions.
 
During 2011 and 2010, the Company recorded net deferred tax liabilities of $6.3 million and $212.7 million, respectively, due principally to differences in financial reporting and tax bases in assets acquired in business combinations.
 
Deferred tax assets related to intangibles and fixed assets principally relate to differences in book and tax basis of tax-deductible goodwill created from the Company's various stock acquisitions. In accordance with FASB guidance for goodwill, the Company no longer amortizes goodwill. Thus, a deferred tax benefit for the difference between book and tax amortization for the Company's tax-deductible goodwill is no longer recognized, as these assets are no longer amortized for book purposes. As the Company continues to amortize its tax basis in its tax-deductible goodwill, the deferred tax asset will decrease over time. As of December 31, 2011, the Company has United States federal and state deferred tax assets related to net operating loss carryforwards of $150.0 million and $40.8 million, respectively. Based on current statutory carryforward periods, these losses will expire on various dates between the years 2016 and 2031. The amount of United States net operating loss carryforwards that will expire if not utilized in 2016 is $18.3 million. The Company's federal net operating loss is subject to statutory limitations on the amount that can be used in any given year.
 
The reconciliation of income tax from continuing operations computed at the United States federal statutory tax rates to income tax expense (benefit) is:
 
   
2011
    
2010
    
2009
  
   
(in thousands)
  
Income tax benefit at statutory rates
   $ (33,820 )   $ (66,029 )   $ (40,137 )
State income taxes, net of federal tax benefits
     4,391       5,118       6,003  
Differences of foreign taxes from U.S statutory rates
     (25,158 )     (24,150 )     (5,418 )
Non-U.S. income inclusions and exclusions
     11,288       19,358       39,851  
Nondeductible goodwill impairment
     -       -       3,180  
Loss on preferred stock redemption
     -       3,099       -  
Nondeductible acquisition costs
     -       15,100       -  
Nondeductible items
     9,252       3,669       3,533  
Tax contingencies
     2,632       545       (7,358 )
Change in valuation allowance
     7,412       55,269       17,848  
Other, net
     (2,221 )     3,175       (6,169 )
 
   $ (26,224 )   $ 15,154     $ 11,333  
 
During 2011, the Company recorded income tax benefit of approximately $26.2 million on losses from continuing operations before tax of $96.6 million. Income tax benefit is principally attributable to the reversal of valuation allowances recorded against United States federal and state deferred tax assets driven primarily by deferred tax attributes relating to the acquisition of the remaining interests in Front Line in the first quarter of 2011 and the carryback of Front Line tax loss for the short period January 1, 2011 to February 4, 2011 caused by the acquisition. At December 31, 2011, the Company had a $24.2 million income tax receivable included in accounts receivable on the balance sheet.
 
During 2010, the Company recorded tax expense of approximately $15.2 million on losses from continuing operations before tax of $188.7 million. Income tax expense is principally attributable to the Company's earnings in non-United States tax jurisdictions.
 
The Company regularly assesses the likelihood of additional assessments in each taxing jurisdiction resulting from current and subsequent years' examinations. Liabilities for income taxes have been established for future income tax assessments when it is probable there will be future assessments and the amount thereof can be reasonably estimated. Once established, liabilities for uncertain tax positions are adjusted only when there is more information available or when an event occurs necessitating a change to the liabilities. The Company believes that the resolution of income tax matters for open years will not have a material effect on its consolidated financial statements although the resolution of income tax matters could impact the Company's effective tax rate for a particular future period.
 
At December 31, 2011 and 2010, the Company had $13.4 million and $10.9 million, respectively, of unrecognized tax benefits. All of these unrecognized tax benefits would favorably impact the effective tax rate if recognized at some point in the future.
 
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. For the years ended December 31, 2011, 2010 and 2009, the Company has recognized $0.7 million, ($0.1) million and $0.1 million, respectively, of interest and penalties related to uncertain tax positions. As of December 31, 2011 and 2010, the Company has accrued interest related to uncertain tax positions of $1.3 million and $0.6 million, respectively.
 
During 2009, the Internal Revenue Service began an examination of some of the Company's subsidiaries. During the fourth quarter of 2009, the Company resolved uncertainties with respect to a portion of the Company's non-United States income tax positions and recorded tax benefits to account for the reversal of previously established tax reserves. The tax years 2001 through 2011 remain open to examination by the major tax jurisdictions to which the Company is subject.
 
The following table summarizes the activity related to the Company's unrecognized tax benefits for the years ended December 31, 2011, 2010 and 2009:
 
   
2011
    
2010
    
2009
  
   
(in thousands)
  
Balance at January 1
   $ 10,917     $ 4,144     $ 21,952  
Balance from current year acquisition
     -       5,925       -  
Additions:
                        
Tax for current year positions
     1,991       2,769       875  
Tax for prior year positions
     (86 )     100       200  
Interest and penalties for prior years
     727       150       91  
Reductions:
                        
Expiration of applicable statue of limitations
     -       (744 )     (8,039 )
Settlements for prior year positions
     -       (1,730 )     -  
Foreign currency
     (192 )     239       917  
Reclassification to other liabilities
     -       64       (6,375 )
Settlements related to discontinued operations
     -       -       (5,477 )
Balance at December 31
   $ 13,357     $ 10,917     $ 4,144