Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v2.4.0.6
INCOME TAXES
 12 Months Ended
Dec. 31, 2012
INCOME TAXES [Abstract]  
INCOME TAXES
NOTE 9—INCOME TAXES
 
Significant components of the provision for income tax expense (benefit) are as follows:
 
   
2012
    
2011
    
2010
  
   
(in thousands)
  
Current federal
   $ 2,235     $ (23,340 )   $ 5,907  
Current foreign
     34,541       38,328       29,150  
Current state
     3,917       4,391       5,118  
Total current
     40,693       19,379       40,175  
Deferred federal
     (386 )     (29,153 )     (21,348 )
Deferred foreign
     (14,591 )     (13,463 )     (2,737 )
Deferred state
     4,020       (2,987 )     (936 )
Total deferred
     (10,957 )     (45,603 )     (25,021 )
Income tax expense (benefit)
   $ 29,736     $ (26,224 )   $ 15,154  
 
 
 Current income tax expense increased $21.3 million for the year ended December 31, 2012 as compared to the prior year due principally to the carryback of domestic net operating losses in 2011 which generated $24.2 million of federal tax refunds.  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.
 
Deferred income tax benefit decreased $34.6 million for the year ended December 31, 2012 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 and an increase in the blended state tax rate in 2012.  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.
 
The domestic loss from continuing operations before income taxes was $232.3 million, $200.4 million and $294.7 million for 2012, 2011 and 2010, respectively. Non-United States income from continuing operations before income taxes was $100.1 million, $103.8 million and $106.0 million for 2012, 2011 and 2010, respectively.
 
Significant components of the Company's deferred tax liabilities and assets as of December 31, 2012 and 2011 are as follows:
 
   
2012
    
2011
  
   
(in thousands)
  
Deferred tax liabilities:
            
Intangible assets
   $ 281,071     $ 317,862  
Prepaid expenses
     4,575       2,067  
Long-term debt
     41,949       32,773  
Total deferred tax liabilities
     327,595       352,702  
                 
Deferred tax assets:
                
Intangible and fixed assets
     27,723       75,353  
Accrued expenses
     53,125       59,346  
Net operating loss carryforwards
     379,111       288,830  
Foreign tax credit carryforwards
     38,710       32,541  
Equity compensation
     47,542       39,249  
Investments in nonconsolidated affiliates
     5,267       5,125  
Other
     14,114       13,670  
Total gross deferred tax assets
     565,592       514,114  
                 
Valuation allowance
     425,404       336,799  
Total deferred tax assets
     140,188       177,315  
Net deferred tax liabilities
   $ (187,407 )   $ (175,387 )
 

 
 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 was 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 in 2011. For further discussion of events involving Front Line, see Note 3—Acquisitions.
 
During 2012 and 2011, the Company recorded net deferred tax liabilities of $21.3 million and $6.3 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.  As of December 31, 2012, the Company has United States federal and state deferred tax assets related to net operating loss carryforwards of $267.1 million and $69.8 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.  Pursuant to an amended U.S. federal tax return for the year ended December 31, 2009, changes to deferred tax assets are reflected in the comparative schedule of 2012 and 2011 deferred tax liabilities and assets above.  Specifically, as of December 31, 2011, the deferred tax asset for net operating loss ccarryforwards increased $63.4 million, the deferred tax asset for foreign tax credit carryforwards decreased $50.9 million and the valuation allowance on deferred tax assets increased $12.5 million.
 
The reconciliation of income tax from continuing operations computed at the United States federal statutory tax rates to income tax expense (benefit) is:
 
   
2012
    
2011
    
2010
  
   
(in thousands)
  
Income tax benefit at statutory rates
   $ (46,256 )   $ (33,820 )   $ (66,029 )
State income taxes, net of federal tax benefits
     3,917       4,391       5,118  
Differences of foreign taxes from U.S. statutory rates
     (25,637 )     (25,158 )     (24,150 )
Non-U.S. income inclusions and exclusions
     9,901       11,288       19,358  
Loss on preferred stock redemption
     -       -       3,099  
Nondeductible acquisition costs
     -       -       15,100  
Nondeductible items
     9,005       9,252       3,669  
Tax contingencies
     4,316       2,632       545  
Change in valuation allowance
     (79,214)       7,412       55,269  
Other, net
     (4,724 )     (2,221 )     3,175  
    $ 29,736     $ (26,224 )   $ 15,154  
 
 
During 2012, the Company recorded income tax expense of approximately $29.7 million on losses from continuing operations before tax of $132.2 million. Income tax expense is principally attributable to the Company's earnings in foreign tax jurisdictions. 
 
During 2011, the Company recorded an 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 of $39.5 million relating to the acquisition of the remaining interests in Front Line in the first quarter of 2011 and the carryback of the 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.
 
Differences of foreign taxes from United States statutory rates of $25.6 million,$25.2 million and $24.2 million for the years ended December 31, 2012, 2011 and 2010, respectively, are primarily attributable to the Company's Luxembourg holding company structure and tax rulings received from the Luxembourg tax authorities.
 
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, 2012 and 2011, the Company had $16.0 million and $13.4 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, 2012, 2011 and 2010, the Company has recognized $0.7 million, $0.7 million and ($0.1) million, respectively, of interest and penalties related to uncertain tax positions. As of December 31, 2012 and 2011, the Company has accrued interest related to uncertain tax positions of $1.6 million and $1.3 million, respectively.
 
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, 2012, 2011 and 2010:
 
   
2012
    
2011
    
2010
  
   
(in thousands)
  
Balance at January 1
   $ 13,357     $ 10,917     $ 4,144  
Balance from current year acquisition
     -       -       5,925  
Additions:
                        
Tax for current year positions
     2,978       1,991       2,769  
Tax for prior year positions
     652       (86 )     100  
Interest and penalties for prior years
     686       727       150  
Reductions:
                        
Expiration of applicable statue of limitations
     -       -       (744 )
Settlements for prior year positions
     (1,716 )     -       (1,730 )
Foreign currency
     247       (192 )     239  
Reclassification to other liabilities
     (230 )     -       64  
Balance at December 31
   $ 15,974     $ 13,357     $ 10,917