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INCOME TAXES
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9 Months Ended |
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Sep. 30, 2012
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| INCOME TAXES [Abstract] | |
| INCOME TAXES |
NOTE 8—INCOME TAXES
The Company calculates interim effective tax rates in accordance with the FASB guidance for income taxes and applies the estimated annual effective tax rate to year-to-date pretax income (loss) at the end of each interim period to compute a year-to-date tax expense (or benefit). This guidance requires departure from effective tax rate computations when losses incurred within tax jurisdictions cannot be carried back and future profits associated with operations in those tax jurisdictions cannot be assured beyond any reasonable doubt. Accordingly, the Company has calculated and applied an expected annual effective tax rate of approximately 19% for 2012 (as compared to 19% in the prior year), excluding significant, unusual or extraordinary items, for ordinary income associated with operations for which the Company currently expects to have annual taxable income, which are principally outside of the United States. The Company has not recorded tax benefits associated with losses from operations for which future taxable income cannot be reasonably assured. As required by this guidance, the Company also includes tax effects of significant, unusual or extraordinary items in income tax expense in the interim period in which they occur.
Net income tax expense is $21.5 million for the nine months ended September 30, 2012. The components of tax expense that contributed to the net income tax expense for the nine months ended September 30, 2012 primarily consist of income tax expense of $16.5 million based on the expected annual rate pertaining to ordinary income for the nine-month period, state and local taxes of $3.2 million, the establishment of valuation allowances of $0.8 million on deferred tax assets and an increase for discrete unrecognized tax benefits of $1.7 million partially offset by discrete deferred tax benefits of $1.1 million related to a decrease in the United Kingdom tax rate.
As of September 30, 2012 and December 31, 2011, the Company had unrecognized tax benefits of approximately $14.7 million and $13.4 million, respectively. During the nine months ended September 30, 2012, unrecognized tax benefits increased by approximately $1.3 million, primarily attributable to tax, interest and penalty accruals of approximately $2.9 million and currency translation adjustments of $0.1 million. These increases were partially offset by $1.7 million for settlements. All of these unrecognized tax benefits would favorably impact the effective tax rate if recognized in the future.
Historically, the Company has reinvested all foreign earnings in its continuing foreign operations. The Company currently believes all undistributed foreign earnings that are not currently subject to United States federal income tax will be indefinitely reinvested in its foreign operations.
The tax years 2001 through 2011 remain open to examination by the major tax jurisdictions to which the Company is subject.
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