INCOME TAXES FROM CONTINUING OPERATIONS

9 Months Ended

Sep. 30, 2013

INCOME TAXES FROM CONTINUING OPERATIONS

INCOME TAXES FROM CONTINUING OPERATIONS

NOTE 12—INCOME TAXES FROM CONTINUING OPERATIONS

During the three and nine months ended September 30, 2013, the Company recorded an income tax benefit of $268 and $4,346, respectively, resulting in an effective tax rate of 4.3% and 22.9%, respectively.  The projected annual effective tax rate excluding discrete items primarily related to disallowed foreign losses is a benefit of 26.9% as compared to the U.S. federal statutory rate of 35.0%. The annual effective tax rate is principally driven by the Company’s expected mix of geographic earnings.

During the three and nine months ended September 30, 2012, the Company recorded an income tax benefit of $2,800 and $5,250, respectively resulting in an effective tax rate of 43.9% and 5.6%, respectively.  The effective tax rate from continuing operations for the nine months ended September 30, 2012 also reflects discrete items recorded in the first quarter of 2012 relating to the goodwill impairment for which no tax benefit is recorded, settlement of income tax audits resulting in a $1,000 benefit, and a benefit related to a favorable adjustment of $538 made upon filing the Company’s 2011 tax returns.

The Company records a valuation allowance on deferred tax assets if the Company determines that it is more than likely than not that all or a portion of the assets will not be realized. In accordance with ASC 740–10–30, in assessing the need for a valuation allowance, the Company considers all of the positive and negative evidence including: estimates of taxable income, considering the feasibility of ongoing tax planning strategies, the reliability of loss carryforwards and the future reversal of existing temporary differences. Valuation allowances related to deferred tax assets can be impacted by changes to tax laws, changes to statutory tax rates and future taxable income levels. In the event the Company determines that it would not be able to realize all or a portion of its tax assets in the future, the unrealizable amount would be charged to earnings in the period in which that determination is made. By contrast, if the Company determines that it would be able to realize deferred tax assets in the future in excess of the net carrying amounts, it would decrease the recorded valuation allowance through a favorable adjustment of earnings in the period in which that determination is made.

During the third quarter of 2012, the taxable gain associated with the sale of the Company’s QA business in September 2011 was finalized and the Company recorded an income tax benefit to discontinued operations of $4,246. Refer to Note–3 Discontinued Operations for further explanation.

A shift in the mix of the Company’s expected geographic earnings, primarily in Malaysia, could cause its expected effective tax rate to change significantly.

On September 13, 2013, Treasury and the Internal Revenue Service (“IRS”) issued final and re-proposed tangible personal property regulations effective for tax years beginning on or after January 1, 2014, which taxpayers may apply to earlier tax years.  The Company will assess the impact of the final and re-proposed regulations and whether to adopt early.

In August, the Company received notification that its 2012 and 2011 U.S. federal tax returns have been selected for audit by the IRS. The Company has recorded an income tax receivable as of September 30, 2013 of $5,629 related to its 2012 U.S. federal tax return, $1,101 related to Spain and $2,818 related to its anticipated 2013 U.S. federal tax return on its Condensed Consolidated Balance Sheets.