Income taxes

12 Months Ended

Oct. 31, 2011

Income taxes [Abstract]

Income taxes

Note 4 — Income taxes

Income tax expense includes the following:

	2011			2010			2009
Current:
U.S. federal	$	53,983		$	9,811		$	14,370
State and local		2,029			29			858
Foreign		35,469			26,601			13,581
Total current		91,481			36,441			28,809
Deferred:
U.S. federal		1,851			34,097			7,281
State and local		23			(2,771	)		906
Foreign		(1,158	)		(4,496	)		(4,132	)
Total deferred		716			26,830			4,055
	$	92,197		$	63,271		$	32,864

Earnings before income taxes of domestic operations, which are calculated after intercompany profit eliminations, were $181,258, $130,149 and $21,864 in 2011, 2010 and 2009, respectively.

Foreign income tax expense includes a benefit related to the utilization of loss carryforwards of $682, $1,876 and $5 in 2011, 2010 and 2009, respectively.

Income tax expense for 2011 includes a benefit of $2,027 from a reduction in unrecognized tax benefits, primarily related to settlements with tax authorities. In December 2010, the U.S. Congress passed and the President signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which provided retroactive reinstatement of a research credit. As a result, income tax expense for 2011 includes a tax benefit of $1,580 related to research credit generated in 2010.

During 2010 we sold our UV Curing graphic arts and lamps product lines to Baldwin Technology Company, Inc., as discussed in Note 14, and we recognized $10,243 in tax benefits from the write-off of our tax basis in the product lines. Income tax expense for 2010 was negatively impacted by the enactment in March 2010 of the Patient Protection and Affordable Care Act and the subsequent enactment of the Health Care and Education Reconciliation Act of 2010, resulting in an additional tax charge of $5,249. The charge is due to a reduction in the value of our deferred tax asset as a result of a change to the tax treatment associated with Medicare Part D subsidies.

Expense in 2009 included a benefit of $2,752 related to remeasurement of unrecognized tax benefits and a benefit of $531 related to an adjustment to a prior tax year.

The principal items accounting for the difference in income taxes computed at the U.S. statutory rate and income tax shown in the Consolidated Statements of Income for 2011, 2010, and 2009 are as follows:

	2011			2010			2009
Tax at statutory rate of 35%	$	110,096		$	80,962		$	(44,517	)
Impact of goodwill charge		—			—			79,064
Domestic Production Deduction		(5,530	)		(1,737	)		(1,134	)
Foreign tax rate variances, net of foreign tax credits		(7,906	)		(10,550	)		1,279
State and local taxes, net of federal income tax benefit		1,310			(1,828	)		1,160
Tax expense related to tax law change		—			5,249			—
Tax benefit from sale of UV product lines		—			(10,243	)		—
Amounts related to prior years		(4,123	)		776			(3,283	)
Other — net		(1,650	)		642			295
Provision for income taxes	$	92,197		$	63,271		$	32,864

The Domestic Production Deduction, enacted by the American Jobs Creation Act of 2004, allows a deduction with respect to income from certain United States manufacturing activities.

Earnings before income taxes of international operations, which are calculated before intercompany profit elimination entries, were $133,303, $101,170 and $(149,055) in 2011, 2010 and 2009, respectively. Deferred income taxes are not provided on undistributed earnings of international subsidiaries that are intended to be permanently invested in those operations. These undistributed earnings aggregated approximately $391,679 and $340,354 at October 31, 2011 and 2010, respectively. Should these earnings be distributed, applicable foreign tax credits would substantially offset United States taxes due upon the distribution.

At October 31, 2011 and 2010, total unrecognized tax benefits were $2,576 and $4,078, respectively. The amounts that, if recognized, would impact the effective tax rate were $2,517 and $4,019 at October 31, 2011 and 2010, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits for 2011, 2010 and 2009 is as follows:

	2011			2010			2009
Balance at beginning of year	$	4,078		$	3,969		$	7,685
Additions based on tax positions related to the current year		387			388			515
Additions for tax positions of prior years		138			359			—
Reductions for tax positions of prior years		—			(638	)		(3,267	)
Settlements		(2,027	)		—			(964	)
Lapse of statute of limitations		—			—			—
Balance at end of year	$	2,576		$	4,078		$	3,969

At October 31, 2011 and 2010, we had accrued interest expense related to unrecognized tax benefits of $327 and $460, respectively. We include interest accrued related to unrecognized tax benefits in interest expense. Penalties, if incurred, would be recognized as other income (expense).

We are subject to United States Federal income tax as well as income taxes in numerous state and foreign jurisdictions. We are subject to examination in the U.S. by the Internal Revenue Service (IRS) for the 2009 through 2011 tax years; tax years prior to 2009 have been examined by the IRS. Generally, major state and foreign jurisdiction tax years remain open to examination for tax years after 2006. Within the next twelve months, it is reasonably possible that certain foreign statute of limitations periods would expire, which could result in a decrease in our unrecognized tax benefits in a range of $0 to $500. The portion of the possible reduction that, if recognized, would impact the effective tax rate is $0 to $500.

Significant components of deferred tax assets and liabilities are as follows:

	2011			2010
Deferred tax assets:
Sales to international subsidiaries and related consolidation adjustments	$	10,315		$	8,919
Employee benefits		79,027			63,520
Other accruals not currently deductible for taxes		12,114			11,681
Tax credit and loss carryforwards		10,812			5,664
Inventory adjustments		4,085			3,585
Translation of foreign currency accounts		716			316
Other — net		—			268
Total deferred tax assets		117,069			93,953
Valuation allowance		(4,287	)		(5,729	)
Total deferred tax assets		112,782			88,224
Deferred tax liabilities:
Depreciation and amortization		94,487			64,198
Translation of foreign currency accounts		17			—
Other — net		—			195
Total deferred tax liabilities		94,504			64,393
Net deferred tax assets	$	18,278		$	23,831

At October 31, 2011, we had $645 of tax credit carryforwards that will expire in 2013 through 2017. We also had $19,117 Federal, $55,798 state and $575 foreign operating loss carryforwards, of which $74,915 will expire in 2012 through 2031, and $575 of which has an indefinite carryforward period. The net change in the valuation allowance was a decrease of $1,442 in 2011 and a decrease of $2,081 in 2010. The valuation allowance of $4,287 at October 31, 2011, relates primarily to tax credits and loss carryforwards that may expire before being realized.