10 — INCOME TAXES

Following is a summary of the components of income before income taxes for the years ended December 31 (in thousands):


	2011		2010		2009

U.S.	$	124,915	$	78,933	$	54,793
Non-U.S.		77,269		55,152		60,733

Income before income taxes	$	202,184	$	134,085	$	115,526

The expense for income taxes on the above income consists of the following components (in thousands):


	2011			2010			2009

Current tax expense:
U.S. federal	$	23,327		$	9,078		$	8,749
State and local		4,236			2,645			3,107
Foreign		13,845			10,341			14,340

Total current		41,408			22,064			26,196
Deferred tax (benefit) expense:
U.S. federal		(5,192	)		4,263			7,477
State and local		1,269			72			3,168
Foreign		(1,434	)		(6,013	)		1,281

Total deferred		(5,357	)		(1,678	)		11,926

Total current and deferred		36,051			20,386			38,122

Benefit (expense) relating to interest rate swap used to increase (decrease) equity		3,134			(2,523	)		(2,530	)
Benefit from stock transactions with employees used to increase equity		25,812			18,559			621
Benefit (expense) relating to defined-benefit pension adjustments used to increase (decrease) equity		285			375			(296	)
Benefit (expense) of acquired tax assets (liabilities) used to decrease (increase) goodwill		—			1,003			(3,355	)

Total tax expense	$	65,282		$	37,800		$	32,562

Current and long-term deferred tax assets and liabilities are comprised of the following (in thousands):


	December 31,

	2011			2010

Expense accruals	$	40,438		$	39,892
Loss and credit carryforwards		24,282			19,999
Assets relating to equity compensation		18,226			16,599
Other assets		8,949			5,244

Gross deferred tax asset		91,895			81,734
Depreciation		(9,199	)		(5,595	)
Intangible assets		(17,024	)		(14,816	)
Prepaid expenses		(10,183	)		(9,342	)
Other liabilities		—			(110	)

Gross deferred tax liability		(36,406	)		(29,863	)
Valuation allowance		(1,869	)		(2,634	)

Net deferred tax asset	$	53,620		$	49,237

Current net deferred tax assets and current net deferred tax liabilities were $31.4 million and $0.6 million as of December 31, 2011 and $28.4 million and $0.4 million as of December 31, 2010, respectively, and are included in Prepaid expenses and other current assets and Accounts payable and accrued liabilities in the Consolidated Balance Sheets. Long-term net deferred tax assets and long-term net deferred tax liabilities were $22.8 million and zero as of December 31, 2011 and $21.2 million and zero as of December 31, 2010, respectively, and are included in Other assets and Other liabilities in the Consolidated Balance Sheets. It is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.

The valuation allowances of $1.9 million as of December 31, 2011 and $2.6 million as of December 31, 2010 relate primarily to non-U.S. net operating losses and domestic capital loss carryforwards that more likely than not will expire unutilized. The net decrease in the valuation allowance of $0.7 million in 2011 relates primarily to the release of valuation allowances on federal and state capital loss carryovers.

The Company has established a full valuation allowance against domestic realized and unrealized capital losses, as the future utilization of these losses is uncertain. As of December 31, 2011, the Company had U.S. federal capital loss carryforwards of $0.8 million, all of which will expire in 2012. The Company also had $0.8 million in state and local capital loss carryforwards that expire over a similar period of time.

As of December 31, 2011, the Company had state and local tax net operating loss carryforwards of $139.9 million, of which $5.0 million expire within one to five years, $114.2 million expire within six to fifteen years, and $20.7 million expire within sixteen to twenty years. In addition, the Company had non-U.S. net operating loss carryforwards of $27.3 million, of which $2.6 million expire over the next 20 years and $24.7 million that can be carried forward indefinitely. As of December 31, 2011 the Company also had foreign tax credit carryforwards of $10.0 million, the majority of which expire in 2018.

The differences between the U.S. federal statutory income tax rate and the Company’s effective tax rate on income before income taxes for the years ended December 31 follow:


	2011			2010			2009

Statutory tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal benefit		3.8			3.3			3.0
Foreign income taxed at different rates		(5.9	)		(6.2	)		(5.0	)
Repatriation of foreign earnings		(0.4	)		8.5			4.1
Record (release) valuation allowance		(0.4	)		(12.7	)		(4.5	)
Foreign tax credits		(2.3	)		(0.8	)		(1.9	)
Record (release) reserve for tax contingencies		3.1			2.0			(3.5	)
Other items, net		(0.6	)		(0.9	)		1.0

Effective tax rate		32.3	%		28.2	%		28.2	%

As of December 31, 2011 and December 31 2010, the Company had gross unrecognized tax benefits of $18.3 million and $15.8 million, respectively. The increase is primarily attributable to uncertainties surrounding the utilization of certain tax attributes. It is reasonably possible that the gross unrecognized tax benefits will be decreased by $2.9 million within the next 12 months due primarily to anticipated settlements of audits and the expiration of certain statutes of limitation. The benefits in question relate primarily to the utilization of certain tax attributes.

The Company classifies uncertain tax positions not expected to be settled within one year as long term liabilities. As of December 31, 2011 and December 31, 2010, the Company had Other Liabilities of $15.4 million and $15.7 million, respectively, related to long term uncertain tax positions.

The Company records accrued interest and penalties related to unrecognized tax benefits in its income tax provision. As of December 31, 2011 and December 31, 2010, the Company had $4.8 million and $3.8 million of accrued interest and penalties, respectively, related to unrecognized tax benefits. These amounts are in addition to the gross unrecognized tax benefits noted above. The total amount of interest and penalties recognized in the Consolidated Statements of Operations for years ending December 31, 2011 and 2010 was $1.5 million and $1.0 million, respectively.

The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, for the years ending December 31 (in thousands):


	2011			2010

Beginning balance	$	15,824		$	13,804
Additions based on tax positions related to the current year		2,269			3,999
Additions for tax positions of prior years		4,375			592
Reductions for tax positions of prior years		(746	)		(137	)
Reductions for expiration of statutes		(269	)		(610	)
Settlements		(2,661	)		(1,668	)
Change in foreign currency exchange rates		(447	)		(156	)

Ending balance	$	18,345		$	15,824

In 2011, the Company repatriated approximately $32.6 million from its foreign subsidiaries. The cash cost of the repatriation was offset with the utilization of foreign tax credits and capital loss carryovers.

The number of years with open statutes of limitation varies depending on the tax jurisdiction. Generally, the Company’s statutes are open for tax years ended December 31, 2007 and forward. Major taxing jurisdictions include the U.S. (federal and state), the United Kingdom, France, Germany, Australia, Italy, Canada, Japan, the Netherlands, and Ireland.

The Internal Revenue Service (“IRS”) completed its examination of the federal income tax return of the Company for the tax year ended December 31, 2007. In December 2010, the Company received a report of the audit findings. The Company disagrees with certain of the proposed adjustments and is disputing this matter through applicable IRS and judicial procedures, as appropriate. In addition, in the second quarter of 2011 the IRS commenced an audit of the Company’s 2008 and 2009 tax years. The Company continues to comply with all information requests and no material adjustments of the Company’s tax positions have been proposed at this time for the 2008 and 2009 tax years. Although the final resolution of these audits is uncertain and there are no assurances that the ultimate resolution will not exceed the amounts recorded, the Company believes that the ultimate disposition of these matters will not have a material adverse effect on its consolidated financial position, cash flows, or results of operations.

Earnings of a non-U.S. subsidiary or affiliate are subject to U.S. taxation when repatriated. The Company intends to reinvest earnings outside the U.S. except in instances where repatriating such earnings would result in minimal additional tax. The Company currently has no plan to remit earnings which will result in a material additional tax cost. Accordingly, the Company has not recognized U.S. tax expense on non-U.S. earnings. At December 31, 2011, the accumulated undistributed earnings of non-U.S. subsidiaries approximated $41.3 million and were indefinitely invested. An estimate of the U.S. income tax liability that would be payable if such earnings were not indefinitely reinvested is $9.7 million.