Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes

Income Taxes

Note 6—Income Taxes

The components of income before income taxes and the provision for income taxes are as follows:

	Year Ended December 31,
	2011			2010		2009
Income before income taxes:
United States	$	176,739		$	225,334	$	98,170
Foreign	540,013			438,354		348,357
	$	716,752		$	663,688	$	446,527
Current tax provision:
United States	$	44,769		$	77,590	$	38,621
Foreign	128,608			79,607		89,969
	$	173,377		$	157,197	$	128,590
Deferred tax provision (benefit):
United States	$	17,733		$	3,020	$	(2,295	)
Foreign	(3,200		)	1,058		(6,984		)
	14,533			4,078		(9,279		)
Total provision for income taxes	$	187,910		$	161,275	$	119,311

At December 31, 2011, the Company had $56,138 and $3,547 of foreign tax loss and credit carryforwards, and U.S. state tax loss and credit carryforwards net of federal benefit, respectively, of which $34,774 and $270, respectively, expire or will be refunded at various dates through 2026 and the balance can be carried forward indefinitely.

A valuation allowance of $19,129 and $20,091 at December 31, 2011 and 2010, respectively, has been recorded which relates to the foreign net operating loss carryforwards and U.S. state tax credits.  The net change in the valuation allowance for deferred tax assets was a decrease of $962 and an increase of $6,275 in 2011 and 2010, respectively, which was related to foreign net operating loss and foreign and U.S. state credit carryforwards.

Differences between the U.S. statutory federal tax rate and the Company’s effective income tax rate are analyzed below:

	Year Ended December 31,
	2011		2010		2009
U.S. statutory federal tax rate	35.0	%	35.0	%	35.0	%
State and local taxes	.4		.8		.9
Foreign earnings and dividends taxed at different rates	(8.2	)	(11.5	)	(9.6	)
Valuation allowance	(.2	)	(1.0	)	1.0
Other	(.8	)	1.0		(.6	)
Effective tax rate	26.2	%	24.3	%	26.7	%

The 2011 tax rate reflects a reduction in tax expense of $4,493 relating primarily to reserve adjustments from the favorable settlement of certain tax positions and the completion of prior year audits.  The 2010 tax rate reflects a reduction in tax expense of $20,700 for tax reserve adjustments relating to the completion of the audits of certain of the Company’s prior year tax returns.  The 2009 tax rate reflects reductions in tax expense of $3,600 for tax reserve adjustments relating to the completion of the audit of certain of the Company’s prior year tax returns.  Excluding these adjustments, the Company’s effective tax rate for 2011, 2010, and 2009 was 26.8%, 27.4%, and 27.5%, respectively.

The Company’s deferred tax assets and liabilities included in Other Current Assets, Other Long-Term Assets and in Other Long-Term Liabilities in the accompanying Consolidated Balance Sheets, excluding the valuation allowance, comprised the following:

	December 31,
	2011		2010
Deferred tax assets relating to:
Accrued liabilities and reserves	$	16,363	$	15,192
Operating loss and tax credit carryforwards	18,270		18,604
Pensions, net	48,105		38,184
Inventory reserves	17,173		17,426
Employee benefits	29,760		22,942
	$	129,671	$	112,348
Deferred tax liabilities relating to:
Goodwill	$	74,013	$	59,922
Depreciation	7,086		(2,637		)
Contingent consideration	6,591		—
	$	87,690	$	57,285

At December 31, 2011 and 2010, the amount of the liability for unrecognized tax benefits, including penalties and interest, which if recognized would impact the effective tax rate, was approximately $21,886 and $23,271, respectively.

A tabular reconciliation of the gross amounts of unrecognized tax benefits excluding interest and penalties at the beginning and end of the year for 2011, 2010 and 2009 are as follows:

	2011			2010			2009
Unrecognized tax benefits as of January 1	$	22,560		$	35,528		31,272
Gross increases and gross decreases for tax positions in prior periods	(64		)	2,036			4,576
Gross increases - current period tax position	2,278			2,968			6,027
Settlements	(451		)	(11,880		)	—
Lapse of statute of limitations	(4,108		)	(6,092		)	(6,347	)
Unrecognized tax benefits as of December 31	$	20,215		$	22,560		35,528

The Company includes estimated interest and penalties related to unrecognized tax benefits in the provision for income taxes. During the year ended December 31, 2011, the provision for income taxes included a net expense of $566 in estimated interest and penalties.  As of December 31, 2011, the liability for unrecognized tax benefits included $3,131 for tax-related interest and penalties.

The Company operates in over sixty tax jurisdictions, and at any point in time has numerous audits underway at various stages of completion. With few exceptions, the Company is subject to income tax examinations by tax authorities for the years 2008 and after. The Company is generally not able to precisely estimate the ultimate settlement amounts or timing until the close of an audit.  The Company evaluates its tax positions and establishes liabilities for uncertain tax positions that may be challenged by local authorities and may not be fully sustained, despite the Company’s belief that the underlying tax positions are fully supportable. As of December 31, 2011, the amount of the liability for unrecognized tax benefits, which if recognized would impact the effective tax rate, was $21,886 the majority of which is included in other long-term liabilities in the accompanying Consolidated Balance Sheets. Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including progress of tax audits and closing of statute of limitations. Based on information currently available, management anticipates that over the next twelve month period, audit activity could be completed and statutes of limitations may close relating to existing unrecognized tax benefits of $3,751.