Income Taxes

Income Tax Expense (Benefit)

Income (loss) from continuing operations before income taxes was as follows for the years ended (in thousands):



	2011		2010			2009
Domestic	$	3,617	$	(259,866	)	$	(76,430	)
Foreign	4,832		8,966			5,801
	$	8,449	$	(250,900	)	$	(70,629	)

Income tax expense (benefit) on income (loss) from continuing operations consisted of the following for the years ended (in thousands):



	2011			2010			2009
Current tax expense (benefit):
Federal	$	(4,113	)	$	(5,574	)	$	(7,714	)
Foreign	1,361			1,655			2,276
State	436			(468		)	727
	(2,316		)	(4,387		)	(4,711		)
Deferred expense (benefit):
Federal	11,165			(39,373		)	(14,018		)
Foreign	1,000			(278		)	313
State	(372		)	(9,164		)	(3,177		)
	11,793			(48,815		)	(16,882		)
Income tax expense (benefit)	$	9,477		$	(53,202	)	$	(21,593	)

The Company's current tax expense (benefit) for the year ended 2011 includes a tax benefit of $5.1 million for the utilization of income tax loss carryforwards and credits.

A reconciliation of the expected tax expense (benefit) based on the federal statutory tax rate to the Company’s actual income tax expense (benefit) is summarized as follows for the years ended (in thousands):



	2011			2010			2009
Expected tax expense (benefit) at federal statutory income tax rate	$	2,957		$	(87,815	)	$	(24,719	)
State and local income tax expense (benefit)	2,314			(5,686		)	(1,795		)
Change in valuation allowance	(2,592		)	(352		)	356
Change in contingency reserves	(84		)	(3,810		)	265
Non-U.S. tax rate differences	670			(1,762		)	560
Non-deductible goodwill	—			41,522			—
Non-deductible expenses	6,863			3,236			4,504
Other	(651		)	1,465			(764		)
Income tax expense (benefit)	$	9,477		$	(53,202	)	$	(21,593	)

Deferred Income Taxes

Deferred taxes are recorded to give recognition to temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The tax effects of these temporary differences are recorded as deferred tax assets and deferred tax liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in future years. Deferred tax liabilities generally represent items that have been deducted for tax purposes, but have not yet been recorded in the consolidated statements of operations. The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities of the Company, were as follows (in thousands):



	2011			2010
Deferred tax assets:
Net operating loss carryforwards	$	99,523		$	101,050
Compensation and benefit related accruals	68,350			53,253
Foreign tax credit carryforwards	16,661			16,661
Alternative minimum tax credit carryforwards	8,526			9,046
Accounts receivable	2,696			2,828
Restructuring accruals	11,468			12,626
Accrued tax and interest	1,446			1,357
Other	8,737			11,848
Valuation allowance	(21,518		)	(24,110		)
Total deferred tax assets	195,889			184,559

Deferred tax liabilities:
Property, plant and equipment	(52,467		)	(51,275		)
Goodwill and other intangible assets	(68,487		)	(68,872		)
Inventory	3,869			1,560
Other	(9,217		)	(8,805		)
Total deferred tax liabilities	(126,302		)	(127,392		)
Net deferred tax asset	$	69,587		$	57,167

The net deferred tax asset (liability) included the following (in thousands):



	2011		2010
Current deferred tax asset (included in prepaid and other current assets)	$	28,718	$	26,041
Long-term deferred tax asset (included in other assets, net)	40,869		31,126
Total	$	69,587	$	57,167

The Company has federal and state net operating loss carryforwards. The tax effect of these attributes was $99.5 million as of the year ended 2011. Federal net operating loss carryforwards of $255.0 million will expire from 2022 through 2030, foreign tax credit carryforwards of $16.7 million will expire from 2012 through 2015 and alternative minimum tax credit carryforwards of $8.5 million, which do not have an expiration date.

The Company assesses the recoverability of its deferred tax assets and, to the extent recoverability does not satisfy the “more likely than not” recognition criteria under ASC 740, records a valuation allowance against its deferred tax assets. The Company considered its recent operating results and anticipated future taxable income in assessing the need for its valuation allowance. As a result, in the fourth quarter of 2011 and 2010, we reduced our valuation allowance by approximately $2.6 million and $0.4 million, respectively, primarily due to the release of valuation allowance against state net operating loss carryforwards.

The remaining portion of the Company’s valuation allowance as of the year ended 2011 will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that the remaining deferred tax assets will be realized. The Company believes that the remaining deferred tax assets are more likely than not to be realized based upon consideration of all positive and negative evidence, including its operating results and forecast of future taxable income, on a jurisdiction by jurisdiction basis. When sufficient positive evidence exists, the Company’s income tax expense will be reduced by the decrease in its valuation allowance. An increase or reversal of the Company’s valuation allowance could have a significant adverse or positive impact on the Company’s future consolidated financial position and statement of operations.

Uncertain Tax Positions

The Company accounts for uncertain tax positions by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. During 2011, the Company did not reduce its liability for uncertain tax positions. In 2010, the Company reduced its liability for uncertain tax positions by $10.7 million, net of deferred tax assets of $3.9 million, as a result of the expiration of certain statutes of limitations. As a result, in 2010, income tax benefits of $2.8 million are included in income from discontinued operations, net of taxes, in the consolidated statement of operations. The Company does not anticipate significant changes to its unrecognized tax benefits in the next twelve months. The balance of the Company’s remaining unrecognized tax benefits as of the year ended 2011 includes $2.2 million of tax benefits that, if recognized would affect the effective tax rate, which is included in other liabilities. The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. Related to the uncertain tax benefits noted above, the Company accrued interest of $0.2 million during 2011 and, in total, as of the year ended 2011, has recognized no liabilities for penalties and liabilities of $1.7 million for interest.

The Company’s unrecognized tax benefit activity for the years ended 2009, 2010 and 2011 was as follows (in thousands):



Unrecognized tax benefit – As of year end 2008	$	17,177
Gross increases - tax positions in prior period	203
Gross decreases – expiration of applicable statute of limitations	(7,798		)
Unrecognized tax benefit – As of year end 2009	9,582
Gross decreases - tax positions in prior period	(40		)
Gross decreases – expiration of applicable statute of limitations	(7,316		)
Unrecognized tax benefit – As of year end 2010	2,226
Gross decreases - tax positions in prior period	—
Gross decreases – expiration of applicable statute of limitations	—
Unrecognized tax benefit – As of year end 2011	2,226

The Internal Revenue Service (“IRS”) has examined the Company’s federal income tax returns through 2008. The Company’s federal income tax returns for tax years after 2004 through 2006 remain subject to examination by the IRS due to a federal net operating loss generated in those years. Although the IRS has audited the Company’s tax returns for 2007 and 2008, those returns remain subject to examination under the statute of limitations. However, a re-examination of the 2007 and 2008 tax returns is not likely. The various states in which the Company is subject to income tax are generally open for the tax years after 2006. In Canada, the Company remains subject to audit for tax years after 2003. The Company does not believe that the outcome of any examination will have a material impact on its consolidated financial statements.

Current Taxes and Cash Taxes

As of the years ended 2011 and 2010, the Company had income tax receivables of $1.5 million included in other current assets and income taxes payable of $1.2 million included in other current liabilities, respectively. Net cash payments (refunds) for income taxes were $2.1 million in 2011, $(3.0) million in 2010 and $1.5 million in 2009.