(9)                     Income Taxes

Interim income taxes are based on an estimated annualized effective tax rate applied to the respective quarterly periods, adjusted for discrete tax items in the periods in which they occur. For the three months ended June 30, 2012 and 2011, the Company’s provision for income taxes, as a percentage of income before income taxes was 30.5 percent and 26.4 percent, respectively, compared with a U.S. federal statutory rate of 35.0 percent.  For the six months ended June 30, 2012 and 2011, the Company’s provision for income taxes, as a percentage of income before income taxes was 25.7 percent and 21.1 percent, respectively, compared with a U.S. federal statutory rate of 35.0 percent.

The differences between the effective tax rates and the U.S. federal statutory tax rate for the three months ended June 30, 2012 were primarily attributed to a domestic valuation allowance release related to the utilization of foreign tax credits (-3.4 percent), in addition to net favorable foreign items related to foreign tax rate differences, the impact of unremitted earnings, and adjustments to foreign valuation allowances (-2.2 percent).

The differences between the effective tax rates and the U.S. federal statutory rate for the three months ended June 30, 2011 were primarily attributed to a decrease in deferred tax liabilities related to taxes on unremitted foreign earnings (-3.5 percent).

The differences between the effective tax rate and the U.S. federal statutory tax rate for the six months ended June 30, 2012 were primarily attributed to a domestic valuation allowance release related to the utilization of foreign tax credits (-6.4 percent), in addition to net favorable foreign items related to foreign tax rate differences, the impact of unremitted earnings, and adjustments to foreign valuation allowances (-4.1 percent).

The differences between the effective tax rate and the U.S. federal statutory tax rate for the six months ended June 30, 2011 were primarily attributed to net decreases in tax liabilities associated with uncertain tax positions due to the expiration of the statute of limitations on certain liabilities in various foreign jurisdictions (-6.4%), in addition to a decrease in deferred tax liabilities related to taxes on unremitted foreign earnings (-5.7%).

The Company’s U.S. federal income tax returns for 2003 through 2007, and 2009 and 2010 are open to examination for federal tax purposes. The Company has several foreign tax jurisdictions that have open tax years from 2004 through 2011. The Internal Revenue Service (“IRS”) is currently conducting an audit of the Company’s U.S. federal income tax returns for the 2009 and 2010 tax years.

In October 2009, the IRS issued an examination report formally proposing adjustments with respect to the 2003 through 2005 taxable years, which primarily relate to the prices that were charged in intra-group transfers of property and the disallowance of related deductions. The Company challenged the IRS proposals, and took the matter before the Office of Appeals of the Internal Revenue Service.  A settlement was reached with IRS Appeals and a proposed settlement agreement was signed by NSP in January 2012. The Company has made all required payments as of June 30, 2012 related to this matter and, absent further comment from the IRS, the examination period for the 2003 through 2005 taxable years will close on December 31, 2012.

During 2011, the IRS issued an examination report formally proposing adjustments with respect to the 2006 through 2008 taxable years.  As with the previous examination cycle discussed above, the adjustments relate primarily to the prices that were charged in intra-group transfers of property and the disallowance of related deductions.  The Company reached a settlement of the issues with the IRS examination team and an agreement was signed by the Company in January 2012.  On March 7, 2012, the Company received a letter from the IRS examination team stating that they accepted the examination report and do not plan to make additional changes. The Company has made all required payments as of June 30, 2012 related to this matter and, absent further comment from the IRS, the examination period for the 2006 through 2007 taxable years will close on September 15, 2012. The examination period for the 2008 taxable year previously closed on March 15, 2012.

As of June 30, 2012, the Company had accrued $9,784 related to unrecognized tax positions compared with $10,426 as of December 31, 2011. This net decrease was primarily attributed to the expiration of the statute of limitations on certain liabilities in various foreign jurisdictions.

Changes to the effective rate due to dividends received from foreign subsidiaries, impact of foreign tax credits and the unremitted earnings calculation are expected to be recurring; however, depending on various factors, the changes may be favorable or unfavorable in a particular period. The Company’s aggregate consolidated effective tax rate will typically reflect differences between the lower statutory rates in foreign markets compared to the U.S. statutory rate of 35 percent. Given the large number of jurisdictions in which the Company does business and the number of factors that can impact effective tax rates in any given year, the consolidated effective rate is likely to reflect relatively significant fluctuations from year-to-year.

Although the Company believes its estimates related to its unrecognized tax benefits are reasonable, the Company can provide no assurances that the final tax outcome of these matters will not be different from that which it has reflected in its historical income tax provisions and accruals. Any difference in the final tax outcome of these matters could have a material impact on the Company’s income tax provision and operating results in the periods in which the Company makes such determination.