NOTE 10: INCOME TAXES

 

Income from continuing operations before provision (benefit) for income taxes are taxed under the following jurisdictions:

 

 

Components of the provision (benefit) for income taxes for each of the three years in the period ended December 31, 2014 are as follows:

 

 

The provision (benefit) for income taxes, as a percentage of income from continuing operations before provision (benefit) for income taxes, differs from the statutory U.S. federal income tax rate due to the following:

 

 

Pretax earnings of a foreign subsidiary or affiliate are subject to U.S. taxation when effectively repatriated. The Company does not intend to reinvest undistributed earnings indefinitely in the Company’s foreign subsidiaries.

 

Adjustments relating to the U.S. impact of foreign operations decreased the effective tax rate by 73.0, 16.2, and 2.3 percentage points in 2014, 2013 and 2012, respectively. The components of this calculation were:

 

 

The significant components of the deferred tax assets (liabilities) are as follows:

 

 

The components of deferred tax assets (liabilities), net are as follows:

 

 

Net current deferred tax liabilities are included in accrued liabilities and net non-current deferred tax liabilities are included in other liabilities in the consolidated balance sheets.

 

Management has provided a valuation allowance of $13,169 and $11,340 as of December 31, 2014 and 2013, respectively, for certain deferred tax assets, including foreign net operating losses, for which management cannot conclude it is more likely than not that they will be realized. The Company reviewed its tax positions and increased its valuation allowance by approximately $1,829 in 2014 primarily due to a domestic increase of $2,736 and a foreign decrease of $907.

 

At December 31, 2014, foreign subsidiaries had unused operating loss carryovers for tax purposes of approximately $5,824. The net operating losses will expire at various dates from 2015 through 2024. For financial reporting purposes, the release of these valuation allowances would reduce income tax expenses. At December 31, 2014, the Company had approximately $12,590 of foreign tax and withholding credits, most of which expire in 2024.

 

The Company is subject to regular audits by federal, state and foreign tax authorities. These audits may result in additional tax liabilities. The Company believes it has appropriately provided for income taxes for all years. Several factors drive the calculation of its tax reserves. Some of these factors include: (i) the expiration of various statutes of limitations; (ii) changes in tax law and regulations; (iii) the issuance of tax rulings; and (iv) settlements with tax authorities. Changes in any of these factors may result in adjustments to the Company’s reserves, which would impact its reported financial results.

 

The Company’s U.S. federal income tax returns for 2009 through 2013 are open to examination for federal tax purposes. The Internal Revenue Service (“IRS”) is currently concluding an audit of the Company’s U.S. federal income tax returns for the 2009 through 2011 tax years. The Company has several foreign tax jurisdictions that have open tax years from 2007 through 2014.

 

The total outstanding balance for liabilities related to unrecognized tax benefits at December 31, 2014 and 2013 was $6,598 and $12,402, respectively, all of which would favorably impact the effective tax rate if recognized.  Included in these amounts is approximately $1,648 and $1,352, respectively, of combined interest and penalties.  The Company increased interest and penalties approximately $297 and $300 for the years ended December 31, 2014 and 2013, respectively.  The Company accounts for interest expense and penalties for unrecognized tax benefits as part of its income tax provision.

 

During the years ended December 31, 2014, 2013 and 2012, the Company added approximately $2,261, $2,656 and $3,471, respectively, to its liability for unrecognized tax benefits. Included in these amounts are approximately $326, $300 and $339 for the years ended December 31, 2014, 2013 and 2012, respectively, related to interest expense and penalties. In addition, the Company recorded a benefit related to the lapse of applicable statute of limitations of approximately $273, $323 and $2,815 for the years ended December 31, 2014, 2013 and 2012, respectively, all of which favorably impacted the Company’s effective tax rate.

 

A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax benefits, excluding interest and penalties, is as follows for the years:

 

 

The Company anticipates that liabilities related to unrecognized tax benefits will increase approximately $800 to $1,200 within the next twelve months due to additional transactions related to commissions and transfer pricing.

 

The Company believes that it is reasonably possible that unrecognized tax benefits will decrease approximately $100 to $300 within the next twelve months due to the expiration of statutes of limitations in various jurisdictions.

 

Although the Company believes its estimates are reasonable, the Company can make no assurance 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.  Such differences could have a material impact on the Company’s income tax provision and operating results in the period in which the Company makes such determination.