Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 12 Months Ended
Dec. 31, 2011
Income Taxes [Abstract]  
Income Taxes
Note 10 – Income Taxes

The sources of Earnings (loss) before income taxes were as follows:

(in millions)
  
2011
    
2010
    
2009
  
                   
United States
   $ 24.3     $ (145.9 )   $ (690.8 )
Foreign
     65.0       61.2       6.1  
                         
Earnings (loss) before income taxes
   $ 89.3     $ (84.7 )   $ (684.7 )

The Income tax provision (benefit) consisted of the following:

(in millions)
  
2011
    
2010
    
2009
  
                   
Current tax expense (benefit):
                  
U.S. Federal
   $ 0.0     $ 0.2     $ (10.9 )
State and local
     1.5       1.3       (0.2 )
Foreign
     19.2       18.8       11.8  
Total current
     20.7       20.3       0.7  
                         
Deferred tax expense (benefit):
                        
U.S. Federal
     3.4       3.8       (138.9 )
State and local
     0.8       1.3       32.0  
Foreign
     (7.5 )     0.5       7.7  
Total deferred
     (3.3 )     5.6       (99.2 )
                         
Total provision (benefit)
   $ 17.4     $ 25.9     $ (98.5 )

Temporary differences and carryforwards giving rise to deferred tax assets and liabilities at December 31, 2011 and 2010, were as follows:

(in millions)
  
2011
    
2010
  
             
Current deferred tax assets:
            
Product warranties
   $ 49.9     $ 50.6  
Sales incentives and discounts
     24.1       25.8  
Other
     88.0       100.6  
Gross current deferred tax assets
     162.0       177.0  
                 
Valuation allowance
     (139.3 )     (153.9 )
                 
Total net current deferred tax assets
     22.7       23.1  
                 
Other
     (7.9 )     (6.1 )
Total current deferred tax liabilities
     (7.9 )     (6.1 )
                 
Total net current deferred taxes
   $ 14.8     $ 17.0  
                 
Non-current deferred tax assets:
                
Pension
   $ 196.0     $ 184.4  
Loss carryforwards
     147.9       156.0  
Tax credit carryforwards
     158.2       148.6  
Postretirement and postemployment benefits
     34.1       37.9  
Other
     71.2       62.0  
Gross non-current deferred tax assets
     607.4       588.9  
                 
Valuation allowance
     (612.8 )     (568.6 )
                 
  Total net non-current deferred tax assets
     (5.4 )     20.3  
                 
Non-current deferred tax liabilities:
                
Unremitted foreign earnings and withholding
     (33.3 )     (26.5 )
State and local income taxes
     (34.9 )     (34.9 )
Other
     (8.2 )     (30.5 )
Total non-current deferred tax liabilities
     (76.4 )     (91.9 )
                 
Total net non-current deferred taxes
   $ (81.8 )   $ (71.6 )

At December 31, 2011, the Company had a total valuation allowance of $752.1 million, of which $139.3 million was current and $612.8 million was non-current. This valuation allowance is primarily due to uncertainty concerning the realization of certain net deferred tax assets. For the year ended December 31, 2011, the valuation allowance increased $29.6 million, mainly as a result of pension remeasurement, which is included in Accumulated other comprehensive loss, and tax credits for which no tax benefit could be recorded. The remaining realizable value of net deferred tax assets at December 31, 2011, was determined by evaluating the potential to recover the value of these assets through the utilization of tax loss and credit carrybacks and certain tax planning strategies.

At December 31, 2011, the tax benefit of loss carryovers totaling $151.3 million were available to reduce future tax liabilities. This deferred tax asset was comprised of $2.7 million for the tax benefit of a federal net operating loss (NOL) carryback, $31.1 million for the tax benefit of a federal NOL carryforward, $71.2 million for the tax benefit of state NOL carryforwards, $24.9 million for the tax benefit of foreign NOL carryforwards and $21.4 million for the tax benefit of unused capital losses. NOL carryforwards of $106.6 million expire at various intervals between the years 2012 and 2031, while $20.6 million have an unlimited life.

At December 31, 2011, tax credit carryforwards totaling $158.2 million were available to reduce future tax liabilities.  This deferred tax asset was comprised of $63.1 million related to foreign tax credits, $60.4 million related to general business credits, $3.8 million related to miscellaneous other federal credits, and $30.9 million of various state tax credits related to research and development, capital investment, and job incentives.  The above credits expire at various intervals between the years 2012 and 2032.

The Company has historically provided deferred taxes for the presumed ultimate repatriation to the United States of earnings from all non-U.S. subsidiaries and unconsolidated affiliates. The indefinite reversal criterion has been applied to certain entities and allows the Company to overcome that presumption to the extent the earnings are indefinitely reinvested outside the United States.

The Company had undistributed earnings of foreign subsidiaries of $34.8 million and $28.1 million at December 31, 2011 and 2010, respectively, for which deferred taxes have not been provided as such earnings are presumed to be indefinitely reinvested in the foreign subsidiaries. If such earnings were repatriated, additional tax provisions may result. The Company continues to provide deferred taxes, as required, on the undistributed net earnings of foreign subsidiaries and unconsolidated affiliates that are not indefinitely reinvested in operations outside the United States.

As of December 31, 2011, 2010 and 2009 the Company had $26.9 million, $36.9 million and $45.9 million of gross unrecognized tax benefits, including interest, respectively. Of these amounts, $25.3 million, $35.0 million, and $42.2 million, respectively, represent the portion that, if recognized, would impact the Company's tax provision and the effective tax rate.

 The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2011, 2010 and 2009 the Company had $2.5 million, $4.9 million and $6.0 million accrued for the payments of interest, respectively, and no amounts accrued for penalties.

The following is a reconciliation of the total amounts of unrecognized tax benefits excluding interest and penalties for the 2011 and 2010 annual reporting periods:

(in millions)
  
2011
    
2010
  
             
Balance at January 1
   $ 32.0     $ 39.9  
Gross increases – tax positions prior periods
     3.9       3.2  
Gross decreases – tax positions prior periods
     (6.0 )     (1.9 )
Gross increases – current period tax positions
     1.0       1.8  
Decreases – settlements with taxing authorities
     (5.0 )     (7.1 )
Reductions – lapse of statute of limitations
     (1.5 )     (3.4 )
Other – CTA
     (0.0 )     (0.5 )
                 
Balance at December 31
   $ 24.4     $ 32.0  

The Company believes it is reasonably possible that the total amount of gross unrecognized tax benefits as of December 31, 2011 could decrease by approximately $5.2 million in 2012 as a result of expected settlements with taxing authorities. Due to the various jurisdictions in which the Company files tax returns and the uncertainty regarding the timing of the settlement of tax audits, it is possible that there could be other significant changes in the amount of unrecognized tax benefits in 2012, but the amount cannot be estimated.

The Company is regularly audited by federal, state and foreign tax authorities. The Company's taxable years 2006 through 2010 are currently open for examination by the Internal Revenue Service (IRS). The IRS has completed its field examination and has issued its Revenue Agents Report for 2006 through 2009 and all open issues have been resolved. Primarily as a result of filing amended returns, which were generated by the closing of federal income tax audits, the Company is still open to state and local tax audits in major tax jurisdictions dating back to the 2004 taxable year. With the exception of Germany, where the Company recently received the Tax Auditor's Report for taxable years 1998 through 2001, and is currently under audit for taxable years 2002 through 2007, the Company is no longer subject to income tax examinations by any other major foreign tax jurisdiction for years prior to 2007.

The difference between the actual income tax provision (benefit) and the tax provision (benefit) computed by applying the statutory Federal income tax rate to earnings (loss) before income taxes is attributable to the following:

(in millions)
  
2011
    
2010
    
2009
  
                   
Income tax provision (benefit) at 35 percent
   $ 31.2     $ (29.7 )   $ (239.7 )
State and local income taxes, net of Federal income tax effect
     (0.1 )     (5.5 )     (20.6 )
Deferred tax asset valuation allowance
     (1.3 )     79.0       179.5  
OCI reclassification to continuing operations
     -       -       (29.9 )
Change in permanently reinvested assertion
     -       -       18.9  
Asset dispositions and write-offs
     (13.1 )     (2.1 )     (1.9 )
Change in estimates related to prior years and prior years amended tax return filings
     (0.3 )     1.1       (4.3 )
Federal and state tax credits
     (5.9 )     (21.3 )     (0.5 )
Taxes related to foreign income, net of credits
     2.0       8.0       (9.1 )
Taxes related to unremitted earnings
     6.8       (5.2 )     0.5  
Tax reserve reassessment
     (5.8 )     0.2       7.4  
Other
     3.9       1.4       1.2  
                         
Actual income tax provision (benefit)
   $ 17.4     $ 25.9     $ (98.5 )
                         
Effective tax rate
     19.5 %     (30.6 )%     14.4 %