Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Abstract]  
Income Taxes
Note 11 – Income Taxes

The sources of Earnings (loss) before income taxes were as follows:
(in millions)
2012
 
2011
 
2010
United States
$
134.0

 
$
45.7

 
$
(99.3
)
Foreign
47.0

 
65.0

 
61.2

Earnings (loss) before income taxes
$
181.0

 
$
110.7

 
$
(38.1
)


The Income tax provision consisted of the following:
(in millions)
2012
 
2011
 
2010
Current tax expense:
 
 
 
 
 
U.S. Federal
$
4.1

 
$
—

 
$
0.2

State and local
2.2

 
1.6

 
1.3

Foreign
19.0

 
19.2

 
18.8

Total current
25.3

 
20.8

 
20.3

 
 
 
 
 
 
Deferred tax expense (benefit):
 
 
 
 
 
U.S. Federal
11.7

 
6.0

 
3.8

State and local
(0.9
)
 
0.8

 
1.3

Foreign
(2.5
)
 
(7.5
)
 
0.5

Total deferred
8.3

 
(0.7
)
 
5.6

 
 
 
 
 
 
Total provision
$
33.6

 
$
20.1

 
$
25.9














Temporary differences and carryforwards giving rise to deferred tax assets and liabilities at December 31, 2012 and 2011, were as follows:
(in millions)
2012
 
2011
Current deferred tax assets:
 
 
 
Product warranties
$
48.1

 
$
48.5

Sales incentives and discounts
26.8

 
23.6

Other
81.5

 
86.7

Gross current deferred tax assets
156.4

 
158.8

Valuation allowance
(130.1
)
 
(135.8
)
Total net current deferred tax assets
26.3

 
23.0

 
 
 
 
Current deferred tax liabilities:
 
 
 
Other
(7.5
)
 
(8.0
)
Total current deferred tax liabilities
(7.5
)
 
(8.0
)
Total net current deferred taxes
$
18.8

 
$
15.0

 
 
 
 
Non-current deferred tax assets:
 
 
 
Pension
$
183.3

 
$
196.0

Loss carryforwards
107.3

 
147.9

Tax credit carryforwards
156.2

 
158.2

Postretirement and postemployment benefits
28.8

 
34.1

Equity compensation
25.7

 
23.4

Other
68.6

 
48.5

Gross non-current deferred tax assets
569.9

 
608.1

Valuation allowance
(587.4
)
 
(592.6
)
  Total net non-current deferred tax assets
(17.5
)
 
15.5

 
 
 
 
Non-current deferred tax liabilities:
 
 
 
Unremitted foreign earnings and withholding
(29.9
)
 
(33.3
)
State and local income taxes
(35.0
)
 
(34.9
)
Other
(10.3
)
 
(29.3
)
Total non-current deferred tax liabilities
(75.2
)
 
(97.5
)
 
 
 
 
Total net non-current deferred taxes
$
(92.7
)
 
$
(82.0
)


At December 31, 2012, the Company had a total valuation allowance of $717.5 million, of which $130.1 million was current and $587.4 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, 2012, the valuation allowance decreased $10.9 million, mainly as a result of loss carryforwards being utilized. The remaining realizable value of net deferred tax assets at December 31, 2012 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, 2012, in certain jurisdictions, the Company remained in a cumulative loss position over the last three years for book purposes; however, it is possible the Company will be out of this position by the end of 2013 in certain significant jurisdictions. Accordingly, the Company will be evaluating the need to maintain its valuation allowances against the corresponding deferred tax assets. It is possible that a significant portion of the Company's December 31, 2012 valuation allowance balances could be reversed by the end of 2013.

At December 31, 2012, the tax benefit of loss carryovers totaling $107.9 million were available to reduce future tax liabilities. This deferred tax asset was comprised of $69.6 million for the tax benefit of state net operating loss (NOL) carryforwards, $20.1 million for the tax benefit of foreign NOL carryforwards and $18.2 million for the tax benefit of unused capital losses. NOL carryforwards of $72.5 million expire at various intervals between the years 2013 and 2032, while $17.2 million have an unlimited life.

At December 31, 2012, tax credit carryforwards totaling $156.2 million were available to reduce future tax liabilities. This deferred tax asset was comprised of $60.3 million related to foreign tax credits, $66.6 million related to general business credits and other miscellaneous federal credits, and $29.3 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 2013 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 $21.5 million and $34.8 million at December 31, 2012 and 2011, 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 deemed to be indefinitely reinvested in operations outside the United States.

As of December 31, 2012, 2011 and 2010 the Company had $27.8 million, $26.9 million and $36.9 million of gross unrecognized tax benefits, including interest, respectively. Of these amounts, $26.8 million, $25.3 million, and $35.0 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, 2012, 2011 and 2010 the Company had $3.1 million, $2.5 million and $4.9 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 2012 and 2011 annual reporting periods:
(in millions)
2012
 
2011
Balance at January 1
$
24.4

 
$
32.0

Gross increases - tax positions prior periods
3.7

 
3.9

Gross decreases - tax positions prior periods
(1.4
)
 
(6.0
)
Gross increases - current period tax positions
1.5

 
1.0

Decreases - settlements with taxing authorities
(2.2
)
 
(5.0
)
Reductions - lapse of statute of limitations
(1.1
)
 
(1.5
)
Other - CTA
(0.2
)
 
(0.0
)
Balance at December 31
$
24.7

 
$
24.4



The Company believes it is reasonably possible that the total amount of gross unrecognized tax benefits as of December 31, 2012 could decrease by approximately $19.6 million in 2013 due to settlements with taxing authorities or lapses in the statue of limitations. 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 2013, but the amount cannot be estimated.

The Company is regularly audited by federal, state and foreign tax authorities. The Company's taxable years 2009 through 2011 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 received the final Tax Auditor's Report in the first quarter of 2012 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 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)
2012
 
2011
 
2010
Income tax provision (benefit) at 35 percent
$
63.4

 
$
38.7

 
$
(13.3
)
State and local income taxes, net of Federal income tax effect
0.1

 
(0.1
)
 
(5.5
)
Deferred tax asset valuation allowance
(31.2
)
 
(6.1
)
 
62.7

Income attributable to domestic production activities
(2.8
)
 
—

 
—

Asset dispositions and write-offs
—

 
(13.1
)
 
(2.1
)
Change in estimates related to prior years and prior years amended tax return filings
(1.4
)
 
(0.4
)
 
1.1

Federal and state tax credits
(0.3
)
 
(5.9
)
 
(21.3
)
Taxes related to foreign income, net of credits
4.9

 
2.0

 
8.0

Taxes related to unremitted earnings
(3.4
)
 
6.8

 
(5.3
)
Tax reserve reassessment
3.8

 
(5.8
)
 
0.2

Other
0.5

 
4.0

 
1.4

Actual income tax provision
$
33.6

 
$
20.1

 
$
25.9

 
 
 
 
 
 
Effective tax rate
18.6
%
 
18.2
%
 
(68.0
)%


On January 2, 2013, the American Taxpayer Relief Act of 2012 (the Act) was signed into law. Some of the provisions of the Act were retroactive to January 1, 2012, including the Research and Experimentation Credit (R&D Credit), which was extended through the end of 2013. The retroactive impact of the R&D Credit will be recorded as a discrete item in the Company's financial statements in the first quarter of 2013. However, the Company does not expect that the R&D Credit will have an impact on the 2013 effective tax rate while the Company remains in a full valuation allowance in the federal tax jurisdiction.

Income tax provision (benefit) allocated to continuing operations and discontinued operations for the years ended December 31 was as follows:
(in millions)
2012
 
2011
 
2010
Continuing operations
$
33.6

 
$
20.1

 
$
25.9

Discontinued operations
0.7

 
(2.7
)
 
—

Total tax provision
$
34.3

 
$
17.4

 
$
25.9