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Taxes on Income | 12 Months Ended
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Dec. 31, 2012
Income Tax Disclosure [Abstract] |
Taxes on Income | Taxes on Income Income before taxes on income resulted from domestic and foreign operations as follows:
(in millions) | Years ended December 31,
| 2012 |  | 2011 |  | 2010
Domestic operations | $ | 841 |  |  | $ | 700 |  |  | $ | 699 |
Foreign operations | 289 |  |  | 300 |  |  | 244 |
Total continuing income before taxes | $ | 1,130 |  |  | $ | 1,000 |  |  | $ | 943 |
The provision/(benefit) for taxes on income consists of the following:
(in millions) | Years ended December 31,
| 2012 |  | 2011 |  | 2010
Federal: |  |  |  |  |
Current | $ | 194 |  |  | $ | 238 |  |  | $ | 159 |
Deferred | 74 |  |  | (6 | ) |  | 37 |
Total federal | 268 |  |  | 232 |  |  | 196 |
Foreign: |  |  |  |  |
Current | 91 |  |  | 93 |  |  | 109 |
Deferred | (9 | ) |  | 13 |  |  | (14 | )
Total foreign | 82 |  |  | 106 |  |  | 95 |
State and local: |  |  |  |  |
Current | 40 |  |  | 36 |  |  | 49 |
Deferred | 14 |  |  | — |  |  | 4 |
Total state and local | 54 |  |  | 36 |  |  | 53 |
Total provision for taxes for continuing operations | 404 |  |  | 374 |  |  | 344 |
Provision for discontinued operations | 11 |  |  | 164 |  |  | 143 |
Total provision for taxes | $ | 415 |  |  | $ | 538 |  |  | $ | 487 |
A reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate for financial reporting purposes is as follows:
| Years ended December 31,
| 2012 |  | 2011 |  | 2010
U.S. federal statutory income tax rate | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State and local income taxes | 3.6 |  |  | 2.4 |  |  | 4.6 |
Foreign operations | (2.6 | ) |  | (3.0 | ) |  | (1.6 | )
S&P Dow Jones Indices LLC joint venture | (1.1 | ) |  | — |  |  | — |
Other, net | 0.9 |  |  | 3.0 |  |  | (1.6 | )
Effective income tax rate for continuing operations | 35.8 | % |  | 37.4 | % |  | 36.4 | %
The principal temporary differences between the accounting for income and expenses for financial reporting and income tax purposes are as follows:
(in millions) | December 31,
| 2012 |  | 2011
Deferred tax assets: |  |  |
Postretirement benefits | $ | 201 |  |  | $ | 202 |
Employee compensation | 123 |  |  | 128 |
Accrued expenses | 105 |  |  | 99 |
Unearned revenue | 60 |  |  | 58 |
Allowance for doubtful accounts | 17 |  |  | 10 |
Loss carryforwards | 25 |  |  | 8 |
Total deferred tax assets | 531 |  |  | 505 |
Deferred tax liabilities: |  |  |
Goodwill and intangible assets 1 | (379 | ) |  | (131 | )
Fixed assets | (54 | ) |  | (58 | )
Other | (1 | ) |  | (7 | )
Total deferred tax liabilities | (434 | ) |  | (196 | )
Net deferred income tax asset before valuation allowance | 97 |  |  | 309 |
Valuation allowance | (7 | ) |  | (7 | )
Net deferred income tax asset | $ | 90 |  |  | $ | 302 |
Reported as: |  |  |
Current deferred tax assets | $ | 117 |  |  | $ | 110 |
Current deferred tax liabilities | (7 | ) |  | (2 | )
Non-current deferred tax assets | 36 |  |  | 207 |
Non-current deferred tax liabilities | (56 | ) |  | (13 | )
Net deferred income tax asset | $ | 90 |  |  | $ | 302 |
1 | See Note 3 – Acquisitions and Divestitures for further discussion regarding the impact related to the S&P Dow Jones Indices LLC.
We record valuation allowances against deferred income tax assets when we determine that it is more likely than not based upon all the available evidence that such deferred income tax assets will not be realized. The valuation allowance is primarily related to operating losses. We have not recorded deferred income taxes applicable to undistributed earnings of foreign subsidiaries that are indefinitely reinvested in foreign operations. Undistributed earnings that are indefinitely reinvested in foreign operations amounted to $762 million at December 31, 2012. Quantification of the deferred tax liability, if any, associated with indefinitely reinvested earnings is not practicable. We made net income tax payments for continuing and discontinued operations totaling $243 million in 2012, $452 million in 2011, and $410 million in 2010. As of December 31, 2012, we had net operating loss carryforwards of $133 million, some of which will expire over varying periods. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(in millions) | Years ended December 31,
| 2012 |  | 2011 |  | 2010
Balance at beginning of year | $ | 58 |  |  | $ | 53 |  |  | $ | 37 |
Additions based on tax positions related to the current year | 14 |  |  | 12 |  |  | 14 |
Additions for tax positions of prior years | 3 |  |  | 3 |  |  | 10 |
Reduction for tax positions of prior years | (1 | ) |  | (10 | ) |  | (8 | )
Balance at end of year | $ | 74 |  |  | $ | 58 |  |  | $ | 53 |
The total amount of federal, state and local, and foreign unrecognized tax benefits as of December 31, 2012 and 2011 was $74 million and $58 million, respectively, exclusive of interest and penalties. The increase of $16 million in 2012 is the amount of unrecognized tax benefits that unfavorably impacted tax expense. The unfavorable impact to the tax provision was partially offset by the favorable outcome of the completed state, local and foreign tax audits. We recognize accrued interest and penalties related to unrecognized tax benefits in interest expense and operating-related expense, respectively. In addition to the unrecognized tax benefits, as of December 31, 2012 and 2011, we had $14 million and $10 million, respectively, of accrued interest and penalties associated with uncertain tax positions. During 2012, we completed various state and foreign tax audits and, with few exceptions, we are no longer subject to federal, state and local, or non-U.S. income tax examinations by tax authorities for the years before 2003. During 2011, we effectively completed the U.S. federal tax audit for 2010 and we also completed various state and foreign tax audits. During 2010, we effectively completed the U.S. federal tax audit for 2009 and we also completed various state and foreign tax audits. The impact to tax expense in 2012, 2011 and 2010 was not material. However, even though we have effectively completed the U.S. federal tax audit for the years 2010, 2009, 2008 and 2007, those years remained open pending the appeal of an unresolved issue. On February 5, 2013, the Appeals Office of the Internal Revenue Service issued a Notice of Deficiency determining that we are not eligible for the deduction for domestic production activities. We have 90 days to decide whether we will file a petition in Tax Court. We do not believe the outcome of this action will have a material adverse effect on our results of operations. We file income tax returns in the U.S. federal jurisdiction, various states, and foreign jurisdictions, and we are routinely under audit by many different tax authorities. We believe that our accrual for tax liabilities is adequate for all open audit years based on an assessment of many factors including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. It is possible that tax examinations will be settled prior to December 31, 2013. If any of these tax audit settlements do occur within that period, we would make any necessary adjustments to the accrual for unrecognized tax benefits. Until formal resolutions are reached between us and the tax authorities, the determination of a possible audit settlement range with respect to the impact on unrecognized tax benefits is not practicable. On the basis of present information, it is our opinion that any assessments resulting from the current audits will not have a material effect on our consolidated financial statements. Although the timing of income tax audit resolution and negotiations with taxing authorities are highly uncertain, we do not anticipate a significant change to the total amount of unrecognized income tax benefits within the next twelve months.

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