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Income Taxes | 12 Months Ended
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Dec. 31, 2012
Income Taxes | NOTE 6 Income Taxes For each of the three years ended December 31, 2012, the tax data related to continuing operations is as follows:
|  | 2012 |  |  | 2011 |  |  | 2010 |
Income (loss) components: |  |  |  |  |  |  |  |  |  |  |  |
United States |  | $ | 33.0 |  |  | $ | (464.4 | ) |  | $ | (392.0 | )
International |  |  | 116.1 |  |  |  | 148.5 |  |  |  | 119.4 |
Income (loss) from continuing operations before income tax |  |  | 149.1 |  |  |  | (315.9 | ) |  |  | (272.6 | )
Income tax expense (benefit) components: |  |  |  |  |  |  |  |  |  |  |  |
Current income tax expense (benefit): |  |  |  |  |  |  |  |  |  |  |  |
United States – federal |  |  | (32.6 | ) |  |  | (78.9 | ) |  |  | (59.5 | )
United States – state and local |  |  | (8.7 | ) |  |  | (12.1 | ) |  |  | – |
International |  |  | 46.8 |  |  |  | 49.2 |  |  |  | 27.7 |
Total current income tax expense (benefit) |  |  | 5.5 |  |  |  | (41.8 | ) |  |  | (31.8 | )
Deferred income tax expense (benefit) components: |  |  |  |  |  |  |  |  |  |  |  |
United States – federal |  |  | 40.1 |  |  |  | 318.2 |  |  |  | (98.7 | )
United States – state and local |  |  | 9.9 |  |  |  | (14.6 | ) |  |  | (15.3 | )
International |  |  | (15.9 | ) |  |  | (1.2 | ) |  |  | 3.6 |
Total deferred income tax expense (benefit) |  |  | 34.1 |  |  |  | 302.4 |  |  |  | (110.4 | )
Income tax expense (benefit) |  | $ | 39.6 |  |  | $ | 260.6 |  |  | $ | (142.2 | )
Effective income tax rate |  |  | 26.6 | % |  |  | (82.5 | )% |  |  | 52.2 | %
A reconciliation of the income tax expense (benefit) for continuing operations from the U.S. statutory income tax rate to the effective income tax rate is as follows for each of the three years ended December 31, 2012:
|  | 2012 |  |  | 2011 |  |  | 2010 |
Tax provision at U.S. statutory rate |  |  | 35.0 | % |  |  | 35.0 | % |  |  | 35.0 | %
Valuation allowance on deferred tax assets |  |  | 27.7 |  |  |  | (108.1 | ) |  |  | 14.1 |
Tax exempt interest |  |  | (19.7 | ) |  |  | 4.1 |  |  |  | 2.4 |
Audit settlements |  |  | (13.2 | ) |  |  | – |  |  |  | – |
Foreign tax rate differential |  |  | (3.0 | ) |  |  | 1.2 |  |  |  | 0.2 |
U.S. permanent items |  |  | 2.7 |  |  |  | – |  |  |  | – |
Tax credits |  |  | (2.0 | ) |  |  | 7.2 |  |  |  | 12.6 |
State and local income tax |  |  | 1.4 |  |  |  | 0.5 |  |  |  | 5.6 |
Tax on undistributed foreign earnings |  |  | 1.3 |  |  |  | (21.8 | ) |  |  | – |
Medicare Part D subsidy |  |  | (1.1 | ) |  |  | 0.4 |  |  |  | (4.2 | )
U.S. tax on foreign earnings |  |  | 0.3 |  |  |  | (6.8 | ) |  |  | (16.0 | )
Change in state tax rate |  |  | — |  |  |  | 9.7 |  |  |  | – |
Other adjustments |  |  | (2.8 | ) |  |  | (3.9 | ) |  |  | 2.5 |
Effective income tax rate |  |  | 26.6 | % |  |  | (82.5 | )% |  |  | 52.2 | %
Our effective tax rate was affected by changes in unrecognized tax benefits of approximately $19.6 primarily related to the completion of tax examinations and lapses in the statute of limitations. As a result of the Distribution and its impacts on the Company’s expected liquidity, investment opportunities and other factors, a determination that certain earnings generated in Luxembourg, Japan, and South Korea were no longer considered to be indefinitely reinvested. As a result of the change in intent, the Company recorded $69.3 of deferred tax liability on those undistributed foreign earnings during 2011. As of December 31, 2012, we continue to provide for taxes on these undistributed foreign earnings and have accrued an additional $2.1 deferred tax liability. We have not provided for deferred taxes on the remaining excess of financial reporting over tax bases of investments in foreign subsidiaries in the amount of $407.3 because we plan to reinvest such earnings indefinitely outside the U.S. While the amount of U.S. federal income taxes, if such earnings are distributed in the future, cannot be determined, such taxes may be reduced by tax credits and other tax deductions. As a consequence of the Distribution, certain state deferred tax assets were revalued based on enacted tax rates using different state apportionment factors, effectively increasing the future state tax rates at which these deferred tax assets will be benefitted resulting in a $30.9 income tax benefit. Deferred tax assets and liabilities include the following:
|  | 2012 |  |  | 2011 |
Deferred Tax Assets: |  |  |  |  |  |  |  |
Accruals |  | $ | 349.3 |  |  | $ | 354.8 |
Employee benefits |  |  | 136.7 |  |  |  | 134.7 |
Credit carryforwards |  |  | 42.3 |  |  |  | 34.7 |
Loss carryforwards |  |  | 99.6 |  |  |  | 65.1 |
Other |  |  | 33.9 |  |  |  | 38.5 |
Subtotal |  |  | 661.8 |  |  |  | 627.8 |
Valuation allowance |  |  | (493.9 | ) |  |  | (435.2 | )
Net deferred tax assets |  | $ | 167.9 |  |  | $ | 192.6 |
Deferred Tax Liabilities: |  |  |  |  |  |  |  |
Undistributed earnings |  | $ | (71.4 | ) |  | $ | (69.3 | )
Intangibles |  |  | (59.2 | ) |  |  | (49.1 | )
Accelerated depreciation |  |  | (25.0 | ) |  |  | (20.0 | )
Investment |  |  | (0.7 | ) |  |  | (0.7 | )
Total deferred tax liabilities |  | $ | (156.3 | ) |  | $ | (139.1 | )
Net deferred taxes |  | $ | 11.6 |  |  | $ | 53.5 |
Deferred taxes are presented in the Consolidated Balance Sheets as follows:
|  | 2012 |  |  | 2011 |
Current assets |  | $ | 19.9 |  |  | $ | 23.9 |
Non-current assets |  |  | 21.4 |  |  |  | 45.4 |
Current liabilities |  |  | (3.5 | ) |  |  | (2.2 | )
Other non-current liabilities |  |  | (26.2 | ) |  |  | (13.6 | )
Net deferred taxes |  | $ | 11.6 |  |  | $ | 53.5 |
A valuation allowance was recorded in 2011 as a result of our cumulative three year loss position as of December 31, 2011. This was considered a significant source of negative evidence and limits our ability to consider other subjective evidence such as our projections for future growth. Despite income in 2012, the Company continues to be in a three year cumulative loss position. Since the Company is in a three-year cumulative loss position at the end of 2012, it was determined that the size and frequency of the losses from continuing operations in recent years and the uncertainty associated with projecting future taxable income supported the conclusion that a valuation allowance was required to reduce the deferred tax assets. Accordingly, we continue to record a valuation allowance against our deferred tax assets in the U.S., Luxembourg, Germany and China. As of December 31, 2012, a valuation allowance of $493.9 exists representing an increase of $58.7 primarily due to an increase of $20.1 attributable to U.S. federal and state net operating losses and net temporary differences and an increase of $35.7 attributable to foreign net operating loss carryforwards primarily in Luxembourg and China and net temporary differences. We have the following tax attributes available for utilization at December 31, 2012:
ATTRIBUTE |  | AMOUNT |  |  | FIRST YEAR OF EXPIRATION |
U.S. federal net operating losses |  | $ | 2.6 |  |  |  | 12/31/2023 |
U.S. state net operating losses |  |  | 2,478.9 |  |  |  | 12/31/2013 |
U.S. federal tax credits |  |  | 35.3 |  |  |  | 12/31/2020 |
U.S. state tax credits |  |  | 7.8 |  |  |  | 12/31/2013 |
Foreign net operating losses |  |  | 212.4 |  |  |  | 12/31/2013 |
We have approximately $82.9 of net operating loss carryforwards in Luxembourg that do not expire. Shareholders’ equity at December 31, 2012 and 2011 reflects excess income tax benefits related to stock-based compensation in 2012 and 2011 of approximately $6.4 and $7.2, respectively. Uncertain Tax Positions We recognize income tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the Consolidated Financial Statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. A reconciliation of the beginning and ending amount of unrecognized tax benefits for each of the three years ended December 31, 2012 is as follows:
|  | 2012 |  |  | 2011 |  |  | 2010 |
Unrecognized tax benefits – January 1 |  | $ | 198.7 |  |  | $ | 203.4 |  |  | $ | 183.5 |
Additions for: |  |  |  |  |  |  |  |  |  |  |  |
Prior year tax positions |  |  | 48.4 |  |  |  | 1.5 |  |  |  | 17.0 |
Current year tax positions |  |  | 0.8 |  |  |  | 15.1 |  |  |  | 48.1 |
Assumed in acquisition |  |  | 3.8 |  |  |  | — |  |  |  | 4.8 |
Reductions for: |  |  |  |  |  |  |  |  |  |  |  |
Prior year tax positions |  |  | (4.8 | ) |  |  | (21.2 | ) |  |  | (38.0 | )
Settlements |  |  | (33.6 | ) |  |  | — |  |  |  | (12.0 | )
Lapse of statute |  |  | (4.6 | ) |  |  | (0.1 | ) |  |  | — |
Unrecognized tax benefits – December 31 |  | $ | 208.8 |  |  | $ | 198.7 |  |  | $ | 203.4 |
As of December 31, 2012, $46.4 and $57.7 of the unrecognized tax benefits would affect the effective tax rate for continuing operations and discontinued operations respectively, if realized. The net amount of the tax liability for unrecognized tax benefits related to continuing operations may significantly change within the next twelve months due to changes in audit status, expiration of statutes of limitations and other events which could impact our determination of unrecognized tax benefits. Currently, we cannot reasonably estimate the amount by which our unrecognized tax benefits will change. See Note 4, “Discontinued Operations” for discussion of the Tax Matters Agreement. In many cases, uncertain tax positions are related to tax years that remain subject to examination by the relevant taxing authorities. During 2012, the IRS closed its examination of the Company’s tax returns for the years 2007 and 2008. Also during 2012, the German tax authority closed its examination of the Company’s 2005 tax return. The following table summarizes the earliest open tax years by major jurisdiction as of December 31, 2012:
Jurisdiction |  | Earliest Open Year
Germany |  | 2006
Italy |  | 2007
Japan |  | 2010
Korea |  | 2008
United States |  | 2009
We classify interest relating to tax matters as a component of interest expense and tax penalties as a component of income tax expense in our Consolidated Income Statement. During 2012 and 2011, we recognized $(3.9) and $0.9 in net interest (income) expense related to tax matters, respectively. We had $13.6 and $18.2 of interest accrued related to tax matters as of December 31, 2012 and 2011, respectively.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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