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Income Taxes | 12 Months Ended
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Dec. 31, 2013
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES For each of the years ended December 31, 2013, 2012, and 2011 the tax data related to continuing operations is as follows:
| 2013 |  |  | 2012 |  |  | 2011 |
Income (loss) components: |  |  |  |  |
United States | $ | 28.5 |  |  | $ | 33.0 |  |  | $ | (464.4 | )
International | 152.0 |  |  | 116.1 |  |  | 148.5 |
Income (loss) from continuing operations before income tax | 180.5 |  |  | 149.1 |  |  | (315.9 | )
Income tax expense (benefit) components: |  |  |  |  |
Current income tax expense (benefit): |  |  |  |  |
United States – federal | 10.6 |  |  | (32.6 | ) |  | (78.9 | )
United States – state and local | 4.2 |  |  | (8.7 | ) |  | (12.1 | )
International | 39.6 |  |  | 46.8 |  |  | 49.2 |
Total current income tax expense (benefit) | 54.4 |  |  | 5.5 |  |  | (41.8 | )
Deferred income tax expense (benefit) components: |  |  |  |  |
United States – federal | (331.2 | ) |  | 40.1 |  |  | 318.2 |
United States – state and local | (36.7 | ) |  | 9.9 |  |  | (14.6 | )
International | 3.9 |  |  | (15.9 | ) |  | (1.2 | )
Total deferred income tax expense (benefit) | (364.0 | ) |  | 34.1 |  |  | 302.4 |
Income tax expense (benefit) | $ | (309.6 | ) |  | $ | 39.6 |  |  | $ | 260.6 |
Effective income tax rate | (171.5 | )% |  | 26.6 | % |  | (82.5 | )%
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 years ended December 31, 2013, 2012, and 2011:
| 2013 |  |  | 2012 |  |  | 2011 |
Tax provision at U.S. statutory rate | 35.0 | % |  | 35.0 | % |  | 35.0 | %
Valuation allowance on deferred tax assets | (191.1 | ) |  | 27.7 |  |  | (108.1 | )
Tax exempt interest | (17.5 | ) |  | (19.7 | ) |  | 4.1 |
Tax on undistributed foreign earnings | 6.1 |  |  | 1.3 |  |  | (21.8 | )
Foreign tax rate differential | (5.8 | ) |  | (3.0 | ) |  | 1.2 |
Audit settlements & unrecognized tax benefits | 3.8 |  |  | (13.2 | ) |  | — |
U.S. permanent items | (1.3 | ) |  | 0.5 |  |  | — |
U.S. tax on foreign earnings | (0.7 | ) |  | 0.5 |  |  | 0.4 |
Other adjustments | (0.6 | ) |  | (2.8 | ) |  | (3.9 | )
State and local income tax | 0.6 |  |  | 1.4 |  |  | 0.5 |
Medicare Part D subsidy | — |  |  | (1.1 | ) |  | 0.4 |
Change in state tax rate | — |  |  | — |  |  | 9.7 |
Effective income tax rate | (171.5 | )% |  | 26.6 | % |  | (82.5 | )%
Our effective tax rate in 2013 was affected by changes in unrecognized tax benefits of approximately $5.9 and includes the completion of tax examinations and lapses in the statute of limitations. As a result of investment opportunities and other factors, and their impact on the Company’s expected liquidity, a determination was made that certain earnings generated in Hong Kong, Luxembourg, Japan, and South Korea are not indefinitely reinvested. In 2013, the Company recorded an additional $11.0 of deferred tax liability on the undistributed foreign earnings. 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 $506.6 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. We operate under tax holidays in China and Korea, which are effective through December 31, 2014 and 2015, respectively. The tax holidays are conditional upon our meeting certain research, employment and/or investment thresholds. The impact of these holidays decreased foreign taxes by $1.8 or $0.02 per diluted share in 2013. Deferred tax assets and liabilities include the following:
| 2013 |  |  | 2012 |
Deferred Tax Assets: |  |  |
Accruals | $ | 64.5 |  |  | $ | 65.2 |
Asbestos | 272.7 |  |  | 296.7 |
Employee benefits | 106.6 |  |  | 137.2 |
Credit carryforwards | 47.2 |  |  | 46.1 |
Loss carryforwards | 125.2 |  |  | 119.3 |
Other | 34.4 |  |  | 40.1 |
Subtotal | 650.6 |  |  | 704.6 |
Valuation allowance | $ | (135.3 | ) |  | $ | (536.7 | )
Net deferred tax assets | 515.3 |  |  | 167.9 |
Deferred Tax Liabilities: |  |  |
Undistributed earnings | (82.3 | ) |  | (71.4 | )
Intangibles | (58.8 | ) |  | (59.2 | )
Accelerated depreciation | (25.8 | ) |  | (25.0 | )
Investment | (0.4 | ) |  | (0.7 | )
Total deferred tax liabilities | $ | (167.3 | ) |  | $ | (156.3 | )
Net deferred tax assets | $ | 348.0 |  |  | $ | 11.6 |
Deferred taxes are presented in the Consolidated Balance Sheets as follows:
| 2013 |  |  | 2012 |
Current assets | $ | 59.5 |  |  | $ | 19.9 |
Non-current assets | 303.6 |  |  | 21.4 |
Current liabilities | — |  |  | (3.5 | )
Other non-current liabilities | (15.1 | ) |  | (26.2 | )
Net deferred tax assets | $ | 348.0 |  |  | $ | 11.6 |
The Company released the valuation allowance against its U.S. deferred tax assets and recorded a tax benefit of $374.6 during 2013. The valuation allowance was originally recorded in 2011 on U.S. deferred tax assets, in part, due to a cumulative three-year loss position resulting primarily from previous asbestos remeasurement charges. This cumulative loss position was considered a significant source of negative evidence and limited our ability to weigh other subjective evidence such as our projections for future growth. The Company generated U.S. adjusted income in 2012 and 2013 and is now in a cumulative three year income position. Based on positive evidence, including the three year cumulative positive income and the absence of any significant negative evidence, management determined that it is more likely than not that the Company's U.S. deferred tax assets will be realized except for certain deferred tax assets attributable to state net operating losses and tax credits. As a result of a cumulative loss, the Company established a valuation allowance on foreign net deferred tax assets in Brazil and the U.K. The Company continues to maintain a valuation allowance against certain foreign net deferred tax assets, primarily in Luxembourg, Germany and China. Overall, the increase in the foreign valuation allowance of $29.0 is primarily attributable to foreign net operating loss carryforwards in Luxembourg. We have the following tax attributes available for utilization at December 31, 2013:
Attribute | Amount |  |  | First Year of Expiration
U.S. federal net operating losses | $ | 2.1 |  |  | 12/31/2023
U.S. state net operating losses | 1,348.4 |  |  | 12/31/2014
U.S. federal tax credits | 39.0 |  |  | 12/31/2020
U.S. state tax credits | 8.2 |  |  | 12/31/2014
Foreign net operating losses | 281.4 |  |  | 12/31/2014
We have approximately $166.4 of net operating loss carryforwards in Luxembourg as of December 31, 2013 that do not expire. Shareholders’ equity at December 31, 2013 and 2012 includes excess income tax benefits related to stock-based compensation in 2013 and 2012 of approximately $8.7 and $6.4, respectively. Uncertain Tax Positions We recognize income tax benefits from uncertain tax positions only if, based on the technical merits of the position, it is more likely than not that the tax position will be sustained on examination by the taxing authorities. 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 years ended December 31, 2013, 2012, and 2011 is as follows:
| 2013 |  |  | 2012 |  |  | 2011 |
Unrecognized tax benefits – January 1 | $ | 208.8 |  |  | $ | 198.7 |  |  | $ | 203.4 |
Additions for: |  |  |  |  |
Prior year tax positions | 1.6 |  |  | 48.4 |  |  | 1.5 |
Current year tax positions | 8.0 |  |  | 0.8 |  |  | 15.1 |
Assumed in Acquisition | — |  |  | 3.8 |  |  | — |
Reductions for: |  |  |  |  |
Prior year tax positions | (55.4 | ) |  | (4.8 | ) |  | (21.2 | )
Settlements | (1.0 | ) |  | (33.6 | ) |  | — |
Expiration of Statute of Limitations | (0.8 | ) |  | (4.5 | ) |  | (0.1 | )
Unrecognized tax benefits – December 31 | $ | 161.2 |  |  | $ | 208.8 |  |  | $ | 198.7 |
As of December 31, 2013, $53.4 and $57.6 of the unrecognized tax benefits would affect the effective tax rate for continuing operations and discontinued operations respectively, if realized. Over the next twelve months, the net amount of the tax liability for unrecognized tax benefits in foreign and domestic jurisdictions could change by $87.9 due to changes in audit status, expiration of statutes of limitations and other events. 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. The Company is currently under examination in the Czech Republic, Germany, Italy, Korea, the U.K. and the U.S. The settlement of an examination could result in changes in amounts attributable to us through the Tax Matters Agreement entered into with Exelis and Xylem. Currently, we cannot reasonably estimate the amount of such changes. The following table summarizes the earliest open tax years by major jurisdiction as of December 31, 2013:
Jurisdiction | Earliest Open Year
Czech Republic | 2008
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 Statements of Operations. During 2013 and 2012, we recognized $2.0 and $(3.9) in net interest expense (income) from continuing operations related to tax matters, respectively. We had $17.5 and $13.6 of interest accrued from continuing and discontinued operations related to tax matters as of December 31, 2013 and 2012, 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 Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 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=26873400&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 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: 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 6: 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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