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Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2012
Income Taxes |
Income Taxes | (11) Income Taxes Income (loss) before income taxes and the provision for income taxes consisted of the following:
|  | Year ended December 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
Income (loss) from continuing operations: |  |  |  |  |  |  |  |  |  |
United States |  | $ | (111.9 | ) | $ | 8.0 |  | $ | 71.2 |
Foreign |  |  | 65.4 |  |  | 161.9 |  |  | 152.4 |
|  | $ | (46.5 | ) | $ | 169.9 |  | $ | 223.6 |
Provision for (benefit from) income taxes: |  |  |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |  |  |
United States |  | $ | — |  | $ | 20.7 |  | $ | (33.1 | )
Foreign |  |  | 20.9 |  |  | 29.3 |  |  | 17.1 |
Total current |  |  | 20.9 |  |  | 50.0 |  |  | (16.0 | )
Deferred and other: |  |  |  |  |  |  |  |  |  |
United States |  |  | 40.4 |  |  | (43.1 | ) |  | 65.6 |
Foreign |  |  | (29.4 | ) |  | 7.4 |  |  | (4.0 | )
Total deferred and other |  |  | 11.0 |  |  | (35.7 | ) |  | 61.6 |
Total provision |  | $ | 31.9 |  | $ | 14.3 |  | $ | 45.6 |
The reconciliation of the U.S. federal statutory tax rate to our effective income tax rate was as follows:
|  | Year ended December 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
U.S. federal statutory rate |  |  | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State and local taxes, net of U.S. federal benefit |  |  | (8.8 | ) |  | 1.3 |  |  | 2.0 |
U.S. credits and exemptions |  |  | 10.7 |  |  | (8.7 | ) |  | (0.6 | )
Foreign earnings taxed at lower rates |  |  | 56.8 |  |  | (5.3 | ) |  | (10.8 | )
Audit settlements with taxing authorities |  |  | 59.4 |  |  | (0.4 | ) |  | (0.6 | )
Adjustments to uncertain tax positions |  |  | (8.4 | ) |  | 1.5 |  |  | (3.6 | )
Changes in valuation allowance |  |  | (23.9 | ) |  | (18.4 | ) |  | (5.3 | )
Law change regarding deductibility of Medicare Part D expenses |  |  | — |  |  | — |  |  | 2.8 |
Tax on repatriation of foreign earnings |  |  | (33.1 | ) |  | 4.1 |  |  | 1.6 |
Goodwill impairment and basis adjustments |  |  | (161.5 | ) |  | — |  |  | — |
Other |  |  | 5.2 |  |  | (0.7 | ) |  | (0.1 | )
|  |  | (68.6 | )% |  | 8.4 | % |  | 20.4 | %
Significant components of our deferred tax assets and liabilities were as follows:
|  | As of December 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |
Deferred tax assets: |  |  |  |  |  |  |
Working capital accruals |  | $ | 33.4 |  | $ | 37.8 |
Legal, environmental and self-insurance accruals |  |  | 39.0 |  |  | 45.6 |
Pension, other postretirement and postemployment benefits |  |  | 186.8 |  |  | 169.9 |
NOL and credit carryforwards |  |  | 193.2 |  |  | 242.5 |
Payroll and compensation |  |  | 53.8 |  |  | 46.1 |
Other |  |  | 96.2 |  |  | 71.0 |
Total deferred tax assets |  |  | 602.4 |  |  | 612.9 |
Valuation allowance |  |  | (128.1 | ) |  | (124.5 | )
Net deferred tax assets |  |  | 474.3 |  |  | 488.4 |
Deferred tax liabilities: |  |  |  |  |  |  |
Accelerated depreciation |  |  | 61.5 |  |  | 36.1 |
Basis difference in affiliates |  |  | 153.9 |  |  | 40.5 |
Intangible assets recorded in acquisitions |  |  | 312.9 |  |  | 344.5 |
Other |  |  | 23.7 |  |  | 58.9 |
Total deferred tax liabilities |  |  | 552.0 |  |  | 480.0 |
|  | $ | (77.7 | ) | $ | 8.4 |
General Matters Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We periodically assess deferred tax assets to determine if they are likely to be realized and the adequacy of deferred tax liabilities, incorporating the results of local, state, federal and foreign tax audits in our estimates and judgments. At December 31, 2012, we had the following tax loss carryforwards available: state tax loss carryforwards of approximately $366.0 and tax losses of various foreign jurisdictions of approximately $684.0, all of which are reported in continuing operations. We also had state tax credit carryforwards of $30.4. Of these amounts, approximately $15.0 expire in 2013 and $446.0 expire at various times between 2013 and 2031. The remaining carryforwards have no expiration date. Realization of deferred tax assets, including those associated with net operating loss and credit carryforwards is dependent upon generating sufficient taxable income in the appropriate tax jurisdiction. We believe that it is more likely than not that we may not realize the benefit of certain of these deferred tax assets and, accordingly, have established a valuation allowance against certain of these deferred tax assets. Although realization is not assured for the remaining deferred tax assets, we believe it is more likely than not that the deferred tax assets will be realized through future taxable earnings or tax planning strategies. However, deferred tax assets could be reduced in the near term if our estimates of taxable income are significantly reduced or tax planning strategies are no longer viable. The valuation allowance increased by $3.6 in 2012 and decreased by $38.2 in 2011. Of the increase in 2012, $5.4 was recognized as an increase in tax expense from continuing operations. Of the decrease in 2011, $31.2 was recognized as a reduction in tax expense from continuing operations and $7.7 was an increase to tax expense from discontinued operations. The amount of income tax that we pay annually is dependent on various factors, including the timing of certain deductions. These deductions can vary from year to year, and, consequently, the amount of income taxes paid in future years will vary from the amounts paid in the prior year. Undistributed Foreign Earnings In general, it is our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in those operations. As of December 31, 2012, we had not recorded a provision for U.S. or foreign withholding taxes on approximately $1,580.0 of the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of a deferred tax liability related to the undistributed earnings of these foreign subsidiaries, in the event that these earnings are no longer considered to be indefinitely reinvested, due to the hypothetical nature of the calculation. There are discrete amounts of foreign earnings (approximately $313.0), primarily related to the gain on sale of our Service Solutions business, where we do plan to repatriate the earnings in the future. During 2012, we provided $100.8 of U.S. and foreign withholding taxes on such earnings, with $91.8 of such amount recorded to discontinued operations. Unrecognized Tax Benefits As of December 31, 2012, we had gross unrecognized tax benefits of $73.8 (net unrecognized tax benefits of $37.9), of which $37.4, if recognized, would impact our effective tax rate from continuing operations. Similarly, at December 31, 2011 and 2010, we had gross unrecognized tax benefits of $85.2 (net unrecognized tax benefits of $68.0) and $95.5 (net unrecognized tax benefits of $77.4), respectively. We classify interest and penalties related to unrecognized tax benefits as a component of our income tax provision. As of December 31, 2012, gross accrued interest excluded from the amounts above totaled $8.1 (net accrued interest of $5.7), while the related amounts as of December 31, 2011 and 2010 were $12.9 (net accrued interest of $10.1) and $15.6 (net accrued interest of $11.3), respectively. Our income tax provision for the years ended December 31, 2012, 2011 and 2010 included gross interest income of $3.8, $2.3 and $4.0, respectively, resulting from a reduction in our liability for uncertain tax positions. There were no significant penalties recorded during any year presented. Based on the outcome of certain examinations or as a result of the expiration of statutes of limitations for certain jurisdictions, we believe that within the next 12 months it is reasonably possible that our previously unrecognized tax benefits could decrease by approximately $10.0 to $20.0. The previously unrecognized tax benefits relate to a variety of tax issues including tax matters relating to prior acquisitions and dispositions, transfer pricing, and various state matters. The aggregate changes in the balance of unrecognized tax benefits for the years ended December 31, 2012, 2011 and 2010 were as follows:
|  | 2012 |  | 2011 |  | 2010 |
--- | --- | --- | --- | --- | --- | --- | ---
Unrecognized tax benefit — opening balance |  | $ | 85.2 |  | $ | 95.5 |  | $ | 120.9 |
Gross increases — tax positions in prior period |  |  | 20.6 |  |  | 3.3 |  |  | 13.9 |
Gross decreases — tax positions in prior period |  |  | (33.9 | ) |  | (11.4 | ) |  | (13.4 | )
Gross increases — tax positions in current period |  |  | 11.8 |  |  | 10.9 |  |  | 8.7 |
Settlements |  |  | (7.1 | ) |  | (0.9 | ) |  | (24.5 | )
Lapse of statute of limitations |  |  | (2.7 | ) |  | (11.5 | ) |  | (8.3 | )
Change due to foreign currency exchange rates |  |  | (0.1 | ) |  | (0.7 | ) |  | (1.8 | )
Unrecognized tax benefit — ending balance |  | $ | 73.8 |  | $ | 85.2 |  | $ | 95.5 |
Other Tax Matters During 2012, our income tax provision was impacted by: (i) an income tax benefit of $26.3 associated with the $281.4 impairment charge recorded by our Cooling reporting unit, as the majority of the goodwill for the Cooling reporting unit has no basis for income tax purposes; (ii) taxes provided of $15.4 on foreign dividends and undistributed earnings that are no longer considered to be indefinitely reinvested; (iii) incremental tax expense of $6.1 associated with the deconsolidation of our dry cooling business in China, as the goodwill allocated to the transaction is not deductible for income tax purposes; and (iv) valuation allowances that were recorded against deferred tax assets during the year of $5.4. The unfavorable impact of these items was offset partially by income tax benefits of $23.7 associated with audit closures, settlements, statute expirations, and other changes in the accrual for uncertain tax positions, with the most notable being the closure of our German tax examination for the years 2005 through 2009. During 2011, we adopted an alternative method of allocating certain expenses between foreign and domestic sources for federal income tax purposes. As a result of this method change, we determined that it was more likely than not that we would be able to utilize our then-existing foreign tax credits within the remaining carryforward period. Accordingly, we released the valuation allowance on our foreign tax credit carryforwards in 2011, resulting in an income tax benefit of $27.8. In addition, the effective tax rate for the year ended December 31, 2011 was impacted favorably by tax benefits of $2.5 associated with the conclusion of a Canadian appeals process and $7.7 of tax credits related to the expansion of our power transformer facility in Waukesha, WI. These tax benefits were offset partially by $6.9 of federal income taxes that were provided in connection with our plan to repatriate a portion of the earnings of a foreign subsidiary. During 2010, the IRS completed the field examination of our 2006 and 2007 federal income tax returns and issued a Revenue Agent's Report ("RAR"). Upon issuance of the RAR, we reduced a portion of our valuation allowance and our liability for uncertain tax positions to reflect amounts determined to be effectively settled or that satisfied the more likely than not threshold, resulting in the recognition of income tax benefits of $18.2 and $7.3 to continuing and discontinued operations, respectively. Further, we disagreed with and protested certain adjustments included in the RAR to the Appeals Office of the IRS. In the fourth quarter of 2011, we settled all issues under appeal with the IRS for the 2006 and 2007 tax years with no further recognition of income tax expense or benefit resulting. In addition, the effective income tax rate for the year ended December 31, 2010 was impacted favorably by a $16.0 tax benefit related to the reduction in liabilities for uncertain tax positions associated with various foreign and domestic statute expirations and the settlement of various state examinations. These benefits were offset partially by a domestic charge of $6.2 associated with the taxation of prescription drug costs for retirees under Medicare Part D as a result of the 2010 enactment of the Patient Protection and Affordable Care Act (the "PPAC Act") and $3.6 associated with the repatriation of foreign earnings. Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and our effective tax rate in the future. The American Taxpayer Relief Act of 2012 (the "Act") was signed into law on January 2, 2013. A change in tax law is accounted for in the period of enactment; therefore, certain provisions of the Act that will benefit our 2012 U.S. federal income tax return, including the research and experimentation credit and the Subpart F controlled foreign corporation look-through exception, cannot be recognized in our 2012 financial results and instead will be reflected in our financial results for 2013. Further, we expect the Act's extension of these provisions through the end of 2013 to favorably affect our estimated annual effective tax rate in 2013, when compared to 2012. We perform reviews of our income tax positions on a continuous basis and accrue for potential uncertain positions when we determine that an uncertain position meets the criteria of the Income Taxes Topic of the Codification. Accruals for these uncertain tax positions are recorded in "Income taxes payable" and "Deferred and other income taxes" in the accompanying consolidated balance sheets based on the expectation as to the timing of when the matters will be resolved. As events change and resolution occurs, these accruals are adjusted, such as in the case of audit settlements with taxing authorities. The IRS concluded its audit of our 2008 and 2009 federal income tax returns during 2012 and issued a RAR. We disagree with and have protested certain adjustments within the RAR to the Appeals Office of the IRS. While resolution of these issues may result in tax liabilities that differ from the accruals established, we believe any contingencies are adequately provided for, and will not have a material adverse effect on our financial position, results of operations or liquidity. We reasonably expect to conclude this appeals process within the next twelve months. In addition, during 2012, the IRS initiated an audit of our 2010 and 2011 federal income tax returns. With regard to this audit, we believe any contingencies are adequately provided for. State income tax returns generally are subject to examination for a period of three to five years after filing of the respective tax return. The impact on such tax returns of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. We have various state income tax returns in the process of examination, administrative appeal or litigation. We believe that any uncertain tax positions related to these examinations have been adequately provided for. We have various foreign income tax returns under examination. The most significant of these is in Denmark for the 2006 to 2010 tax years. We believe that any uncertain tax positions related to these examinations have been adequately provided for. An unfavorable resolution of one or more of the above matters could have a material adverse effect on our results of operations or cash flows in the quarter and year in which an adjustment is recorded or the tax is due or paid. As audits and examinations are still in process or we have not reached the final stages of the appeals process for any of the above matters, the timing of the ultimate resolution and any payments that may be required for the above matters cannot be determined at this time.

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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 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: 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 3: 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 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: 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 Reference 6: 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 7: 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 8: 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 + Details
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