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Income Taxes
 12 Months Ended
Dec. 31, 2011
Income Taxes [Abstract]  
INCOME TAXES

NOTE 7 — INCOME TAXES

The provision (benefit) for income taxes for each of the three years in the period ended December 31 consisted of the following ($ in millions):

 

                         
    2011     2010     2009  

Current:

                        

Federal

   $ (3.8 )    $ (3.0 )    $ (3.9 ) 

Foreign

     2.8       5.2       5.7  

State and local

     0.3       0.3       (0.2 ) 
   

 

 

    

 

 

    

 

 

  
      (0.7 )      2.5       1.6  

Deferred:

                        

Federal

   $ 4.7     $ 71.4     $ 2.7  

Foreign

     (2.9 )      (4.1 )      0.5  

State and local

     -       2.5       0.5  
   

 

 

    

 

 

    

 

 

  
      1.8       69.8       3.7  
   

 

 

    

 

 

    

 

 

  

Total income tax provision

   $ 1.1     $ 72.3     $ 5.3  
   

 

 

    

 

 

    

 

 

  

Differences between the statutory federal income tax rate and the effective income tax rate for each of the three years in the period ended December 31 are summarized below:

 

                         
    2011     2010     2009  

Statutory federal income tax rate

     35.0 %      35.0 %      35.0 % 

State income taxes, net of federal tax benefit

     (1.4 )      (0.2 )      0.8  

Domestic Valuation Allowance

     (39.2 )      (96.2 )      -  

Non-deductible goodwill impairments

     (27.8 )      (22.0 )      -  

Non-deductible acquisition costs

     -       (0.5 )      1.2  

Tax reserves

     (5.2 )      1.1       (2.5 ) 

R&D tax credits

     5.1       0.6       (1.9 ) 

Foreign tax rate effects

     23.8       0.8       (11.3 ) 

Other, net

     1.4       (0.3 )      (0.2 ) 
   

 

 

    

 

 

    

 

 

  

Effective income tax rate

     (8.3 )%      (81.7 )%      21.1 % 
   

 

 

    

 

 

    

 

 

  

The Company’s 2011 effective rate was (8.3)%. Due to the company’s recent cumulative domestic losses for book purposes and the uncertainty of the realization of certain deferred tax assets, the Company continues to adjust its valuation allowance as the deferred tax assets increase or decrease, resulting in effectively no recorded tax benefit for domestic operating losses. However, the company has recorded tax expense for the increase in the deferred tax liabilities of its domestic indefinite lived intangibles. An income tax provision is still required for foreign operations that are not in a cumulative loss position.

The Company’s 2010 effective rate of (81.7)% includes tax expense related to a domestic valuation allowance and non-deductible goodwill impairments.

The Company’s 2009 effective rate of 21.1% reflects a benefit for the reduction in reserves primarily due to the completion of an audit of the Company’s 2006 U.S. tax return in accordance with ASC Topic 740, Income Taxes. The Company’s effective rate also reflects benefits for the R&D tax credit and foreign tax rate effects.

 

Deferred income tax assets and liabilities at December 31 are summarized as follows ($ in millions):

 

                 
    2011     2010  

Deferred tax assets:

                

Depreciation and amortization

   $ 12.7     $ 9.5  

Accrued expenses

     29.7       30.8  

Net operating loss, capital loss, alternative minimum tax, research and development, and foreign tax credit carryforwards

     75.0       70.0  

Definite lived intangibles

     1.8       5.8  

Indefinite lived intangibles

     5.7       -  

Pension benefits

     27.4       17.8  

Other

     0.4       0.1  

Deferred revenue

     2.1       1.9  
   

 

 

    

 

 

  

Gross deferred tax assets

     154.8       135.9  

Valuation allowance

     (122.9 )      (109.1 ) 
   

 

 

    

 

 

  

Total deferred tax assets

     31.9       26.8  

Deferred tax liabilities:

                

Depreciation and amortization

     (5.9 )      (12.0 ) 

Expenses capitalized for book

     (4.1 )      (4.1 ) 

Indefinite lived intangibles

     (57.0 )      (43.2 ) 

Definite lived intangibles

     (14.7 )      (11.3 ) 

Other

     -       (1.8 ) 
   

 

 

    

 

 

  

Gross deferred tax liabilities

     (81.7 )      (72.4 ) 
   

 

 

    

 

 

  

Net deferred tax liability

   $ (49.8 )    $ (45.6 ) 
   

 

 

    

 

 

  

Federal and state income taxes have not been provided on accumulated undistributed earnings of certain foreign subsidiaries aggregating approximately $86.1 million and $85.2 million at December 31, 2011 and 2010, respectively; as such earnings have been reinvested in the business. The determination of the amount of the unrecognized deferred tax liability related to the undistributed earnings is not practicable.

In the fourth quarter of 2010, the Company determined that $15 million of previously undistributed earnings at one of the Company’s foreign subsidiaries would be repatriated in the future. As a result of this change, the Company increased its deferred tax liabilities related to the $15 million by $0.2 million. The remainder of the foreign subsidiaries undistributed earnings is indefinitely reinvested.

The deferred tax asset for tax loss carryforwards at December 31, 2011, includes Federal net operating loss carryforwards of $3.5 million, which begin to expire in 2026, state net operating loss carryforwards of $1.6 million, which will begin to expire in 2019; foreign net operating loss carryforwards of $2.4 million of which $0.5 million has an indefinite life; $22.2 million for capital loss carryforwards that will expire in 2012 and 2013. The deferred tax asset for tax credit carryforwards includes U.S. research tax credit carryforwards of $6.3 million, which will begin to expire in 2022, U.S. foreign tax credits of $20.3 million, which will begin to expire in 2015 and U.S. alternative minimum tax credit carryforwards of $4.0 million with no expiration.

The deferred tax asset for tax loss carryforwards at December 31, 2010, includes Federal net operating loss carryforwards of $2.7 million, which begin to expire in 2026, state net operating loss carryforwards of $1.3 million, which begin to expire in 2019; foreign net operating loss carryforwards of $2.2 million of which $0.1 million has an indefinite life; $22.2 million for capital loss carryforwards that will expire in 2012 and 2013. The deferred tax asset for tax credit carryforwards includes U.S. research tax credit carryforwards of $5.6 million, which will begin to expire in 2022, U.S. foreign tax credits of $15.5 million, which will begin to expire in 2015 and U.S. alternative minimum tax credit carryforwards of $3.4 million with no expiration.

 

Valuation allowances totaling $122.9 million have been established at December 31, 2011 and include $1.6 million related to state net operating loss carryforwards, $2.4 million related to the foreign net operating loss carryforwards, $22.2 million related to capital loss carryforwards, and $96.7 million related to domestic deferred tax assets.

Valuation allowances totaling $109.1 million have been established at December 31, 2010 and include $1.3 million related to state net operating loss carryforwards, $2.2 million related to the foreign net operating loss carryforwards, $22.2 million related to capital loss carryforwards, and $83.4 million related to domestic deferred tax assets

The net deferred tax asset at December 31 is classified in the balance sheet as follows ($ in millions):

 

                 
    2011     2010  

Current net deferred tax assets

   $ 7.0     $ 15.9  

Current valuation allowance

     (9.6 )      (15.7 ) 
   

 

 

    

 

 

  

Total current deferred tax (liability) asset

  $ (2.6 )    $ 0.2  
   

 

 

    

 

 

  

Long-term net deferred tax asset

   $ 66.1     $ 47.6  

Long-term valuation allowance

     (113.3 )      (93.4 ) 
   

 

 

    

 

 

  

Long-term net deferred tax liability

   $ (47.2 )    $ (45.8 ) 
   

 

 

    

 

 

  

ASC Topic 740, Income Taxes, requires that the future realization of deferred tax assets depends on the existence of sufficient taxable income in future periods. Possible sources of taxable income include taxable income in carryback periods, the future reversal of existing taxable temporary differences recorded as a deferred tax liability, tax-planning strategies that generate future income or gains in excess of anticipated losses in the carryforward period and projected future taxable income. If, based upon all available evidence, both positive and negative, it is more likely than not such deferred tax assets will not be realized, a valuation allowance is recorded. Significant weight is given to positive and negative evidence that is objectively verifiable. A company’s three-year cumulative loss position is significant negative evidence in considering whether deferred tax assets are realizable and the accounting guidance restricts the amount of reliance the Company can place on projected taxable income to support the recovery of the deferred tax assets.

In the fourth quarter of 2010, the company recorded an $85.0 million valuation allowance against our U.S. Federal deferred tax assets as a non-cash charge to income tax expense after the Company fell into a cumulative three year domestic loss position after excluding the results of discontinued operations and disposals. In reaching this conclusion, the Company considered the weak municipal markets in the United States and significant impairment charges, which have led to a three-year cumulative U.S. loss position from continuing operations in the fourth quarter of 2010. Recording the valuation allowance does not restrict our ability to utilize the future deductions and net operating losses associated with the deferred tax assets assuming taxable income is recognized in future periods.

The $31.9 million of deferred tax assets at December 31, 2011, for which no valuation allowance is recorded, is anticipated to be realized through the future reversal of existing taxable temporary differences recorded as deferred tax liabilities at December 31, 2011. Should the company determine that it would not be able to realize our remaining deferred tax assets in the future, an adjustment to the valuation allowance would be recorded in the period such determination is made. The need to maintain a valuation allowance against deferred tax assets may cause greater volatility in our effective tax rate.

The Company paid income taxes of $4.2 million in 2011, $6.8 million in 2010, and $5.1 million in 2009.

 

(Loss) income from continuing operations before taxes for each of the three years ended December 31 consisted of the following ($ in millions):

 

                         
    2011     2010     2009  

United States

   $ (14.4 )    $ (74.5 )    $ 4.4  

Non-U.S.

     1.1       (13.9 )      20.7  
   

 

 

    

 

 

    

 

 

  
    $ (13.3 )    $ (88.4 )    $ 25.1  
   

 

 

    

 

 

    

 

 

  

The following table summarizes the activity related to the Company’s unrecognized tax benefits ($ in millions):

 

         

Balance at January 1, 2010

   $ 4.9  

Increases related to current year tax positions

     0.6  

Decreases due to settlements with tax authorities

     (1.5 ) 

Decreases due to lapse of statute of limitations

     (0.2 ) 
   

 

 

  

Balance at December 31, 2010

   $ 3.8  

Increases related to current year tax

     1.3  

Decreases due to settlements with tax authorities

     (0.2 ) 

Decreases due to lapse of statute of limitations

     (0.6 ) 
   

 

 

  

Balance at December 31, 2011

   $ 4.3  
   

 

 

  

Included in the unrecognized tax benefits of $4.3 million at December 31, 2011 was $4.2 million of tax benefits that if recognized, would impact our annual effective tax rate. The Company’s continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. Interest and penalties amounting to $0.2 million and $0.1 million, respectively, are included in the consolidated balance sheet but are not included in the table above. We expect our unrecognized tax benefits to decrease by $1.6 million over the next 12 months due to potential expiration of statute of limitations and settlements with tax authorities.

Included in the unrecognized tax benefits of $3.8 million at December 31, 2010 was $4.1 million of tax benefits that if recognized, would impact our annual effective tax rate. The Company’s continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. Interest and penalties amounting to $0.8 million and $0.1 million, respectively, are included in the consolidated balance sheet but are not included in the table above.

We file U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2008 through 2011 tax years generally remain subject to examination by federal and most state tax authorities. In significant foreign jurisdictions, the 2007 through 2011 tax years generally remain subject to examination by their respective tax authorities.