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Income Taxes | 12 Months Ended
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Dec. 31, 2013
Income Taxes | 13. Income Taxes The components of income (loss) before income taxes and noncontrolling interests were as follows:
(In millions) |  | 2013 |  |  | 2012 |  |  | 2011 |
Domestic operations |  | $ | 276.9 |  |  | $ | 95.0 |  |  | $ | (73.1 | )
Foreign operations |  |  | 68.0 |  |  |  | 59.0 |  |  |  | 29.5 |
Income (loss) before income taxes and noncontrolling interests |  | $ | 344.9 |  |  | $ | 154.0 |  |  | $ | (43.6 | )
A reconciliation of income taxes at the 35% federal statutory income tax rate to the income tax provision (benefit) reported was as follows:
(In millions) |  | 2013 |  |  | 2012 |  |  | 2011 |
Income tax expense (benefit) computed at federal statutory income tax rate |  | $ | 120.7 |  |  | $ | 53.9 |  |  | $ | (15.3 | )
Other income taxes, net of federal tax benefit |  |  | 8.0 |  |  |  | 3.8 |  |  |  | (1.8 | )
Foreign taxes at a different rate than U.S. federal statutory income tax rate |  |  | (10.2 | ) |  |  | (7.0 | ) |  |  | (5.3 | )
Tax effect on foreign dividends |  |  | — |  |  |  | 12.4 |  |  |  | 10.2 |
Tax benefit on income attributable to domestic production activities |  |  | (5.8 | ) |  |  | (2.2 | ) |  |  | (2.6 | )
Net adjustments for uncertain tax positions |  |  | 2.0 |  |  |  | (11.0 | ) |  |  | (9.7 | )
Net effect of rate changes on deferred taxes |  |  | (3.0 | ) |  |  | (0.2 | ) |  |  | (2.9 | )
Prior period items |  |  | — |  |  |  | (3.9 | ) |  |  | — |
Valuation allowance increase (decrease) |  |  | 2.1 |  |  |  | (8.9 | ) |  |  | 16.8 |
Miscellaneous other, net |  |  | 0.2 |  |  |  | (2.6 | ) |  |  | 1.6 |
Income tax expense (benefit) as reported |  | $ | 114.0 |  |  | $ | 34.3 |  |  | $ | (9.0 | )
Effective income tax rate |  |  | 33.1 | % |  |  | 22.3 | % |  |  | 20.6 | %
The effective income tax rate for 2013 was unfavorably impacted by an increase in the valuation allowance related to an investment impairment charge for which we cannot presently record an income tax benefit. The effective income tax rate in 2013 was favorably impacted by $3.0 million of deferred tax benefits associated with the enacted repeal of the Mexican Business Flat Tax, under the 2014 Mexican Tax Reform Package and the extension of the U.S. research and development credit under The American Taxpayer Relief Act of 2012. The effective income tax rate was also favorably impacted by an increased benefit attriburable to domestic production activities. The effective income tax rate in 2012 was favorably impacted by a tax benefit related to the final settlement of a U.S. federal income tax audit covering the 2008 to 2009 years and a decrease in valuation allowance due to certain reorganization actions among our foreign subsidiaries. The effective rate in 2012 was unfavorably impacted by an income tax expense on foreign dividends. The effective income tax rate in 2011 was unfavorably impacted due to the recording of valuation allowances related to state and foreign net operating loss carryforwards and an income tax expense on foreign dividends. The 2011 effective income tax rate was favorably impacted by a tax benefit related to conclusion of foreign and state income tax audits and enacted changes in state tax laws. On September 13, 2013, the Treasury Department and Internal Revenue Service issued the final tangible property repair regulations that are effective for years beginning on or after January 1, 2014. While the final impact of these regulations on our financial statements will not be determined until our 2014 income tax return is filed, we do not expect it to have a material impact on our results of operations or cash flows. A reconciliation of the beginning and ending amount of unrecognized tax benefits (UTBs) was as follows:
(In millions) |  | 2013 |  |  | 2012 |  |  | 2011 |
Unrecognized tax benefits — beginning of year |  | $ | 20.8 |  |  | $ | 35.4 |  |  | $ | 38.8 |
Gross additions — current year tax positions |  |  | 4.4 |  |  |  | 2.8 |  |  |  | 2.3 |
Gross additions — prior year tax positions |  |  | 0.7 |  |  |  | 0.6 |  |  |  | 7.2 |
Gross additions — purchase accounting adjustments |  |  | 1.6 |  |  |  | — |  |  |  | — |
Gross reductions — prior year tax positions |  |  | (3.2 | ) |  |  | (13.5 | ) |  |  | (12.0 | )
Gross reductions — settlements with taxing authorities |  |  | (0.6 | ) |  |  | (4.0 | ) |  |  | (0.4 | )
Impact of change in foreign exchange rates |  |  | — |  |  |  | — |  |  |  | (0.5 | )
Impact due to expiration of statutes of limitations |  |  | — |  |  |  | (0.5 | ) |  |  | — |
Unrecognized tax benefits — end of year |  | $ | 23.7 |  |  | $ | 20.8 |  |  | $ | 35.4 |
The amount of UTBs that, if recognized as of December 31, 2013, would affect the Company’s effective tax rate was $23.4 million. It is reasonably possible that, within the next twelve months, total UTBs may decrease in the range of $2.5 million to $3.5 million primarily as a result of the conclusion of U.S. state and foreign income tax proceedings. We classify interest and penalty accruals related to UTBs as income tax expense. In 2013, we recognized an interest and penalty benefit of approximately $0.2 million. In 2012, we recognized an interest and penalty benefit of approximately $1.7 million, primarily driven by audit resolutions. In 2011, we recognized an interest and penalty benefit of $1.4 million. At December 31, 2013 and 2012, we had accruals for the payment of interest and penalties of $9.9 million and $10.2 million, respectively. We file income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. The Company is currently under examination by the U.S. Internal Revenue Service (“IRS”) for the periods related to 2010 and 2011. We have tax years that remain open and subject to examination by tax authorities in the following major taxing jurisdictions: Canada for years after 2008, Mexico for years after 2006 and China for years after 2009. Income taxes in 2013, 2012 and 2011 were as follows:
(In millions) |  | 2013 |  |  | 2012 |  |  | 2011 |
Current |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 102.8 |  |  | $ | 17.6 |  |  | $ | 26.0 |
Foreign |  |  | 12.8 |  |  |  | 13.1 |  |  |  | 8.9 |
State and other |  |  | 11.2 |  |  |  | 4.1 |  |  |  | 16.9 |
Deferred |  |  |  |  |  |  |  |  |  |  |  |
Federal, state and other |  |  | (13.0 | ) |  |  | 4.8 |  |  |  | (66.8 | )
Foreign |  |  | 0.2 |  |  |  | (5.3 | ) |  |  | 6.0 |
Total income tax expense (benefit) |  | $ | 114.0 |  |  | $ | 34.3 |  |  | $ | (9.0 | )
The components of net deferred tax assets (liabilities) as of December 31, 2013 and 2012 were as follows:
(In millions) |  | 2013 |  |  | 2012 |
Deferred tax assets: |  |  |  |  |  |  |  |
Compensation and benefits |  | $ | 36.8 |  |  | $ | 32.8 |
Defined benefit plans |  |  | 44.2 |  |  |  | 84.3 |
Capitalized inventories |  |  | 13.1 |  |  |  | 13.8 |
Accounts receivable |  |  | 6.8 |  |  |  | 6.9 |
Other accrued expenses |  |  | 17.7 |  |  |  | 18.0 |
Net operating loss and other tax carryforwards |  |  | 25.5 |  |  |  | 32.7 |
Valuation allowance |  |  | (20.7 | ) |  |  | (19.2 | )
Miscellaneous |  |  | 14.7 |  |  |  | 10.7 |
Total deferred tax assets |  |  | 138.1 |  |  |  | 180.0 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
LIFO inventories |  |  | (12.5 | ) |  |  | (12.5 | )
Fixed assets |  |  | (63.4 | ) |  |  | (69.4 | )
Identifiable intangible assets |  |  | (252.9 | ) |  |  | (253.6 | )
Miscellaneous |  |  | (8.1 | ) |  |  | (12.3 | )
Total deferred tax liabilities |  |  | (336.9 | ) |  |  | (347.8 | )
Net deferred tax liability |  | $ | (198.8 | ) |  | $ | (167.8 | )
In accordance with ASC requirements for Income Taxes, deferred taxes were classified in the consolidated balance sheets as of December 31, 2013 and 2012 as follows:
(In millions) |  | 2013 |  |  | 2012 |
Other current assets |  | $ | 46.2 |  |  | $ | 55.6 |
Other current liabilities |  |  | (0.6 | ) |  |  | (1.2 | )
Other assets |  |  | 1.4 |  |  |  | 1.8 |
Deferred income taxes |  |  | (245.8 | ) |  |  | (224.0 | )
Net deferred tax liability |  | $ | (198.8 | ) |  | $ | (167.8 | )
As of December 31, 2013 and 2012, the Company had deferred tax assets relating to net operating losses and other tax carryforwards of $25.5 million and $32.7 million, respectively, of which approximately $1.4 million will expire between 2014 and 2019, and the remainder which will expire in 2020 and thereafter. The Company has provided a valuation allowance to reduce the carrying value of certain of these deferred tax assets, as management has concluded that, based on the available evidence, it is more likely than not that the deferred tax assets will not be fully realized. The undistributed earnings of foreign subsidiaries that are considered indefinitely reinvested were $156.1 million at December 31, 2013. A quantification of the associated deferred tax liability on these undistributed earnings has not been made, as the determination of such liability is not practicable. In October, 2011, we separated from our Former Parent. During 2012, we analyzed the subsidiary legal and capital structures inherited from our Former Parent to assess their compatibility with our strategies as a new independent company. Based on this analysis, in the fourth quarter of 2012, we committed to a plan to reorganize certain foreign subsidiaries and adjust their capital structures to better align with our business strategy as a new independent company. As part of this plan, we committed to a non-recurring remittance of certain foreign earnings and recorded an associated tax liability of $12.4 million. In 2011, prior to the Separation and at the direction of our Former Parent, we remitted foreign earnings and recorded an associated tax liability of $9.1 million. We have not provided deferred income taxes on the remaining undistributed earnings of foreign subsidiaries. In general, under the Tax Allocation Agreement that we entered into with our Former Parent, Home & Security is responsible for all taxes to the extent such taxes are attributable to the Home & Security business, and we agreed to indemnify our Former Parent for these taxes. Our Former Parent will be responsible for all taxes to the extent such taxes are not attributable to the Home & Security business and our Former Parent has agreed to indemnify us for these taxes. Although Home & Security will continue to be severally liable with our Former Parent for this liability following the Separation, under the Tax Allocation Agreement, our Former Parent agreed to indemnify us for amounts relating to this liability to the extent not attributable to the Home & Security business. Though valid as between the parties, the Tax Allocation Agreement will not be binding on the IRS. Moreover, the Tax Allocation Agreement generally provides that each of Home & Security and our Former Parent is responsible for any taxes imposed as a result of the failure of the distribution of all the shares of our common stock owned by our Former Parent to stockholders of our Former Parent as of September 20, 2011 (the “Distribution”) to qualify for tax-favored treatment under the Internal Revenue Code if such failure is attributable to certain post-Distribution actions taken by such party or in respect of such party or such party’s stockholders after the Distribution, regardless of whether the actions occur more than two years after the Distribution, the other party consents to such actions or such party obtains a favorable letter ruling or tax opinion.

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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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