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Income Taxes | 12 Months Ended
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Dec. 31, 2013
Components of Income Tax Expense (Benefit), Continuing Operations [Abstract] |
Income Taxes | INCOME TAXES The income tax expense (benefit) was $68 million, $133 million, and $(436) million in 2013, 2012 and 2011, respectively. The following table summarizes the difference between income tax expense at the United States statutory rate of 35% and the income tax expense (benefit) at effective worldwide tax rates for the respective periods:
Millions of dollars |  | 2013 |  | 2012 |  | 2011
Earnings (loss) before income taxes |  |  |  |  |  |
United States |  | $ | 149 |  |  | $ | 113 |  |  | $ | (240 | )
Foreign |  | 768 |  |  | 445 |  |  | 212 |
Earnings (loss) before income taxes |  | 917 |  |  | 558 |  |  | (28 | )
Income tax computed at United States statutory rate |  | 321 |  |  | 195 |  |  | (10 | )
U.S. government tax incentives, including Energy Tax Credits |  | (142 | ) |  | — |  |  | (379 | )
Foreign government tax incentives, including BEFIEX |  | (63 | ) |  | (38 | ) |  | (100 | )
Foreign tax rate differential |  | (17 | ) |  | (2 | ) |  | (13 | )
U.S. foreign tax credits |  | (231 | ) |  | (31 | ) |  | (37 | )
Valuation allowances |  | 16 |  |  | (86 | ) |  | 11 |
State and local taxes, net of federal tax benefit |  | 7 |  |  | 2 |  |  | (4 | )
Foreign withholding taxes |  | 29 |  |  | 12 |  |  | 10 |
Non-deductible government settlements |  | — |  |  | — |  |  | 30 |
U.S. tax on foreign dividends and subpart F income |  | 195 |  |  | 57 |  |  | 26 |
Settlement of global tax audits |  | (54 | ) |  | 18 |  |  | 10 |
Other items, net |  | 7 |  |  | 6 |  |  | 20 |
Income tax computed at effective worldwide tax rates |  | $ | 68 |  |  | $ | 133 |  |  | $ | (436 | )
Current and deferred tax (benefit) provision The following table summarizes our income tax (benefit) provision for 2013, 2012 and 2011:
|  | 2013 |  | 2012 |  | 2011
Millions of dollars |  | Current |  | Deferred |  | Current |  | Deferred |  | Current |  | Deferred
United States |  | $ | (60 | ) |  | $ | (57 | ) |  | $ | 18 |  |  | $ | 24 |  |  | $ | (18 | ) |  | $ | (464 | )
Foreign |  | 187 |  |  | (9 | ) |  | 189 |  |  | (96 | ) |  | 114 |  |  | (64 | )
State and local |  | 2 |  |  | 5 |  |  | 7 |  |  | (9 | ) |  | (1 | ) |  | (3 | )
|  | $ | 129 |  |  | $ | (61 | ) |  | $ | 214 |  |  | $ | (81 | ) |  | $ | 95 |  |  | $ | (531 | )
Total income tax expense (benefit) |  |  |  | $ | 68 |  |  |  |  | $ | 133 |  |  |  |  | $ | (436 | )
United States government tax incentives On January 2, 2013, The American Taxpayer Relief Act of 2012 (the “Act”) was signed into law. The Act extends certain provisions included in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 to ensure that conservation and efficiency are a central component to the United States energy strategy. Among the provisions extended are manufacturers’ tax credits for the accelerated U.S. production of super-efficient clothes washers, refrigerators and dishwashers that meet or exceed certain Energy Star thresholds for energy and water conservation levels as set by the U.S. Department of Energy (“Energy Credit”). The tax credits apply to eligible production during the 2012 and 2013 calendar years provided the production of qualifying product in any individual year exceeds a rolling two year baseline of production. We continue to invest in innovation and energy efficient products that meet these standards for our customers. Foreign government tax incentives In previous years, our Brazilian operations earned tax credits under the Brazilian government’s export incentive program (BEFIEX). These credits reduced Brazilian federal excise taxes on domestic sales, resulting in an increase in the operations’ recorded net sales. We began recognizing BEFIEX credits in accordance with prior favorable court decisions allowing for the credits to be recognized. We were able to recognize approximately $109 million, $37 million and $266 million of export credits in 2013, 2012 and 2011, respectively. We recognize export credits as they are monetized; however, future actions by the Brazilian government could limit our ability to monetize these export credits. As of December 31, 2013, approximately $66 million of future cash monetization remained, including $52 million of related court awarded fees, which is not expected to be payable for several years. In December 2013, the Brazilian government reinstituted the monetary adjustment index applicable to BEFIEX credits that existed prior to July 2009, when the Brazilian government required companies to apply a different monetary adjustment index to BEFIEX credits. It is unknown whether Brazilian courts will require that use of the reinstituted index be given retroactive effect for the July 2009 to December 2013 period, the effect of which would be to increase the amount of BEFIEX credits we would be entitled to recognize. Our Brazilian operations have received governmental assessments related to claims for income and social contribution taxes associated with BEFIEX credits monetized from 2000 through 2002 and 2007 through 2011. We do not believe BEFIEX export credits are subject to income or social contribution taxes. We are disputing these tax matters in various courts and intend to vigorously defend our positions. We have not provided for income or social contribution taxes on these export credits, and based on the opinions of tax and legal advisors, we have not accrued any amount related to these assessments as of December 31, 2013. The total amount of outstanding tax assessments received for income and social contribution taxes relating to the BEFIEX credits, including interest and penalties, is approximately 1.2 billion Brazilian reais (equivalent to $530 million) as of December 31, 2013. Litigation is inherently unpredictable and the conclusion of these matters may take many years to ultimately resolve, during which time the amounts related to these assessments will continue to be increased by monetary adjustments at the Selic rate, which is the benchmark rate set by the Brazilian Central Bank. Accordingly, it is possible that an unfavorable outcome in these proceedings could have a material adverse effect on our financial position, liquidity, or results of operations in any particular reporting period. United States tax on foreign dividends We have historically reinvested all unremitted earnings of our foreign subsidiaries and affiliates. We plan to distribute approximately $116 million of foreign earnings over the next several years. This distribution is forecasted to result in tax benefits which have not been recorded because of their contingent nature. There has been no deferred tax liability provided on the remaining amount of unremitted earnings of $3.5 billion at December 31, 2013. As of December 31, 2013, we had $1.4 billion of cash and equivalents on hand, of which $1.3 billion was held outside of the United States. Our intent is to permanently reinvest these funds outside of the United States and our current plans do not demonstrate a need to repatriate these funds to fund our U.S. operations. However, if these funds were repatriated, then we would be required to accrue and pay applicable United States taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these unremitted earnings due to the complexity of its hypothetical calculation. Valuation allowances At December 31, 2013, we had net operating loss carryforwards of $2.7 billion, $1.4 billion of which were United States state net operating loss carryforwards. Of the total net operating loss carryforwards, $1.1 billion do not expire, with substantially all of the remaining carryforwards expiring in various years through 2033. As of December 31, 2013, we had $243 million of foreign tax credit carryforwards and $1.1 billion of United States general business credit carryforwards available to offset future payments of federal income taxes, expiring between 2017 and 2033. We routinely review the future realization of deferred tax assets based on projected future reversal of taxable temporary differences, available tax planning strategies and projected future taxable income. We have recorded a valuation allowance to reflect the net estimated amount of certain deferred tax assets associated with net operating loss and other deferred tax assets we believe will be realized. Our recorded valuation allowance of $186 million at December 31, 2013 consists of $168 million of net operating loss carryforward deferred tax assets and $18 million of other deferred tax assets. We believe that it is more likely than not that we will realize the benefit of existing deferred tax assets, net of valuation allowances mentioned above. Settlement of global tax audits We are in various stages of audits by certain governmental tax authorities. We establish liabilities for the difference between tax return provisions and the benefits recognized in our financial statements. Such amounts represent a reasonable provision for taxes ultimately expected to be paid, and may need to be adjusted over time as more information becomes known. We are no longer subject to any significant United States federal tax examinations for the years before 2008, or any state, local or foreign income tax examinations by tax authorities for years before 2005. Deferred tax liabilities and assets Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes. The following table summarizes the significant components of our deferred tax liabilities and assets at December 31, 2013 and 2012:
Millions of dollars |  | 2013 |  | 2012
Deferred tax liabilities |  |  |  |
Intangibles |  | $ | 517 |  |  | $ | 513 |
Property, net |  | 141 |  |  | 138 |
LIFO inventory |  | 49 |  |  | 54 |
Other |  | 201 |  |  | 194 |
Total deferred tax liabilities |  | 908 |  |  | 899 |
Deferred tax assets |  |  |  |
U.S. general business credit carryforwards, including Energy Tax Credits |  | 1,050 |  |  | 917 |
Pensions |  | 311 |  |  | 557 |
Loss carryforwards |  | 467 |  |  | 410 |
Inventory prepayment |  | 93 |  |  | 307 |
Postretirement obligations |  | 177 |  |  | 174 |
Foreign tax credit carryforwards |  | 243 |  |  | 98 |
Research and development capitalization |  | 239 |  |  | 190 |
Employee payroll and benefits |  | 138 |  |  | 174 |
Accrued expenses |  | 102 |  |  | 82 |
Product warranty accrual |  | 58 |  |  | 58 |
Receivable and inventory allowances |  | 51 |  |  | 54 |
Other |  | 233 |  |  | 170 |
Total deferred tax assets |  | 3,162 |  |  | 3,191 |
Valuation allowances for deferred tax assets |  | (186 | ) |  | (130 | )
Deferred tax assets, net of valuation allowances |  | 2,976 |  |  | 3,061 |
Net deferred tax assets |  | $ | 2,068 |  |  | $ | 2,162 |
Unrecognized tax benefits The following table represents a reconciliation of the beginning and ending amount of unrecognized tax benefits that if recognized would impact the effective tax rate, excluding federal benefits of state and local tax positions, and interest and penalties:
Millions of dollars |  | 2013 |  | 2012 |  | 2011
Balance, January 1 |  | $ | 178 |  |  | $ | 178 |  |  | $ | 190 |
Additions for tax positions of the current year |  | 17 |  |  | 13 |  |  | 9 |
Additions for tax positions of prior years |  | 6 |  |  | 16 |  |  | 10 |
Reductions for tax positions of prior years |  | (81 | ) |  | (15 | ) |  | (24 | )
Settlements during the period |  | (3 | ) |  | (5 | ) |  | (1 | )
Lapses of applicable statute of limitation |  | (4 | ) |  | (9 | ) |  | (6 | )
Balance, December 31 |  | $ | 113 |  |  | $ | 178 |  |  | $ | 178 |
It is reasonably possible that certain unrecognized tax benefits of $9 million could be settled with various related jurisdictions during the next 12 months. Interest and penalties associated with unrecognized tax benefits resulted in a net benefit of $12 million and $4 million in 2013 and 2012, respectively, and a net expense of $17 million in 2011. We have accrued a total of $49 million and $74 million at December 31, 2013 and 2012, respectively.

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