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Income Taxes | 12 Months Ended
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Dec. 31, 2013
Income Taxes |
Income Taxes | 15. Income Taxes The components of income (loss) before income taxes were as follows (in thousands):
|  | Years Ended December 31, |
|  | 2013 |  | 2012 |  | 2011 |
United States |  | $ | 127,907 |  | $ | (152,518 | ) | $ | (271,665 | )
Foreign |  | 48,540 |  | 33,618 |  | (71,626 | )
Income (loss) before income taxes |  | $ | 176,447 |  | $ | (118,900 | ) | $ | (343,291 | )
The provision for (benefit from) income taxes consisted of the following (in thousands):
|  | Years Ended December 31, |
|  | 2013 |  | 2012 |  | 2011 |
Current tax provision (benefit): |  |  |  |  |  |  |
U.S. federal |  | $ | (310 | ) | $ | (7,050 | ) | $ | 4,020 |
State |  | 5,461 |  | 2,182 |  | 6,552 |
Foreign |  | 55,796 |  | 35,238 |  | 28,000 |
Total current |  | 60,947 |  | 30,370 |  | 38,572 |
Deferred tax provision (benefit): |  |  |  |  |  |  |
U.S. federal |  | 17,292 |  | (55,327 | ) | (73,126 | )
State |  | (931 | ) | (5,043 | ) | (7,874 | )
Foreign |  | 7,411 |  | (15,755 | ) | 30,711 |
Total deferred |  | 23,772 |  | (76,125 | ) | (50,289 | )
Provision for (benefit from) income taxes |  | $ | 84,719 |  | $ | (45,755 | ) | $ | (11,717 | )
The provision for (benefit from) income taxes for 2013, 2012 and 2011 resulted in effective tax rates on continuing operations of 48.0%, 38.5% and 3.4%, respectively. The reasons for the differences between these effective tax rates and the U.S. statutory rate of 35% are as follows (in thousands):
|  | Years Ended December 31, |
|  | 2013 |  | 2012 |  | 2011 |
Income taxes at U.S. federal statutory rate of 35% |  | $ | 61,756 |  | $ | (41,615 | ) | $ | (120,152 | )
Net state income taxes |  | 3,318 |  | (2,836 | ) | (538 | )
Foreign taxes |  | 28,470 |  | 14,607 |  | 5,085 |
Noncontrolling interest |  | (12,685 | ) | (1,772 | ) | (1,103 | )
Foreign tax credits |  | (14,659 | ) | (9,925 | ) | (11,431 | )
Unrecognized tax benefits |  | 2,889 |  | (166 | ) | (741 | )
Valuation allowances |  | 21,486 |  | 14,649 |  | 62,318 |
Goodwill impairment |  | — |  | — |  | 53,988 |
Proceeds from sale of joint venture assets |  | (6,650 | ) | (18,019 | ) | — |
Other |  | 794 |  | (678 | ) | 857 |
Provision for (benefit from) income taxes |  | $ | 84,719 |  | $ | (45,755 | ) | $ | (11,717 | )
Deferred income tax balances are the direct effect of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the taxes are actually paid or recovered. The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities are as follows (in thousands):
|  | December 31, |
|  | 2013 |  | 2012 |
Deferred tax assets: |  |  |  |  |
Net operating loss carryforwards |  | $ | 169,533 |  | $ | 210,955 |
Inventory |  | 6,684 |  | 2,254 |
Alternative minimum tax credit carryforwards |  | 5,615 |  | 5,920 |
Accrued liabilities |  | 14,446 |  | 15,392 |
Foreign tax credit carryforwards |  | 124,850 |  | 110,191 |
Other |  | 40,608 |  | 37,584 |
Subtotal |  | 361,736 |  | 382,296 |
Valuation allowances |  | (102,418 | ) | (86,054 | )
Total deferred tax assets |  | 259,318 |  | 296,242 |
Deferred tax liabilities: |  |  |  |  |
Property, plant and equipment |  | (209,297 | ) | (256,502 | )
Basis difference in the Partnership |  | (104,079 | ) | (65,422 | )
Total deferred tax liabilities |  | (313,376 | ) | (321,924 | )
Net deferred tax liabilities |  | $ | (54,058 | ) | $ | (25,682 | )
Tax balances are presented in the accompanying consolidated balance sheets as follows (in thousands):
|  | December 31, |
|  | 2013 |  | 2012 |
Current deferred income tax assets |  | $ | 117,576 |  | $ | 88,508 |
Intangibles and other assets |  | 28,050 |  | 8,174 |
Accrued liabilities |  | (1,331 | ) | (1,430 | )
Deferred income tax liabilities |  | (198,353 | ) | (120,934 | )
Net deferred tax liabilities |  | $ | (54,058 | ) | $ | (25,682 | )
At December 31, 2013, we had U.S. federal net operating loss carryforwards of approximately $177.0 million that are available to offset future taxable income. If not used, the carryforwards will begin to expire in 2023. We also had approximately $360.2 million of net operating loss carryforwards in certain foreign jurisdictions (excluding discontinued operations), approximately $199.0 million of which has no expiration date, $60.5 million of which is subject to expiration from 2014 to 2018, and the remainder of which expires in future years through 2033. Foreign tax credit carryforwards of $124.9 million and alternative minimum tax credit carryforwards of $5.6 million are available to offset future payments of U.S. federal income tax. The foreign tax credits will expire in varying amounts beginning in 2014, whereas the alternative minimum tax credits may be carried forward indefinitely under current U.S. tax law. Pursuant to Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, utilization of loss carryforwards and credit carryforwards, such as foreign tax credits, will be subject to annual limitations due to the ownership changes of both Hanover and Universal. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. The merger resulted in such an ownership change for both Hanover and Universal. Our ability to utilize loss carryforwards and credit carryforwards against future U.S. federal taxable income and future U.S. federal income tax may be limited. The limitations may cause us to pay U.S. federal income taxes earlier; however, we do not currently expect that any loss carryforwards or credit carryforwards will expire as a result of these limitations. On September 13, 2013, the U.S. Treasury Department and the IRS issued final regulations that address costs incurred in acquiring, producing, or improving tangible property (the “tangible property regulations”). The tangible property regulations are generally effective for tax years beginning on or after January 1, 2014, and although they may be adopted in earlier years, we do not intend to do so. The tangible property regulations will require us to make tax accounting method changes or file election statements with our U.S. federal tax return for our tax year beginning on January 1, 2014; however, we do not believe these new requirements will have a material impact on our consolidated financial statements. We record valuation allowances when it is more likely than not that some portion or all of our deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character and in the appropriate taxing jurisdictions in the future. If we do not meet our expectations with respect to taxable income, we may not realize the full benefit from our deferred tax assets which would require us to record a valuation allowance in our tax provision in future years. In the fourth quarter of 2013, a $9.0 million valuation allowance was recorded against the deferred tax asset for Italy net operating loss carryforwards. Although the net operating losses have an unlimited carryforward period, cumulative losses in recent years and losses expected in the near term result in it no longer being more likely than not that we will realize the deferred tax asset in the foreseeable future. Due to annual limitations on the utilization of Italy net operating loss carryforwards, we would need to generate more than $40 million of taxable income in Italy to fully realize the deferred tax asset In the fourth quarter of 2011, a $48.6 million valuation allowance was recorded against the deferred tax asset for Brazil net operating loss carryforwards. Although the net operating losses have an unlimited carryforward period, cumulative losses in recent years and losses expected in the near term result in it no longer being more likely than not that we will realize the deferred tax asset in the foreseeable future. Due to annual limitations on the utilization of Brazil net operating loss carryforwards, we would need to generate more than $400 million of taxable income in Brazil to fully realize the deferred tax asset. We have not provided U.S. federal income taxes on indefinitely (or permanently) reinvested cumulative earnings of approximately $757.1 million generated by our non-U.S. subsidiaries. Such earnings are from ongoing operations which will be used to fund international growth. We have not recorded a deferred tax liability related to these unremitted foreign earnings as it is not practicable to estimate the amount of unrecognized deferred tax liabilities. In the event of a distribution of those earnings to the U.S. in the form of dividends, we may be subject to both foreign withholding taxes and U.S. federal income taxes net of allowable foreign tax credits. A reconciliation of the beginning and ending amount of unrecognized tax benefits (including discontinued operations) is shown below (in thousands):
|  | Years Ended December 31, |
|  | 2013 |  | 2012 |  | 2011 |
Beginning balance |  | $ | 9,597 |  | $ | 14,745 |  | $ | 15,614 |
Additions based on tax positions related to current year |  | 365 |  | 289 |  | — |
Additions based on tax positions related to prior years |  | 1,710 |  | 1,579 |  | — |
Reductions based on settlement with government authority |  | — |  | (5,753 | ) | — |
Reductions based on lapse of statute of limitations |  | (97 | ) | (1,263 | ) | (167 | )
Reductions based on tax positions related to prior years |  | (316 | ) | — |  | (702 | )
Ending balance |  | $ | 11,259 |  | $ | 9,597 |  | $ | 14,745 |
We had $11.3 million, $9.6 million and $14.7 million of unrecognized tax benefits at December 31, 2013, 2012 and 2011, respectively, which if recognized, would affect the effective tax rate (except for amounts that would be reflected in income (loss) from discontinued operations, net of tax). We also have recorded $3.4 million, $2.4 million and $11.9 million of potential interest expense and penalties related to unrecognized tax benefits associated with uncertain tax positions (including discontinued operations) as of December 31, 2013, 2012 and 2011, respectively. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as reductions in income tax expense. We and our subsidiaries file consolidated and separate income tax returns in the U.S. federal jurisdiction and in numerous state and foreign jurisdictions. We are subject to U.S. federal income tax examinations for tax years beginning from 1997 onward and, early in the second quarter of 2011, the Internal Revenue Service (“IRS”) commenced an examination of our U.S. federal income tax returns for the tax years 2006, 2008 and 2009. In October 2012, the IRS completed its examination and issued Revenue Agent’s Reports (“RARs”) that reflected an aggregate over-assessment of $0.9 million. All of the adjustments proposed in the RARs were agreed, except for the disallowance of our telephone excise tax refund (“TETR”) claims of $0.5 million related to the 2006 tax year, for which we filed protests with the Appeals Division of the IRS. We settled with the IRS Appeals Division in December 2013 for more than 90% of our TETR claims and expect to receive refunds in the first quarter of 2014. The $0.9 million over-assessment will be refunded to us once the Joint Committee on Taxation provides final approval which is reasonably possible to occur before the end of 2014. We do not expect any tax adjustments from later tax years that would have a material impact on our financial position or results of operations. State income tax returns are generally subject to examination for a period of three to five years after filing the returns. However, the state impact of any U.S. federal audit adjustments and amendments remains subject to examination by various states for up to one year after formal notification to the states. As of December 31, 2013, we did not have any state audits underway that would have a material impact on our financial position or results of operations. We are subject to examination by taxing authorities throughout the world, including major foreign jurisdictions such as Argentina, Brazil, Italy and Mexico. With few exceptions, we and our subsidiaries are no longer subject to foreign income tax examinations for tax years before 2003. Several foreign audits are currently in progress and we do not expect any tax adjustments that would have a material impact on our financial position or results of operations. We believe it is reasonably possible that a decrease of up to $2.2 million in unrecognized tax benefits may be necessary on or before December 31, 2014 due to the settlement of audits and the expiration of statutes of limitations. However, due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of these matters may result in liabilities which could materially differ from these estimates.

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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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