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Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2011
Income Taxes |
Income Taxes |
11. Income Taxes The provision for income taxes was calculated based on the following components of earnings (loss) before income taxes:
Continuing operations |  | 2011 |  | 2010 |  | 2009 |
--- | --- | --- | --- | --- | --- | --- | ---
U.S. |  | $ | 13 |  | $ | (117 | ) | $ | (215 | )
Non-U.S. |  |  | (419 | ) |  | 541 |  |  | 430 |
|  | $ | (406 | ) | $ | 424 |  | $ | 215 |
Discontinued operations |  | 2011 |  | 2010 |  | 2009 |
--- | --- | --- | --- | --- | --- | --- | ---
U.S. |  | $ | — |  | $ | — |  | $ | — |
Non-U.S. |  |  | (2 | ) |  | (296 | ) |  | 110 |
|  | $ | (2 | ) | $ | (296 | ) | $ | 110 |
The provision (benefit) for income taxes consists of the following:
|  | 2011 |  | 2010 |  | 2009 |
--- | --- | --- | --- | --- | --- | --- | ---
Current: |  |  |  |  |  |  |  |  |  |
U.S. |  | $ | (12 | ) | $ | — |  | $ | — |
Non-U.S. |  |  | 139 |  |  | 141 |  |  | 67 |
|  |  | 127 |  |  | 141 |  |  | 67 |
Deferred: |  |  |  |  |  |  |  |  |  |
U.S. |  |  | 11 |  |  | (10 | ) |  | (50 | )
Non-U.S. |  |  | (53 | ) |  | (2 | ) |  | 66 |
|  |  | (42 | ) |  | (12 | ) |  | 16 |
Total: |  |  |  |  |  |  |  |  |  |
U.S. |  |  | (1 | ) |  | (10 | ) |  | (50 | )
Non-U.S. |  |  | 86 |  |  | 139 |  |  | 133 |
Total for continuing operations |  |  | 85 |  |  | 129 |  |  | 83 |
Total for discontinued operations |  |  | (3 | ) |  | 4 |  |  | 44 |
|  | $ | 82 |  | $ | 133 |  | $ | 127 |
A reconciliation of the provision for income taxes based on the statutory U.S. Federal tax rate of 35% to the provision for income taxes is as follows:
|  | 2011 |  | 2010 |  | 2009 |
--- | --- | --- | --- | --- | --- | --- | ---
Tax provision on pretax earnings (loss) from continuing operations at statutory U.S. Federal tax rate |  | $ | (142 | ) | $ | 148 |  | $ | 75 |
Increase (decrease) in provision for income taxes due to: |  |  |  |  |  |  |  |  |  |
Non-U.S. income taxes |  |  | (10 | ) |  | (25 | ) |  | (18 | )
Goodwill impairment |  |  | 224 |  |  |  |  |  |  |
State taxes, net of federal benefit |  |  | (1 | ) |  | (2 | ) |  | (1 | )
Intraperiod tax allocation—U.S. |  |  |  |  |  | (8 | ) |  | (48 | )
Tax law changes |  |  | 3 |  |  | 1 |  |  | (3 | )
Changes in valuation allowance |  |  | 15 |  |  | 11 |  |  | 75 |
Other items |  |  | (4 | ) |  | 4 |  |  | 3 |
Provision for income taxes |  | $ | 85 |  | $ | 129 |  | $ | 83 |
Income tax expense or benefit from continuing operations is generally determined without regard to other categories of earnings, such as other comprehensive income and discontinued operations. An exception is provided when there is aggregate pretax income from other categories and a pretax loss from continuing operations in the current year. In such an instance, the tax benefit allocated to continuing operations is the amount by which the loss from continuing operations reduces the tax expenses recorded with respect to the other categories of earnings, even when a valuation allowance has been established against the deferred tax assets. In instances where a valuation allowance is established against current year losses, income from other sources, including other comprehensive income and discontinued operations, is considered when determining whether sufficient future taxable income exists to realize the deferred tax assets. During 2010, certain pretax losses from continuing operations were partially offset by other comprehensive income and discontinued operations as a result of the exception noted above, resulting in a reduction of the valuation allowance and a benefit allocated to income tax expense from continuing operations of $8 million. During 2009, certain pretax losses from continuing operations were partially offset by other comprehensive income as a result of the exception noted above, resulting in a reduction of the valuation allowance and a benefit allocated to income tax expense from continuing operations of $48 million. Deferred income taxes reflect: (1) 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; and (2) carryovers and credits for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at December 31, 2011 and 2010 are as follows:
|  | 2011 |  | 2010 |
--- | --- | --- | --- | --- | ---
Deferred tax assets: |  |  |  |  |  |  |
Accrued postretirement benefits |  | $ | 90 |  | $ | 87 |
Asbestos-related liabilities |  |  | 164 |  |  | 167 |
Foreign tax credit |  |  | 338 |  |  | 312 |
Operating and capital loss carryovers |  |  | 438 |  |  | 455 |
Other credit carryovers |  |  | 51 |  |  | 48 |
Accrued liabilities |  |  | 118 |  |  | 127 |
Pension liability |  |  | 224 |  |  | 138 |
Other |  |  | 70 |  |  | 69 |
Total deferred tax assets |  |  | 1,493 |  |  | 1,403 |
Deferred tax liabilities: |  |  |  |  |  |  |
Property, plant, and equipment |  |  | 121 |  |  | 169 |
Exchangeable notes |  |  | 23 |  |  | 28 |
Inventory |  |  | 1 |  |  | 12 |
Other |  |  | 43 |  |  | 80 |
Total deferred tax liabilities |  |  | 188 |  |  | 289 |
Valuation allowance |  |  | (1,176 | ) |  | (1,077 | )
Net deferred taxes |  | $ | 129 |  | $ | 37 |
Deferred taxes are included in the Consolidated Balance Sheets at December 31, 2011 and 2010 as follows:
|  | 2011 |  | 2010 |
--- | --- | --- | --- | --- | ---
Prepaid expenses |  | $ | 48 |  | $ | 8 |
Other assets |  |  | 295 |  |  | 232 |
U.S. and foreign income taxes |  |  | (2 | ) |  |  |
Deferred taxes |  |  | (212 | ) |  | (203 | )
Net deferred taxes |  | $ | 129 |  | $ | 37 |
The Company reviews the likelihood that it will realize the benefit of its deferred tax assets and therefore the need for valuation allowances on a quarterly basis, or whenever events indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or consolidated group recording the net deferred tax asset is considered, along with other positive and negative evidence. During 2010, the Company made adjustments to its beginning non-U.S. valuation allowances which decreased the balance by approximately $38 million. The change in the valuation allowance primarily relates to positive evidence from improved historical and projected financial results of the non-U.S. jurisdictions. At December 31, 2011, before valuation allowance, the Company had unused foreign tax credits of $338 million expiring in 2017 through 2021, research tax credit of $18 million expiring from 2013 to 2031, and alternative minimum tax credits of $29 million which do not expire and which will be available to offset future U.S. Federal income tax. Approximately $110 million of the deferred tax assets related to operating and capital loss carryforwards can be carried over indefinitely, with the remaining $328 million expiring between 2012 and 2031. At December 31, 2011, the Company's equity in the undistributed earnings of foreign subsidiaries for which income taxes had not been provided approximated $2 billion. The Company intends to reinvest these earnings indefinitely in the non-U.S. operations and has not distributed any of these earnings to the U.S. in 2011, 2010 or 2009. It is not practicable to estimate the U.S. and foreign tax which would be payable should these earnings be distributed. Deferred taxes are provided for earnings of non-U.S. jurisdictions when the Company plans to remit those earnings. The Company has recognized tax benefits as a result of incentives in certain non-U.S. jurisdictions which expire between 2012 and 2016. The Company records a liability for unrecognized tax benefits related to uncertain tax positions. The Company accrues interest and penalties associated with unrecognized tax benefits as a component of its income tax expense. The following is a reconciliation of the Company's total gross unrecognized tax benefits for the years ended December 31, 2011, 2010 and 2009:
|  | 2011 |  | 2010 |  | 2009 |
--- | --- | --- | --- | --- | --- | --- | ---
Balance at January 1 |  | $ | 143 |  | $ | 120 |  | $ | 90 |
Additions and reductions for tax positions of prior years |  |  | (15 | ) |  | 26 |  |  | 19 |
Additions based on tax positions related to the current year |  |  | 30 |  |  | 5 |  |  | 11 |
Additions for tax positions of prior years on acquisitions |  |  |  |  |  | 12 |  |  |  |
Reductions due to the lapse of the applicable statute of limitations |  |  | (8 | ) |  | (1 | ) |  | (2 | )
Reductions due to settlements |  |  | (18 | ) |  | (13 | ) |  |  |
Foreign currency translation |  |  | (7 | ) |  | (6 | ) |  | 2 |
Balance at December 31 |  | $ | 125 |  | $ | 143 |  | $ | 120 |
Unrecognized tax benefits, which if recognized, would impact the Company's effective income tax rate |  | $ | 114 |  | $ | 125 |  | $ | 89 |
Accrued interest and penalties at December 31 |  | $ | 49 |  | $ | 36 |  | $ | 22 |
Interest and penalties included in tax expense for the years ended December 31 |  | $ | 18 |  | $ | 4 |  | $ | 10 |
Based upon the outcome of tax examinations, judicial proceedings, or expiration of statute of limitations, it is reasonably possible that the ultimate resolution of these unrecognized tax benefits may result in a payment that is materially different from the current estimate of the tax liabilities. The Company believes that it is reasonably possible that unrecognized tax benefits could decrease up to $70 million within the next twelve months. This is primarily the result of audit settlements or statute expirations in several taxing jurisdictions, each of which are reasonably possible of being settled. The Company is currently under examination in various tax jurisdictions in which it operates, including Australia, Ecuador, France, Germany, Italy, Poland, Switzerland and the UK. The years under examination range from 2001 through 2010. The Company believes that there are no jurisdictions in which the outcome of unresolved issues or claims is likely to be material to the Company's results of operations, financial position or cash flows. The Company further believes that adequate provisions for all income tax uncertainties have been made. During 2011, the Company concluded audits in several jurisdictions, including Hungary, Italy, Spain, New Zealand and the U.S.

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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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