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Income taxes | 12 Months Ended
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Dec. 31, 2012
Income taxes | Note 12—Income taxes:
|  | Years ended December 31, |
|  | 2010 |  |  | 2011 |  |  | 2012 |
|  | (In millions) |
Pre-tax income (loss) from continuing operations: |  |  |  |  |  |  |  |  |  |  |  |
United States |  | $ | (.8 | ) |  | $ | 51.6 |  |  | $ | 89.0 |
Non-U.S. subsidiaries |  |  | 79.6 |  |  |  | 409.2 |  |  |  | 212.4 |
Total |  | $ | 78.8 |  |  | $ | 460.8 |  |  | $ | 301.4 |
Expected tax expense, at U.S. federal statutory income tax rate of 35% |  | $ | 27.6 |  |  | $ | 161.3 |  |  | $ | 105.4 |
Non-U.S. tax rates |  |  | (3.8 | ) |  |  | (17.1 | ) |  |  | (11.9 | )
Incremental U.S. tax on earnings of non-U.S. companies |  |  | 18.3 |  |  |  | 28.8 |  |  |  | 1.0 |
German tax attribute adjustments |  |  | (35.2 | ) |  |  | — |  |  |  | — |
U.S. state income taxes, net |  |  | 3.1 |  |  |  | 4.0 |  |  |  | 1.3 |
Adjustment to the reserve for uncertain tax positions, net |  |  | 5.2 |  |  |  | (8.5 | ) |  |  | 4.2 |
Change in valuation allowance |  |  | (.1 | ) |  |  | (.7 | ) |  |  | (1.1 | )
Nondeductible expenses |  |  | 2.5 |  |  |  | 3.7 |  |  |  | 4.3 |
Tax rate changes |  |  | (1.5 | ) |  |  | (.1 | ) |  |  | 1.9 |
French dividend surtax |  |  | — |  |  |  | — |  |  |  | .3 |
Other, net |  |  | (1.6 | ) |  |  | (1.5 | ) |  |  | (.6 | )
Provision for income taxes |  | $ | 14.5 |  |  | $ | 169.9 |  |  | $ | 104.8 |
Components of income tax expense (benefit): |  |  |  |  |  |  |  |  |  |  |  |
Currently payable (refundable): |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal and state |  | $ | 3.6 |  |  | $ | 8.0 |  |  | $ | .9 |
Non-U.S. |  |  | 16.2 |  |  |  | 78.7 |  |  |  | 42.6 |
Total |  |  | 19.8 |  |  |  | 86.7 |  |  |  | 43.5 |
Deferred income taxes: |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal and state |  |  | 19.0 |  |  |  | 28.6 |  |  |  | 34.5 |
Non-U.S. |  |  | (24.3 | ) |  |  | 54.6 |  |  |  | 26.8 |
Total |  |  | (5.3 | ) |  |  | 83.2 |  |  |  | 61.3 |
Provision for income taxes |  | $ | 14.5 |  |  | $ | 169.9 |  |  | $ | 104.8 |
Comprehensive provision for income taxes (benefit) allocable to: |  |  |  |  |  |  |  |  |  |  |  |
Income from continuing operations |  | $ | 14.5 |  |  | $ | 169.9 |  |  | $ | 104.8 |
Income from discontinued operations |  |  | 4.0 |  |  |  | 5.0 |  |  |  | 5.4 |
Other comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |
Marketable securities |  |  | 6.0 |  |  |  | 7.7 |  |  |  | (11.6 | )
Currency translation |  |  | (.2 | ) |  |  | — |  |  |  | 4.9 |
Pension plans |  |  | (.5 | ) |  |  | (6.5 | ) |  |  | (18.3 | )
OPEB plans |  |  | 2.1 |  |  |  | (1.0 | ) |  |  | (.7 | )
Total |  | $ | 25.9 |  |  | $ | 175.1 |  |  | $ | 84.5 |
The components of the net deferred tax liability at December 31, 2011 and 2012 are summarized below.
|  | December 31, |
|  | 2011 |  |  | 2012 |
|  | Assets |  |  | Liabilities |  |  | Assets |  |  | Liabilities |
|  | (In millions) |
Tax effect of temporary differences related to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Inventories |  | $ | 8.4 |  |  | $ | (6.6 | ) |  | $ | 3.6 |  |  | $ | (10.3 | )
Marketable securities |  |  | 2.2 |  |  |  | (142.4 | ) |  |  | — |  |  |  | (164.8 | )
Property and equipment |  |  | — |  |  |  | (89.3 | ) |  |  | — |  |  |  | (104.5 | )
Accrued OPEB costs |  |  | 6.8 |  |  |  | — |  |  |  | 6.9 |  |  |  | — |
Accrued pension costs |  |  | 16.8 |  |  |  | — |  |  |  | 33.3 |  |  |  | — |
Accrued environmental liabilities and other deductible differences |  |  | 38.8 |  |  |  | — |  |  |  | 43.1 |  |  |  | — |
Other taxable differences |  |  | — |  |  |  | (25.3 | ) |  |  | — |  |  |  | (30.3 | )
Investments in subsidiaries and affiliates |  |  | — |  |  |  | (258.2 | ) |  |  | — |  |  |  | (258.3 | )
Tax on unremitted earnings of non-U.S. subsidiaries |  |  | — |  |  |  | (22.0 | ) |  |  | — |  |  |  | (7.6 | )
Tax loss and tax credit carryforwards |  |  | 160.0 |  |  |  | — |  |  |  | 153.0 |  |  |  | — |
Valuation allowance |  |  | (1.3 | ) |  |  | — |  |  |  | (.2 | ) |  |  | — |
Adjusted gross deferred tax assets (liabilities) |  |  | 231.7 |  |  |  | (543.8 | ) |  |  | 239.7 |  |  |  | (575.8 | )
Netting of items by tax jurisdiction |  |  | (80.2 | ) |  |  | 80.2 |  |  |  | (109.8 | ) |  |  | 109.8 |
|  |  | 151.5 |  |  |  | (463.6 | ) |  |  | 129.9 |  |  |  | (466.0 | )
Less net current deferred tax asset (liability) |  |  | 18.8 |  |  |  | (6.4 | ) |  |  | 9.6 |  |  |  | (11.2 | )
Net noncurrent deferred tax asset (liability) |  | $ | 132.7 |  |  | $ | (457.2 | ) |  | $ | 120.3 |  |  | $ | (454.8 | )
In the third quarter of 2012, France enacted certain changes in their income tax laws, including a 3% nondeductible surtax on all dividend distributions on which tax is assessed at the time of the distribution against the company making such distribution. Consequently, our Chemicals Segment’s French subsidiary will be required to pay an additional 3% tax on all future dividend distributions. Our undistributed earnings in France are deemed to be permanently reinvested and such tax will be recognized as part of our income tax expense if and when a dividend is declared and at that time a related tax will be remitted to the French government in accordance with the applicable tax law. During 2012, our French subsidiary distributed an $8.9 million dividend. At December 31, 2012, our Chemicals Segment’s French subsidiary has undistributed earnings of approximately $10.8 million that, if distributed, would be subject to the 3% surtax. Our income tax provision in 2012 includes a net incremental tax benefit of $3.1 million attributable to our Chemicals Segment. We determined during the third quarter that due to global changes in the business we would not remit certain dividends from our Chemicals Segment’s non-U.S. jurisdictions. As a result, certain current year tax attributes were available for carryback to offset prior year tax expense and our provision for income taxes in the third quarter included an incremental tax benefit of $11.1 million. During the fourth quarter as a result of a change in circumstances related to our sale and the sale by certain of our affiliates of their shares of TIMET common stock, which sale provided an opportunity for us and other members of our consolidated U.S. federal income tax group to elect to claim foreign tax credits, we determined that we could tax-efficiently remit non-cash dividends from our Chemical Segment’s non-U.S. jurisdictions before the end of the year that absent the TIMET sale would not have been considered. Our provision for income taxes in the fourth quarter of 2012 includes an incremental tax related to the non-cash dividend distributions of $8.0 million. Our provision for income taxes in 2011 includes $17.2 million for U.S. incremental income taxes on current earnings repatriated from our Chemicals Segment’s German subsidiary, which earnings were used to fund a portion of the repurchases of its Senior Secured Notes discussed in Note 9. In addition, we accrue U.S. incremental income taxes on the earnings of our Canadian subsidiary, which earnings we previously determined are not permanently reinvested. As a consequence of a European Court ruling that resulted in a favorable resolution of certain income tax issues in Germany, during the first quarter of 2011 the German tax authorities agreed to an increase in Kronos’ German net operating loss carryforwards. Accordingly, we recognized a non-cash income tax benefit of $35.2 million in the first quarter of 2010. Tax authorities are examining certain of our U.S. and non-U.S. tax returns and have or may propose tax deficiencies, including penalties and interest. Because of the inherent uncertainties involved in settlement initiatives and court and tax proceedings, we cannot guarantee that these tax matters will be resolved in our favor, and therefore our potential exposure, if any, is also uncertain. In 2011 and 2012 our Chemicals Segment received notices of re-assessment from the Canadian federal and provincial tax authorities related to the years 2002 through 2004. We object to the re-assessments and believe the position is without merit. Accordingly, we are appealing the re-assessments and in connection with such appeal we were required to post letters of credit aggregating Cdn. $7.5 million (see Note 9). If the full amount of the proposed adjustment were ultimately to be assessed against us the cash tax liability would be approximately $16.0 million. We believe we have adequate accruals for additional taxes and related interest expense which could ultimately result from tax examinations. We believe the ultimate disposition of tax examinations should not have a material adverse effect on our consolidated financial position, results of operations or liquidity. The following table shows the changes in the amount of our uncertain tax positions (exclusive of the effect of interest and penalties) during 2010, 2011 and 2012:
|  | Years ended December 31, |
|  | 2010 |  |  | 2011 |  |  | 2012 |
|  | (In millions) |
Unrecognized tax benefits: |  |  |  |  |  |  |  |  |  |  |  |
Amount beginning of year |  | $ | 31.8 |  |  | $ | 37.4 |  |  | $ | 23.0 |
Net increase: |  |  |  |  |  |  |  |  |  |  |  |
Tax positions taken in prior periods |  |  | .3 |  |  |  | .5 |  |  |  | 1.1 |
Tax positions taken in current period |  |  | 5.4 |  |  |  | 6.0 |  |  |  | 11.0 |
Settlements with taxing authorities—cash paid |  |  | — |  |  |  | — |  |  |  | (.1 | )
Lapse due to applicable statute of Limitations |  |  | (.5 | ) |  |  | (20.6 | ) |  |  | (1.8 | )
Changes in currency exchange rates |  |  | .4 |  |  |  | (.3 | ) |  |  | .2 |
Amount at end of year |  | $ | 37.4 |  |  | $ | 23.0 |  |  | $ | 33.4 |
If our uncertain tax positions were recognized, a benefit of $32.2 million, $23.5 million and $27.9 million at December 31, 2010, 2011 and 2012, respectively, would affect our effective income tax rate. We currently estimate that our unrecognized tax benefits will decrease by approximately $4.4 million during the next twelve months due to the reversal of certain timing differences and the expiration of certain statutes of limitations. We file income tax returns in various U.S. federal, state and local jurisdictions. We also file income tax returns in various foreign jurisdictions, principally in Germany, Canada, Belgium and Norway. Our U.S. income tax returns prior to 2009 are generally considered closed to examination by applicable tax authorities. Our foreign income tax returns are generally considered closed to examination for years prior to: 2003 for Norway; 2007 for Canada; 2008 for Germany; and 2009 for Belgium. We accrue interest and penalties on our uncertain tax positions as a component of our provision for income taxes. We accrued $.8 million, $.6 million and $.9 million of interest and penalties during 2010, 2011 and 2012, respectively, and at December 31, 2011 and 2012 we had $3.9 million and $4.1 million, respectively, accrued for interest and an immaterial amount accrued for penalties for our uncertain tax positions. At December 31, 2012, Kronos had the equivalent of $744 million and $100 million of net operating loss carryforwards for German corporate and trade tax purposes, respectively. At December 31, 2012, we have concluded that no deferred income tax asset valuation allowance is required to be recognized with respect to such carryforwards, principally because (i) such carryforwards have an indefinite carryforward period, (ii) we have utilized a portion of such carryforwards during the most recent three-year period and (iii) we currently expect to utilize the remainder of such carryforwards over the long term. However, prior to the complete utilization of these carryforwards, particularly if the economic recovery were to be short-lived or we generate operating losses in our German operations for an extended period of time, it is possible we might conclude the benefit of the carryforwards would no longer meet the more-likely-than-not recognition criteria, at which point we would be required to recognize a valuation allowance against some or all of the then-remaining tax benefit associated with the carryforwards.

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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 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 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=6881521&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 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: 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 6: 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 7: 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 8: 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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