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INCOME TAXES | 12 Months Ended
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Dec. 31, 2013
INCOME TAXES |
INCOME TAXES | 14. INCOME TAXES For the years ended December 31, 2013, 2012 and 2011, income before income taxes consists of the following:
|  | Year Ended December 31, |
--- | --- | --- | ---
(In millions) |  | 2013 |  | 2012 |  | 2011 |
United States operations |  | $ | 210.1 |  | $ | 175.9 |  | $ | 48.8 |
Foreign operations |  |  | 31.5 |  |  | 1.8 |  |  | 4.7 |
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Total |  | $ | 241.6 |  | $ | 177.7 |  | $ | 53.5 |
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Provision for (benefit from) income taxes consists of the following:
|  | Year Ended December 31, |
--- | --- | --- | ---
(In millions) |  | 2013 |  | 2012 |  | 2011 |
Current income taxes: |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 106.2 |  | $ | 63.5 |  | $ | 17.2 |
State |  |  | 14.9 |  |  | 6.7 |  |  | 1.7 |
Foreign |  |  | 7.8 |  |  | (4.5 | ) |  | (19.3 | )
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Total current |  |  | 128.9 |  |  | 65.7 |  |  | (0.4 | )
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Deferred income taxes: |  |  |  |  |  |  |  |  |  |
Federal |  |  | (49.0 | ) |  | (11.7 | ) |  | (3.5 | )
State |  |  | (2.0 | ) |  | 3.2 |  |  | (0.2 | )
Foreign |  |  | (4.3 | ) |  | - |  |  | (0.1 | )
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Total deferred |  |  | (55.3 | ) |  | (8.5 | ) |  | (3.8 | )
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Provision for (benefit from) income taxes |  | $ | 73.6 |  | $ | 57.2 |  | $ | (4.2 | )
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Income tax expense attributable to income before income taxes differs from the amounts computed by applying the U.S. statutory federal income tax rate to income before income taxes as follows:
|  | Year Ended December 31, |
--- | --- | --- | ---
|  | 2013 |  | 2012 |  | 2011 |
|  |  | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State and local income taxes, net of federal benefit |  |  | 3.5 |  |  | 3.7 |  |  | 2.3 |
Difference between U.S. and foreign tax rates |  |  | 0.1 |  |  | - |  |  | 0.4 |
Tax credits |  |  | (0.7 | ) |  | (1.3 | ) |  | - |
Domestic manufacturing deduction |  |  | (4.7 | ) |  | (2.8 | ) |  | (3.3 | )
Non-deductible compensation |  |  | - |  |  | 0.2 |  |  | 0.6 |
Percentage depletion |  |  | (1.5 | ) |  | (0.4 | ) |  | (1.5 | )
Goodwill impairment |  |  | 2.6 |  |  | - |  |  | - |
Capitalized Acquisition Costs |  |  | 0.1 |  |  | 2.1 |  |  | - |
Change in valuation allowance |  |  | (0.3 | ) |  | 0.3 |  |  | 0.9 |
Net change in unrecognized tax benefits |  |  | (1.2 | ) |  | (3.5 | ) |  | (39.6 | )
Other, net |  |  | (2.4 | ) |  | (1.1 | ) |  | (2.7 | )
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Effective income tax rate |  |  | 30.5 | % |  | 32.2 | % |  | (7.9 | )%
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Net cash payments for income taxes during 2013, 2012 and 2011 were $130.9 million, $54.3 million and $18.6 million, respectively. Our net deferred tax liability consisted of the following major items:
|  | As of December 31, |
--- | --- | --- | ---
(In millions) |  | 2013 |  | 2012 |
Deferred tax assets: |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 47.5 |  | $ | 4.3 |
Employee compensation |  |  | 17.8 |  |  | 10.8 |
Accrued liabilities |  |  | 16.8 |  |  | 5.4 |
Tax credits |  |  | 29.6 |  |  | 24.3 |
Environmental |  |  | 19.1 |  |  | 2.7 |
Property, plant and equipment |  |  | 36.9 |  |  | 91.3 |
Pension |  |  | 40.6 |  |  | 20.0 |
Other deferred tax assets |  |  | 7.0 |  |  | 8.4 |
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Total deferred tax assets |  |  | 215.3 |  |  | 167.2 |
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Valuation allowance |  |  | (93.0 | ) |  | (105.3 | )
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Total deferred tax assets |  |  | 122.3 |  |  | 61.9 |
Deferred tax liability: |  |  |  |  |  |  |
Property, plant and equipment |  |  | (381.8 | ) |  | (112.0 | )
Intangible assets |  |  | (416.3 | ) |  | (32.9 | )
Inventories |  |  | (10.1 | ) |  | - |
Other |  |  | (13.4 | ) |  | - |
Debt restructuring |  |  | (39.2 | ) |  | (50.6 | )
Foreign outside basis difference |  |  | (78.8 | ) |  | - |
Foreign currency translation gain |  |  | (8.3 | ) |  | (19.1 | )
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Total deferred tax liability |  |  | (947.9 | ) |  | (214.6 | )
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Net deferred tax liability |  | $ | (825.6 | ) | $ | (152.7 | )
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As of December 31, 2013, we had U.S. state and foreign net operating loss carryforwards ("NOLs"). Our foreign NOLs relate to our operations in Canada and reside in both federal and provincial tax jurisdictions. The jurisdictional amount of NOLs as of December 31, 2013, and the years in which they will expire, are as follows:
Jurisdiction (in millions) |  | NOL Amount |  | Year of Expiration
--- | --- | --- | --- | ---
U.S. State |  | $ | 5.3 |  | 2030
Canada federal |  |  | 196.1 |  | 2032
Canada provincial |  |  | 347.8 |  | 2032
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected taxable income and tax-planning strategies available to us in making this assessment. Substantially all of our valuation allowance relates to deferred tax assets in the Canadian operations of Royal Group, Inc. Our valuation allowance decreased from $105.3 million at December 31, 2012 to $93.0 million at December 31, 2013 predominantly because of foreign exchange differences and the decrease in the valuation allowance attributable to the write-off of a capital loss due to the acquisition of control resulting from the merger with the Merged Business. We evaluate the recoverability and realizability of deferred tax assets and the provisions for valuation allowance periodically based on our projections of future taxable earnings, timing of the reversal of future taxable temporary differences (including the impact of available carryback and carryforward periods) and tax planning strategies available to us to determine the timing for and extent to which we will release our valuation allowance against our net deferred tax assets in Canada in the future. Subsequently recognized tax benefits related to the valuation allowance for deferred tax assets as of December 31, 2013 and 2012 will result in an income tax benefit if realized in a future year of $93.0 million and $105.3 million, respectively. As of December 31, 2013, we had U.S. state and foreign tax credit carryovers. These tax credits expire over varying amounts and periods as follows:
Jurisdiction (in millions) |  | Tax credit Carryover Amount |  | Year of Expiration
--- | --- | --- | --- | ---
U.S. state tax credits (gross of federal benefit) |  | $ | 20,491 |  | Indefinite
U.S. foreign income tax credits |  |  | 6,594 |  | 2023
Canadian income tax credits |  |  | 9,666 |  | 2017-2033
The Canadian tax credit includes approximately $4.8 million of foreign income tax credits that were recorded as a result of our acquisition of Royal Group. The balance of the foreign tax credits was earned during the period from the acquisition date of Royal Group through December 31, 2013. We are not permanently reinvested with respect to the outside basis difference for all our foreign subsidiaries. As a result of the merger, we have recorded an $84.9 million deferred tax liability in purchase accounting. As of December 31, 2013, the deferred tax liability recorded on the outside basis difference is $78.8 million. Liability for Unrecognized Income Tax Benefits We account for uncertain income tax positions in accordance with ASC topic 740, Accounting for Income Taxes. ASC topic 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Under ASC topic 740, we recognize the financial statement effects of a tax position when it is more likely than not, based upon the technical merits, that the position will be sustained upon examination. Conversely, we derecognize a previously recognized tax position in the first period in which it is no longer more likely than not that the tax position would be sustained upon examination. A tax position that meets the more likely than not recognition threshold will initially and subsequently be measured as the largest amount of tax benefit that is greater than fifty percent likely of being realized upon ultimate settlement with a taxing authority. We also recognize interest expense by applying a rate of interest to the difference between the tax position recognized in accordance with ASC topic 740 and the amount previously taken or expected to be taken in a tax return. We classify interest expense and related penalties, if any, with respect to our uncertain tax positions in the provision for income taxes. As of December 31, 2013 and 2012, our liability for unrecognized income tax benefits was approximately $16.3 million and $18.5 million, respectively. If recognized, $10.9 million of this amount would affect our effective tax rate. As of December 31, 2013 and 2012, our liability for interest and penalties was approximately $3.4 million and $5.0 million, respectively. For each of the years ended December 31, 2013, 2012 and 2011, we recognized approximately $0.7 million, $0.8 million and $1.5 million, respectively, of additional interest expense in our income tax provision related to our liability for unrecognized income tax benefits. During 2014, it is reasonably possible that uncertain tax positions in the U.S. and Canada will be recognized as a result of the lapse of the applicable statute of limitations. The aggregate amount of these positions is approximately $8.9 million. We are under examination by the U.S. Internal Revenue Service for the years ended December 31, 2009 and 2010. We are also under examination by the Canadian Revenue Agency for years ended 2010 and 2011. The results of these Internal Revenue Service and Canadian Revenue Agency examinations cannot presently be determined. The following table describes the tax years that remain subject to examination by major tax jurisdiction:
Tax Jurisdiction |  | Open Years
--- | --- | ---
United States Federal |  | 2009-2013
Canada |  | 2009-2013
Various states |  | 2006-2013
Taiwan |  | 2012
A reconciliation of the liability for unrecognized tax benefits are as follows:
|  | For the Year Ended December 31, |
--- | --- | --- | ---
(In millions) |  | 2013 |  | 2012 |  | 2011 |
Balance as of beginning of the year |  | $ | 18.5 |  | $ | 22.1 |  | $ | 35.3 |
Additions for current year tax positions |  |  | 0.2 |  |  | 0.2 |  |  | 0.1 |
Additions for prior year tax positions |  |  | 1.2 |  |  | 0.8 |  |  | 0.1 |
Reductions for prior year tax positions |  |  | (0.2 | ) |  | (2.1 | ) |  | (7.2 | )
Settlements |  |  | - |  |  | - |  |  | (3.9 | )
Reductions related to expirations of statute of limitations |  |  | (2.5 | ) |  | (2.9 | ) |  | (1.7 | )
Foreign currency translation |  |  | (0.9 | ) |  | 0.4 |  |  | (0.6 | )
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Balance as of the end of the year |  | $ | 16.3 |  | $ | 18.5 |  | $ | 22.1 |
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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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