Income Taxes

12 Months Ended

Dec. 31, 2013

Income Taxes [Abstract]

Income Taxes

14.           INCOME TAXES

Provision for Income Taxes

The Provision for income taxes consisted of the following:

	2013		2012		2011
Current:
Federal	$	32.9	$	27.3	$	6.8
Non-US		26.9		10.0		33.4
State and local		10.2		6.5		6.0
		70.0		43.8		46.2
Deferred:
Federal		25.9		10.7		25.0
Non-US		12.8		2.4		(10.5	)
State and local		(2.1	)	(2.1	)	2.5
		36.6		11.0		17.0
Provision for income taxes	$	106.6	$	54.8	$	63.2

Earnings before income taxes were as follows:

	2013		2012		2011
U.S.	$	210.4	$	111.2	$	98.8
Non-U.S.		158.0		51.2		239.6
Earnings before income taxes	$	368.4	$	162.4	$	338.4

The Company realized an income tax benefit from the exercise of certain stock options and/or vesting of certain RSUs and DSUs in 2013, 2012, and 2011 of $7.0 million, $2.7 million and $2.8 million, respectively. This benefit resulted in a decrease in current income taxes payable.

A reconciliation of the provision for income taxes using the U.S. statutory rate and the Company's effective tax rate was as follows:

	2013				2012				2011
	Amount		%		Amount		%		Amount		%
Provision for income taxes at statutory rate	$	128.9	35.0	%	$	56.9	35.0	%	$	118.5	35.0	%
State and local income taxes, net of federal
tax benefit		9.6	2.6			4.0	2.5			3.3	1.0
Foreign tax differential		(19.4	)(5.3)			(6.4	)(3.9)			(45.3	)(13.4)
Research and development credit		(11.5	)(3.1)			-	-			(6.0	)(1.8)
Valuation allowance		(1.3	)(0.4)			-	-			2.6	0.8
Adjustments to previously accrued taxes		0.8	0.2			(3.6	)(2.2)			(5.4	)(1.6)
Other		(0.5	)(0.1)			3.9	2.4			(4.5	)(1.3)
Provision for income taxes	$	106.6	28.9	%	$	54.8	33.8	%	$	63.2	18.7	%

The jurisdiction having the greatest impact on the foreign tax differential reconciling item is Switzerland.

The reconciling item for adjustments to previously accrued taxes represents adjustments to income tax expense amounts that were recorded in prior years. For the years indicated, the principal reason for these adjustments was to record the release of uncertain tax positions accrued in prior years. The adjustments to the uncertain tax positions were made either because the amount that the Company was required to pay pursuant to an income tax audit was different than the amount the Company estimated it would have to pay or because the statute of limitations governing the year of the accrual expired and no audit of that year was ever conducted by the local tax authorities.

The effective income tax rate was 28.9% for the year ended December 31, 2013. The 4.9 percentage point decrease of the effective tax rate from 2012 to 2013 was due primarily to a geographic shift in earnings toward lower tax jurisdictions in 2013 and to the reenactment of the U.S. research and experimentation tax credit in 2013 for the 2012 tax year.

The effective income tax rate was 33.8% for the year ended December 31, 2012. The 15.1 percentage point increase of the effective tax rate from 2011 to 2012 was due primarily to a geographic shift in earnings toward higher tax jurisdictions in 2012 and to the expiration of the U.S. research and experimentation tax credit on December 31, 2011.

In January of 2013, the President signed into law The American Taxpayer Relief Act of 2012, which contained provisions that retroactively extended the U.S. research and experimentation tax credit to January 1, 2012. Because the extension did not happen by December 31, 2012, the Company's effective income tax rate for 2012 did not include the benefit of the credit for that year. However, because the credit was retroactively extended to include 2012, the Company recognized the full benefit of the 2012 credit in the first quarter of 2013.

Deferred income tax assets and (liabilities)

Significant components of deferred income tax assets and (liabilities) at December 31 were as follows:

	2013		2012
Deferred tax assets:
Tax loss carryforwards	$	10.8	$	12.9
Credit carryforwards		7.5		7.5
Inventories		13.2		14.0
Restructuring		1.2		4.3
Pension and postretirement benefits		52.1		75.2
Warranty		4.3		8.7
Equity compensation		25.6		41.0
Other compensation		21.1		7.1
Foreign exchange		2.0		-
Other		11.1		23.0
Deferred tax liabilities:
Property, plant and equipment		(49.8	)	(37.7	)
Intangible assets		(68.9	)	(60.0	)
Foreign exchange		-		(0.8	)
		30.2		95.2
Valuation allowances		(2.9	)	(4.8	)
Net deferred tax assets	$	27.3	$	90.4

The breakdown between current and long-term deferred tax assets and deferred tax liabilities as of December 31 is as follows:

	2013		2012
Current Deferred Tax Assets and Liabilities:
Current Deferred Tax Asset	$	62.9	$	98.0
Current Deferred Tax Liability		(12.2	)	(17.1	)
Net Current Deferred Tax Asset		50.7		80.9
Long-Term Deferred Tax Assets and Liabilities:
Long-Term Deferred Tax Asset		29.7		40.2
Long-Term Deferred Tax Liability		(53.1	)	(30.7	)
Net Long-Term Deferred Tax (Liability) Asset		(23.4	)	9.5
Total Current and Long-Term Net Deferred Tax Asset Balance at December 31	$	27.3	$	90.4

The current deferred tax assets and current deferred tax liabilities are included in Prepaid expenses and other current assets and Accrued liabilities, respectively, on the Consolidated Statements of Financial Position. The long-term deferred tax assets and long-term deferred tax liabilities are included in Other assets and Other liabilities, respectively, on the Consolidated Statements of Financial Position.

The Company has federal, state and foreign operating loss carryforwards of $2.5 million, $28.2 million and $30.4 million, respectively. The state net operating losses are no longer subject to a valuation allowance as the Company believes income will be sufficient in the future to fully absorb the loss.  The state operating loss carryforwards expire in the years 2018 to 2021. The foreign operating loss carryforwards include $6.0 million with no expiration date. The remainder of the foreign operating loss carryforwards will expire in the years 2016 to 2025.

The Company has a federal tax credit carryforward of $2.3 million and state tax credit carryforwards of $8.0 million. The state tax credit carryforwards are subject to a valuation allowance of $1.1 million. The federal tax credit carryforward will expire in 2018. The state tax credit carryforwards will expire by the year 2026.

Deferred income taxes have not been provided for the undistributed earnings of foreign subsidiaries because such earnings are indefinitely reinvested. Undistributed earnings of non-U.S. subsidiaries included in the consolidated retained earnings were approximately $1,623.3 million as of December 31, 2013. It is not practicable to estimate the amount of additional tax that may be payable on the foreign earnings as there is a significant amount of uncertainty with respect to determining the amount of foreign tax credits as well as any additional local withholding tax that may arise from the distribution of these earnings. In addition, because such earnings have been indefinitely reinvested in our foreign operations, repatriation would require liquidation of those investments or a recapitalization of our foreign subsidiaries, the impact and effects of which are not readily determinable.  The Company does not plan to initiate any action that would precipitate the payment of income taxes.

Tax Positions

The amount of unrecognized tax benefits at December 31, 2013, was $23.5 million, all of which would affect the Company's effective tax rate if recognized. The amount of unrecognized tax benefits at December 31, 2012, was $24.2 million, all of which would affect the Company's effective tax rate if recognized. The amount of unrecognized tax benefits at December 31, 2011, was $23.1 million, all of which would affect the Company's effective tax rate if recognized.

The Company recognizes accrued interest and penalties associated with uncertain tax positions as part of its income tax provision. As of December 31, 2013, the Company had $1.7 million of accrued interest and penalties. For 2013, the Company recognized in its statement of earnings a net expense of $0.1 million for interest and penalties. As of December 31, 2012, the Company had $1.7 million of accrued interest and penalties. For 2012, the Company recognized in its statement of earnings a net benefit of $0.7 million for interest and penalties. As of December 31, 2011, the Company had $2.4 million of accrued interest and penalties. For 2011, the Company recognized in its statement of earnings a net benefit of $0.5 million for interest and penalties.

It is reasonably possible that the total amount of unrecognized tax benefits will increase or decrease in the next 12 months. Such changes could occur based on the expiration of various statutes of limitations or the conclusion of ongoing tax audits in various jurisdictions around the world. If those events occur within the next 12 months, the Company estimates that its unrecognized tax benefits amount could decrease by an amount in the range of $0 million to $7.0 million, the impact of which would affect the Company's effective tax rate.

Several tax years are subject to examination by major tax jurisdictions. In the U.S., federal tax years 2010 and after are subject to examination. The Internal Revenue Service is currently auditing tax years 2010 and 2011. In France, tax years 2011 and after are subject to examination. The French Tax Administration concluded its audit of tax years 2008 and 2009 in 2012. In Switzerland, tax years 2009 and after are subject to examination. In most of the other countries where the Company files income tax returns, 2008 is the earliest tax year that is subject to examination. The Company believes that adequate amounts have been provided for any adjustments that may result from those examinations.

A reconciliation of the total beginning and ending amounts of unrecognized tax benefits, included in Accrued liabilities and Other liabilities on the Consolidated Statements of Financial Position, is as follows:

	2013		2012		2011
Balance at January 1	$	24.2	$	23.1	$	25.5
Increases / (decreases) in unrecognized tax benefits as a result of tax
positions taken during a prior period		3.2		6.9		2.6
Increases / (decreases) in unrecognized tax benefits as a result of tax
positions taken during the current period		3.7		3.0		1.4
Increases / (decreases) in unrecognized tax benefits relating to
settlements with taxing authorities		(2.0	)	(6.5	)	(1.6	)
Reductions to unrecognized tax benefits as a result of a lapse of the
applicable statute of limitations		(5.6	)	(2.3	)	(4.8	)
Balance at December 31	$	23.5	$	24.2	$	23.1

Other

Cash paid for income taxes, net of (refunds), was $60.8 million, $(1.4) million, and $93.3 million in 2013, 2012, and 2011, respectively.