Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

Income Taxes

19. Income Taxes

The following summarizes pretax income:
	2012		2011		2010
U.S.	$	(33.6)	$	265.9	$	276.8
International		45.0		14.4		21.0
Total	$	11.4	$	280.3	$	297.8

The tax provision contains the following components:
	2012		2011		2010
Current
Federal	$	89.8	$	59.6	$	28.4
State		1.9		3.4		1.1
Foreign		4.3		5.8		0.6
Total current	$	96.0	$	68.8	$	30.1
Deferred
Federal	$	(104.0)	$	20.3	$	54.3
State		(19.0)		(2.0)		(8.2)
Foreign		2.9		(0.2)		2.0
Total deferred		(120.1)		18.1		48.1
Total tax expense	$	(24.1)	$	86.9	$	78.2

The income tax provision from operations differs from the tax provision computed at the U.S. federal statutory income tax rate due to the following:

	2012				2011				2010
Tax at U.S. Federal statutory rate	$	4.0	35.0	%	$	98.1	35.0	%	$	104.2	35.0	%
State income taxes, net of Federal benefit		(11.6)	(101.8)			0.9	0.3			(4.6)	(1.5)
Foreign rate differences		(4.6)	(40.4)			1.4	0.5			(4.3)	(1.5)
Research and Experimentation		(3.2)	(28.1)			(10.2)	(3.6)			(10.3)	(3.5)
Domestic Production Activities Deduction		(8.8)	(77.2)			(4.7)	(1.7)			(4.0)	(1.3)
Interest on assessments		0.3	2.6			0.8	0.4			(1.2)	(0.4)
Other		(0.2)	(1.5)			0.6	0.1			(1.6)	(0.5)
Total provision for income taxes	$	(24.1)	(211.4)	%	$	86.9	31.0	%	$	78.2	26.3	%

Significant tax effected temporary differences comprising the net deferred tax asset are as follows:

	2012		2011
Long-term contracts	$	234.6	$	85.0
Post-retirement benefits other than pensions		28.6		31.8
Pension and other employee benefit plans		(3.9)		(19.5)
Employee compensation accruals		35.9		30.7
Depreciation and amortization		(106.9)		(86.3)
Inventory		(1.4)		(0.5)
Interest swap contracts		(0.1)		1.8
State income tax credits		49.8		42.9
Accruals and reserves		20.2		17.1
Deferred production		19.5		(3.2)
Deferred gain - severe weather event		(39.1)		-
Net operating loss carryforward		10.7		11.4
Other		1.1		(0.9)
Net deferred tax asset		249.0		110.3
Valuation allowance		(10.4)		(8.2)
Net deferred tax asset	$	238.6	$	102.1

Deferred tax detail above is included in the consolidated balance sheet and supplemental information as follows:

	2012		2011
Current deferred tax assets	$	57.1	$	52.2
Current deferred tax liabilities		(3.3)		(0.8)
Net current deferred tax asset	$	53.8	$	51.4
Non-current deferred tax assets		192.0		55.7
Non-current deferred tax liabilities		(7.2)		(5.0)
Net non-current deferred tax asset	$	184.8	$	50.7
Total deferred tax asset	$	238.6	$	102.1

The increase from 2011 to 2012 in the long-term contracts deferred tax asset is primarily due to forward losses recognized during 2012 that are not currently deductible for tax.

We have recognized cumulative book income for our international operations, but have incurred cumulative taxable losses in the United Kingdom. The resulting net operating loss carryforward is primarily due to the manner in which the United Kingdom treats long-term contract income accounting and capital allowances.

As required under FASB authoritative guidance, $1.1 was recorded to Additional Paid in Capital, representing the tax effect associated with the net excess tax pool created during each of the periods ended December 31, 2012 and December 31, 2011.

In accordance with FASB authoritative guidance relating to Accounting for Income Taxes, management has maintained a permanent reinvestment strategy for the Company's foreign operations. As such, deferred taxes have not been provided on unremitted earnings for our U.K., Malaysia, Singapore, Canada, and France subsidiaries, and it is not practicable to estimate the amount of tax that may be payable upon distribution.

The beginning and ending unrecognized tax benefits reconciliation is as follows:

	2012		2011		2010
Beginning balance	$	15.5	$	15.2	$	23.2
Gross increases related to current period tax positions		4.2		6.1		9.4
Gross increases related to prior period tax positions		1.8		33.5		-
Gross decreases related to prior period tax positions		(3.8)		(9.3)		(16.2)
Statute of limitations' expiration		(0.8)		(0.8)		(1.2)
Settlements		-		(29.2)		-
Ending balance	$	16.9	$	15.5	$	15.2

Included in the December 31, 2012 balance was $14.2 in tax affected unrecognized tax benefits which, if ultimately recognized, will reduce the Company's effective tax rate. The Internal Revenue Service's examination of the Company's 2011 U.S. Federal income tax return is complete. The Company will continue to participate in the Compliance Assurance Process (“CAP”) program for our 2012 and 2013 tax years. The CAP program's objective is to resolve issues in a timely, contemporaneous manner and eliminate the need for a lengthy post-filing examination.HM Revenue & Customs is currently examining our 2009 and 2010 U.K. income tax returns. While a change could result from the ongoing examinations, the Company expects no material change in its recorded unrecognized tax benefit liability in the next 12 months, other than the potential $8.7 reduction for Malaysia mentioned below.

Our U.S. federal income tax returns for the 2010 and 2012 tax years are subject to examination. We are also subject to examination in states and foreign jurisdictions for the 2008-2012 tax years.

We report interest and penalties, if any, related to unrecognized tax benefits in the income tax provision. As of December 31, 2012 and December 31, 2011, accrued interest on our unrecognized tax benefit liability included in the consolidated balance sheets was $0.7 and $0.1, respectively. The impact of interest on our unrecognized tax benefit liability during 2012 and 2011 was $0.6 and $(0.6), respectively.

We operate under a tax holiday in Malaysia effective through September 2024. During the current year, management continues to maintain a reserve for potential uncertainty in meeting the tax holiday's conditional employment and investment thresholds. If those thresholds are met by the required date, we expect a $8.7 reduction in our unrecognized tax benefit liability.

At December 31, 2012, we had $46.4 in United Kingdom net operating loss carryforwards that do not expire and $21.4 in North Carolina net operating loss carryforwards that expire in 2025.

On January 2, 2013, the President signed legislation retroactively extending the U.S. Research Tax Credit for two years, from January 1, 2012 through December 31, 2013. Our income tax expense for 2013 will reflect the entire benefit of the Research Tax Credit attributable to 2012, which is estimated at $5.4 million. We also will record the benefit of the 2013 Research Tax Credit in our 2013 tax expense.

Included in the deferred tax assets at December 31, 2012are $37.2 in Kansas High Performance Incentive Program (“HPIP”) Credit, $11.3 in Kansas Research & Development (“R&D”) Credit, and $3.9 in Kansas Business and Jobs Development Credit totaling $52.4 in Kansas state income tax credit carryforwards. The HPIP Credit provides a 10% investment tax credit for qualified business facilities located in Kansas for which $8.0 expires in 2024, $1.0 expires in 2025, $5.3 expires in 2026, $7.7 expires in 2027 and the remainder expires in 2028. The R&D Credit provides a credit for qualified research and development expenditures conducted within Kansas. This credit can be carried forward indefinitely. The Business and Jobs Development Credit provides a tax credit for increased employment in Kansas. This credit can be carried forward indefinitely. It is management's opinion that all Kansas state income tax credits carried forward will be utilized before they expire.

Included in the deferred tax assets at December 31, 2012are $15.5 in North Carolina Investing in Business Property Credit, $5.9 in North Carolina Investment in Real Property Credit, and $2.9 in North Carolina Creating Jobs Credit totaling $24.3 in North Carolina state income tax credit carryforwards. The Investing in Business Property Credit provides a 7% investment tax credit for property located in a North Carolina development area and the Investment in Real Property Credit provides a 30% investment tax credit for real property located in a North Carolina development area. The Creating Jobs Credit provides a tax credit for increased employment in North Carolina. These North Carolina state income tax credits can be carried forward 20 years. It is management's opinion that $9.8 of these North Carolina state income tax credits will be utilized before theyexpire and a $14.5 gross valuation allowance was recorded.