Note 7: Income Taxes

The U.S. and foreign components of (loss) earnings from continuing operations before income taxes and the provision for income taxes consisted of the following:

Years ended March 31	2013			2012			2011

Components of (loss) earnings from continuing operations before income taxes:
United States	$	10.2		$	17.2		$	(27.5	)
Foreign		(23.2	)		30.7			40.3
Total (loss) earnings from continuing operations before income taxes	$	(13.0	)	$	47.9		$	12.8
Income tax expense (benefit):
Federal:
Current	$	2.6		$	-		$	(3.7	)
Deferred		(2.6	)		0.3			2.7
State:
Current		0.2			0.3			0.2
Deferred		(0.2	)		(0.2	)		(2.6	)
Foreign:
Current		6.4			8.3			12.2
Deferred		3.4			1.2			(4.3	)
Total income tax expense	$	9.8		$	9.9		$	4.5

The Company allocates income tax expense among continuing operations, discontinued operations, and other comprehensive income. Accounting for income taxes is applied by tax jurisdiction, and in periods in which there is loss from continuing operations before income taxes and pre-tax income in other categories (e.g., discontinued operations or other comprehensive income), income tax expense is first allocated to the other sources of income, with a related tax benefit recorded in continuing operations.

Income tax expense attributable to (loss) earnings from continuing operations before income taxes differed from the amounts computed by applying the statutory U.S. federal income tax rate as a result of the following:

Years ended March 31	2013			2012			2011

Statutory federal tax		35.0	%		35.0	%		35.0	%
State taxes, net of federal benefit		(1.3	)		(0.1	)		(19.0	)
Taxes on non-U.S. earnings and losses		(23.8	)		(5.7	)		(5.7	)
Valuation allowance		(59.3	)		2.1			84.6
Tax credits		37.0			(19.2	)		(84.3	)
Compensation		(13.0	)		3.4			11.1
Foreign tax rate changes		0.9			0.6			(4.5	)
Reserves for uncertain tax positions		(41.9	)		1.9			4.2
Brazilian interest on equity		3.2			(1.0	)		(7.4	)
Dividend repatriation		(11.4	)		4.4			23.0
Other		(0.8	)		(0.7	)		(1.8	)
Effective tax rate		(75.4	%)		20.7	%		35.2	%

The Other category for the years ended March 31, 2013, 2012 and 2011 includes such items as foreign withholding taxes, state tax refunds and foreign currency.

During fiscal 2013, the Company recorded a valuation allowance of $7.7 million against net deferred tax assets as a result of a $15.6 million increase to the valuation allowance in certain foreign jurisdictions offset by a $7.9 million reduction to the valuation allowance in the U.S. The increase in the valuation allowance in foreign jurisdictions was largely related to losses in Germany and China based on the determination that it was more likely than not that the net deferred tax assets in these jurisdictions will not be realized. The Company will continue to provide a valuation allowance against its net deferred tax assets in each of the applicable jurisdictions going forward until the need for a valuation allowance is eliminated. The need for the valuation allowance is eliminated when the Company determines it is more likely than not that the deferred tax assets will be realized. It is possible that in late fiscal 2014 or early fiscal 2015, the U.S. taxing jurisdiction will no longer be in a cumulative three year loss position, thereby removing significant negative evidence concerning the valuation allowance.

During fiscal 2012, the Company satisfied requirements under Hungarian regulations necessary to obtain an additional development tax credit in Hungary and, as a result, recorded a $4.4 million tax benefit, which significantly impacted its effective tax rate for the year.

During fiscal 2011, the Company satisfied the labor requirement under Hungarian regulations necessary to obtain a development tax credit in Hungary and, as a result, recorded a $7.8 million tax benefit, which significantly benefited the effective tax rate in fiscal 2011.

The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities were as follows:

March 31	2013			2012

Deferred tax assets:
Accounts receivable	$	0.6		$	0.5
Inventories		4.1			4.9
Plant and equipment		13.3			19.0
Pension and employee benefits		85.7			77.4
Net operating loss, capital loss and credit carry forwards		114.6			96.9
Other, principally accrued liabilities		14.2			15.3
Total gross deferred tax assets		232.5			214.0
Less: valuation allowance		(172.8	)		(146.8	)
Net deferred tax assets		59.7			67.2

Deferred tax liabilities:
Pension		34.3			31.2
Goodwill		5.0			5.4
Plant and equipment		11.7			24.2
Other		10.5			7.4
Total gross deferred tax liabilities		61.5			68.2
Net deferred tax liability	$	(1.8	)	$	(1.0	)

The increase in the valuation allowance during fiscal 2013 primarily related to increases in the valuation allowance against the net deferred tax assets in Germany, China and Austria, offset by a reduction in the valuation allowance against the net U.S. deferred tax assets.

A reconciliation of unrecognized tax benefits is as follows:

	2013			2012

Balance, April 1	$	3.3		$	5.3
Gross increases - tax positions in prior period		5.6			3.6
Gross decreases - tax positions in prior period		(0.1	)		(3.8	)
Gross increases - tax positions in current period		0.6			0.5
Gross decreases - tax positions in current period		(0.4	)		(0.4	)
Settlements		-			(1.7	)
Foreign currency impact		-			(0.2	)
Balance, March 31	$	9.0		$	3.3

The Company's total gross liability for unrecognized tax benefits as of March 31, 2013 is $9.0 million, and if recognized, $0.2 million would have an effective tax rate impact.

During fiscal 2005, a German lower court ruling disallowed certain deductions for trade tax purposes. Based on this ruling the Company established an uncertain tax position contingency for additional trade tax liability and interest. During fiscal 2012, German Supreme Court affirmed the lower court finding and as a result the uncertain tax position contingency was reversed. The Company filed amended tax returns for the fiscal years 2005 through 2010 resulting in an additional trade tax liability and interest owed of $2.0 million.

In accordance with its accounting policy, the Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. During fiscal 2013, no interest and penalties were included as a component of income tax expense in the consolidated statement of operations. At March 31, 2013 and 2012, $0.2 million of accrued interest and penalties were included in the consolidated balance sheets.

The Company files income tax returns in multiple jurisdictions and is subject to examination by taxing authorities throughout the world. At March 31, 2013, the Company was engaged in an income tax examination by the German taxing authority covering fiscal years 2006 through 2010 and was notified of a tax audit in Austria commencing in fiscal 2014 covering fiscal years 2008 through 2011. During the next twelve months, the Company believes it is reasonably possible that the amount of unrecognized tax benefits could be reduced by up to $6.8 million as a result of the resolution of worldwide tax matters and the lapses of statutes of limitations.

The following tax years remain subject to examination for the Company's major tax jurisdictions:

Austria	Fiscal 2008 - 2012
Brazil	Fiscal 2007 - 2012
Germany	Fiscal 2006 - 2012
United States	Fiscal 2010 - 2012

At March 31, 2013, the Company has foreign tax credit carry forwards of $5.0 million that, if not utilized against domestic taxes, will expire between 2015 and 2017. The Company also has federal and state research and development tax credits of $17.4 million that, if not utilized against domestic taxes, will expire between 2018 and 2033. The Company also has various state and local tax loss carry forwards of $200.5 million that, if not utilized against state apportioned taxable income, will expire at various times during 2014 through 2033. In addition, the Company has tax loss carry forwards of $304.1 million in various tax jurisdictions throughout the world. Certain of these carry forwards, primarily in the U.S. and Germany, are offset by a valuation allowance. If not utilized against taxable income, $199.2 million of these tax losses will expire at various times during 2014 through 2033, and $104.9 million will not expire due to an unlimited carry-forward period.

At March 31, 2013, the Company had provided $0.2 million of U.S. tax and $0.8 million of foreign tax on undistributed earnings of certain joint equity investment companies and certain European subsidiaries considered not permanently reinvested. Undistributed earnings totaling $453.1 million are considered permanently reinvested in the remaining foreign operations, and no provision has been made for any taxes that would be payable upon the distribution of such earnings. It is not practicable to estimate the amount of unrecognized withholding taxes and deferred tax liability on such earnings.