Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Components of income tax expense (benefit)



	Year Ended December 31, 2012									Year Ended December 31, 2011									Year Ended December 31, 2010
(millions of dollars)	U.S.			Non-U.S.			Total			U.S.			Non-U.S.			Total			U.S.			Non-U.S.			Total
Earnings (loss) before income taxes	$	132.3		$	628.7		$	761.0		$	119.2		$	646.7		$	765.9		$	(26.7	)	$	504.6		$	477.9
Provision for income taxes:
Current:
Federal/foreign	$	59.8		$	186.1		$	245.9		$	31.8		$	162.9		$	194.7		$	14.0		$	117.7		$	131.7
State	3.4			—			3.4			1.7			—			1.7			2.2			—			2.2
Total current	63.2			186.1			249.3			33.5			162.9			196.4			16.2			117.7			133.9
Deferred	19.5			(30.2		)	(10.7		)	17.4			(18.5		)	(1.1		)	(48.9		)	(3.3		)	(52.2		)
Total provision for income taxes	$	82.7		$	155.9		$	238.6		$	50.9		$	144.4		$	195.3		$	(32.7	)	$	114.4		$	81.7
Effective tax rate	62.5		%	24.8		%	31.4		%	42.7		%	22.3		%	25.5		%	(122.5		)%	22.7		%	17.1		%

Effective Income Tax Rate Reconciliation

An analysis of the differences between the effective tax rate and the U.S. statutory rate for the years ended December 31, 2012, 2011 and 2010 is presented below.



	Year Ended December 31,
(millions of dollars)	2012			2011			2010
Income taxes at U.S. statutory rate of 35%	$	266.4		$	268.1		$	167.3
Increases (decreases) resulting from:
Income from non-U.S. sources, including withholding taxes	(58.3		)	(74.8		)	(55.8		)
Affiliates' earnings	(15.0		)	(13.4		)	(13.8		)
State taxes, net of federal benefit	2.2			1.1			1.4
Business and foreign tax credits	8.8			11.5			0.2
Accrual adjustment and settlement of prior year tax matters	9.3			(1.0		)	0.4
Medicare Part D	—			0.1			2.9
Capital loss carryforward valuation allowance	9.7			—			—
Reversal of foreign tax credit valuation allowance	—			—			(21.2		)
Unremitted foreign earnings	13.4			—			—
Non-temporary differences and other	2.1			3.7			0.3
Provision for income taxes, as reported	$	238.6		$	195.3		$	81.7

Reconciliation of the total gross unrecognized tax benefits



(millions of dollars)	2012			2011
Balance, January 1	$	26.2		$	27.6
Additions based on tax positions related to current year	2.0			0.5
Additions for tax positions of prior years	13.4			3.9
Reductions for closure of tax audits and settlements	(14.6		)	(4.3		)
Reductions for lapse in statute of limitations	(1.7		)	(0.8		)
Translation adjustment	0.5			(0.7		)
Balance, December 31	$	25.8		$	26.2

Tax jurisdiction

The Company is no longer subject to income tax examinations by tax authorities in its major tax jurisdictions as follows:



Tax jurisdiction	Years no longer subject to audit	Tax jurisdiction	Years no longer subject to audit
U.S. Federal	2010 and prior	Hungary	2008 and prior
China	2007 and prior	Japan	2011 and prior
France	2007 and prior	South Korea	2006 and prior
Germany	2007 and prior	Sweden	2006 and prior

Deferred Tax Assets (Liabilities)

The gross components of deferred tax assets and liabilities as of December 31, 2012 and 2011 consist of the following:



	December 31,
(millions of dollars)	2012			2011
Current deferred tax assets:
Foreign tax credits	$	29.0		$	—
Employee related	25.7			28.0
Research and development capitalization	13.4			—
Inventory	8.4			14.5
Warranties	5.3			4.5
Customer claims	3.6			2.2
Other	13.1			11.5
Total current deferred tax assets	$	98.5		$	60.7
Current deferred tax liabilities:
Unremitted foreign earnings	$	(1.1	)	$	—
Other	(2.6		)	(3.7		)
Total current deferred tax liabilities	$	(3.7	)	$	(3.7	)
Non-current deferred tax assets:
Foreign tax credits	$	117.0		$	158.2
Other comprehensive income	113.7			116.7
Research and development capitalization	89.1			76.7
Net operating loss and capital loss carryforwards*	44.3			35.1
Pension and other postretirement benefits	37.7			33.9
Employee related	27.4			22.9
Research and development credits	4.9			3.0
Warranties	4.5			4.7
Litigation and environmental	1.2			2.0
Other	3.1			5.1
Total non-current deferred tax assets	$	442.9		$	458.3
Non-current deferred tax liabilities:
Goodwill & intangibles	$	(130.9	)	$	(155.5	)
Fixed assets	(101.9		)	(79.7		)
Unremitted foreign earnings	(12.3		)	(1.3		)
Other comprehensive income	(3.0		)	(2.9		)
Other	(6.6		)	(6.6		)
Total non-current deferred tax liabilities	$	(254.7	)	$	(246.0	)

Total deferred tax items	$	283.0		$	269.3
Valuation allowances*	(35.0		)	(23.6		)
Net deferred tax asset	$	248.0		$	245.7

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*Net operating loss and capital loss carryforwards are shown gross with the corresponding valuation allowances located at the end of the table.

The deferred tax assets and liabilities recognized in the Company’s Consolidated Balance Sheets are as follows:



	December 31,
(millions of dollars)	2012			2011
Deferred income taxes — current assets*	$	94.7		$	58.5
Deferred income taxes — current liabilities*	(1.4		)	(6.5		)
Other non-current assets*	244.1			313.9
Other non-current liabilities*	(89.4		)	(120.2		)
Net deferred tax asset (current and non-current)	$	248.0		$	245.7

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*Current and non-current assets and liabilities have been netted within their respective taxing jurisdictions.

- Definition

Tabular disclosure of tax positions taken in the tax returns filed or to be filed for which it is more likely than not that the tax position will not be sustained upon examination by taxing authorities (i.e., uncertain tax positions) and other types of income tax contingencies, including: (1) the policy on classification of interest and penalties; (2) a tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period; the total amount(s) of: (3) unrecognized tax benefits that, if recognized, would affect the effective tax rate, and (4) interest and penalties recognized in each of the income statement and balance sheet; (5) for positions for which it is reasonably possible that the total amounts unrecognized will significantly change within 12 months of the reporting date the: (i) nature of the uncertainty, (ii) nature of the event that could occur that would cause the change, and (iii) an estimate of the range of the reasonably possible change or a statement that an estimate of the range cannot be made; and (6) a description of tax years that remain subject to examination by major tax jurisdictions.

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- Definition

Tabular disclosure of income tax examinations that an enterprise is currently subject to or that have been completed in the current period typically including a description of the examination, the jurisdiction conducting the examination, the tax year(s) under examination, the likelihood of an unfavorable settlement, the range of possible losses, the liability recorded, the increase or decrease in the liability from the prior period, and any penalties and interest that have been recorded.

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