Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v2.4.0.6
INCOME TAXES
 12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Abstract]  
Income Taxes
NOTE 15 - INCOME TAXES
Income (Loss) from Continuing Operations Before Income Taxes and Equity Income (Loss) from Ventures includes the following components:
 
 
(In Millions)
 
 
2012
 
2011
 
2010
United States
 
$
838.6

 
$
1,506.5

 
$
602.1

Foreign
 
(1,340.4
)
 
684.0

 
664.3

 
 
$
(501.8
)
 
$
2,190.5

 
$
1,266.4


The components of the provision (benefit) for income taxes on continuing operations consist of the following:
 
 
(In Millions)
 
 
2012
 
2011
 
2010
Current provision (benefit):
 
 
 
 
 
 
United States federal
 
$
71.1

 
$
246.8

 
$
109.6

United States state & local
 
7.6

 
2.8

 
2.6

Foreign
 
50.2

 
224.7

 
155.1

 
 
128.9

 
474.3

 
267.3

Deferred provision (benefit):
 
 
 
 
 
 
United States federal
 
221.2

 
23.8

 
61.1

United States state & local
 
1.4

 
4.7

 
5.2

Foreign
 
(95.6
)
 
(95.1
)
 
(51.1
)
 
 
127.0

 
(66.6
)
 
15.2

Total provision on income (loss) from continuing
    operations
 
$
255.9

 
$
407.7

 
$
282.5


Reconciliation of our income tax attributable to continuing operations computed at the U.S. federal statutory rate is as follows:
 
 
 
(In Millions)
 
 
2012
 
2011
 
2010
Tax at U.S. statutory rate of 35 percent
 
$
(175.6
)
 
$
766.7

 
$
443.2

Increase (decrease) due to:
 
 
 
 
 
 
Foreign exchange remeasurement
 
62.3

 
(62.6
)
 
—

Non-taxable loss (income) related to noncontrolling interests
 
61.0

 
(63.6
)
 
—

Impact of tax law change
 
(357.1
)
 
—

 
16.1

Percentage depletion in excess of cost depletion
 
(109.1
)
 
(153.4
)
 
(103.1
)
Impact of foreign operations
 
65.2

 
(44.0
)
 
(89.0
)
Legal entity restructuring
 
—

 
—

 
(87.4
)
Income not subject to tax
 
(108.0
)
 
(67.5
)
 
—

Goodwill impairment
 
202.2

 
—

 
—

Non-taxable hedging income
 
—

 
(32.4
)
 
—

State taxes, net
 
7.3

 
7.5

 
3.1

Manufacturer’s deduction
 
(4.7
)
 
(11.9
)
 
—

Valuation allowance
 
634.5

 
49.5

 
83.3

Tax uncertainties
 
(14.8
)
 
17.7

 
27.7

Other items — net
 
(7.3
)
 
1.7

 
(11.4
)
Income tax expense
 
$
255.9

 
$
407.7

 
$
282.5


The components of income taxes for other than continuing operations consisted of the following:
 
 
(In Millions)
 
 
2012
 
2011
 
2010
Other comprehensive (income) loss:
 
 
 
 
 
 
Pension/OPEB liability
 
$
13.8

 
$
(60.2
)
 
$
14.0

Mark-to-market adjustments
 
1.7

 
(17.7
)
 
1.7

Other
 
2.6

 
—

 
—

Total
 
$
18.1

 
$
(77.9
)
 
$
15.7

 
 
 
 
 
 
 
Paid in capital — stock based compensation
 
$
(12.8
)
 
$
(4.6
)
 
$
(4.0
)
Discontinued Operations
 
$
10.4

 
$
3.2

 
$
9.5


Significant components of our deferred tax assets and liabilities as of December 31, 2012 and 2011 are as follows:
 
 
(In Millions)
 
 
2012
 
2011
Deferred tax assets:
 
 
 
 
Pensions
 
$
161.2

 
$
154.8

MRRT starting base allowance
 
357.1

 
—

Postretirement benefits other than pensions
 
87.7

 
109.8

Alternative minimum tax credit carryforwards
 
274.9

 
228.5

Capital loss carryforwards
 
—

 
3.8

Investment in ventures
 
14.1

 
—

Asset retirement obligations
 
48.2

 
42.9

Operating loss carryforwards
 
396.4

 
260.7

Product inventories
 
45.4

 
30.1

Properties
 
49.2

 
44.8

Lease liabilities
 
31.0

 
38.8

Other liabilities
 
140.9

 
149.3

Total deferred tax assets before valuation allowance
 
1,606.1

 
1,063.5

Deferred tax asset valuation allowance
 
858.4

 
223.9

Net deferred tax assets
 
747.7

 
839.6

Deferred tax liabilities:
 
 
 
 
Properties
 
1,350.5

 
1,345.0

Investment in ventures
 
207.6

 
155.9

Intangible assets
 
24.6

 
13.5

Income tax uncertainties
 
48.5

 
56.7

Financial derivatives
 
1.6

 
1.3

Product inventories
 
19.6

 
—

Other assets
 
101.9

 
98.2

Total deferred tax liabilities
 
1,754.3

 
1,670.6

Net deferred tax (liabilities) assets
 
$
(1,006.6
)
 
$
(831.0
)

The deferred tax amounts are classified in the Statements of Consolidated Financial Position as current or long-term consistently with the asset or liability to which they relate. Following is a summary:
 
 
(In Millions)
 
 
2012
 
2011
Deferred tax assets:
 
 
 
 
United States
 
 
 
 
Current
 
$
5.2

 
$
17.7

Long-term
 
—

 
162.8

Total United States
 
5.2

 
180.5

Foreign
 
 
 
 
Current
 
3.8

 
4.2

Long-term
 
151.5

 
46.7

Total deferred tax assets
 
160.5

 
231.4

Deferred tax liabilities:
 
 
 
 
United States
 
58.4

 
—

Foreign
 
 
 
 
Long-term
 
1,108.7

 
1,062.4

Total deferred tax liabilities
 
1,167.1

 
1,062.4

Net deferred tax (liabilities)
 
$
(1,006.6
)
 
$
(831.0
)

At December 31, 2012 and 2011, we had $274.9 million and $228.5 million, respectively, of gross deferred tax assets related to U.S. alternative minimum tax credits that can be carried forward indefinitely.
We had gross state and foreign net operating loss carry forwards of $185.0 million, and $2.1 billion, respectively, at December 31, 2012. We had gross state and foreign net operating loss carryforwards at December 31, 2011 of, $147.1 million and $780.5 million, respectively. State net operating losses will begin to expire in 2022, and the foreign net operating losses will begin to expire in 2015. We had foreign tax credit carryforwards of $5.8 million at December 31, 2012 and December 31, 2011. The foreign tax credit carryforwards will begin to expire in 2020.
We recorded a $634.5 million net increase in the valuation allowance of certain deferred tax assets where management believes that realization of the related deferred tax assets is not more likely than not. Of this amount, $41.3 million relates to ordinary losses of certain foreign and state operations for which future utilization is currently uncertain, $11.0 million relates to certain foreign assets where tax basis exceeds book basis, $226.4 million relates to management's conclusion that it was more likely than not that the deferred tax asset related to the Alternative Minimum Tax credit would not be utilized and $357.1 million relates to the MRRT starting base deferred tax asset that has been determined to be unrealizable, and $1.2 million of previously recorded valuation allowance was reversed related to capital loss carryforwards that will be utilized.
At December 31, 2012 and 2011, cumulative undistributed earnings of foreign subsidiaries included in consolidated retained earnings amounted to $0.8 billion and $1.0 billion, respectively. These earnings are indefinitely reinvested in international operations. Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation of these earnings, nor is it practical to estimate the amount of income taxes that would have to be provided if we were to conclude that such earnings will be remitted in the foreseeable future.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
 
 
 
(In Millions)
 
 
2012
 
2011
 
2010
Unrecognized tax benefits balance as of January 1
 
$
102.1

 
$
79.8

 
$
75.2

Increases for tax positions in prior years
 
2.7

 
42.1

 
1.9

Increases for tax positions in current year
 
11.1

 
29.5

 
—

Increase due to foreign exchange
 
—

 
—

 
0.7

Settlements
 
(60.4
)
 
(3.5
)
 
—

Lapses in statutes of limitations
 
—

 
(45.8
)
 
—

Other
 
—

 
—

 
2.0

Unrecognized tax benefits balance as of December 31
 
$
55.5

 
$
102.1

 
$
79.8


At December 31, 2012 and 2011, we had $55.5 million and $102.1 million, respectively, of unrecognized tax benefits recorded. Of this amount, $7.0 million and $45.6 million are recorded in Other liabilities and $48.5 million and $56.5 million are recorded as deferred tax assets in the Statements of Consolidated Financial Position. An agreement was reached with the taxing authorities resulting in a reversal of a prior liability for an uncertain tax position, the financial statement impact of which was an income tax benefit of $26.9 million. Additionally, the closure of a foreign examination resulted in the reversal of an unrecognized tax benefit in the amount of $23.8 million. The related liability was paid in a previous period, and there is no current period income statement impact resulting from this item. If the $55.5 million were recognized, the full amount would impact the effective tax rate. We do not expect that the amount of unrecognized tax benefits will change significantly within the next twelve months. At December 31, 2012 and 2011, we had $0.8 million and $2.5 million, respectively, of accrued interest and penalties related to the unrecognized tax benefits recorded in Other liabilities in the Statements of Consolidated Financial Position.
Tax years that remain subject to examination are years 2009 and forward for the U.S., 2006 and forward for Canada, and 2007 and forward for Australia.