Tecumseh Products 2012 Annual Report Download - page 58

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Based on this assessment, full valuation allowances have been recorded against our net deferred tax assets for all tax
jurisdictions in which we believe it is more likely than not that the deferred taxes will not be realized. Full valuation
allowances were recorded for all of our tax jurisdictions except for Mexico and Malaysia. The amount of the deferred tax
assets considered realizable, however, could be adjusted if estimates of future taxable income during the carry forward period
are reduced or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may
be given to subjective evidence such as our projections for growth.
At December 31, 2012 we did not have any unrecognized tax benefits. At December 31, 2011, the amount of gross
unrecognized tax benefits before valuation allowances and the amount that would favorably affect the effective income tax rate
in future periods after valuation allowances was $5.5 million.
We accrue interest and penalties related to unrecognized tax benefits in our provision for income taxes. At December 31, 2012
and 2011, we had no accrued interest and penalties.
The following reconciliation illustrates the unrecognized tax benefits for the years ended December 31:
(in millions) 2012 2011
Unrecognized tax benefits – beginning of period .......................................................... $ 5.5 $ 5.5
Settlements ..................................................................................................................... (5.5)—
Unrecognized tax benefits – end of period..................................................................... $ — $ 5.5
We file U.S., state and foreign income tax returns in jurisdictions with varying statues of limitations. We have open tax years
from 2005 to 2011 with various significant taxing jurisdictions including the U.S., Canada, France and Brazil. In the U.S., our
federal income tax returns through 2005 have been examined by the Internal Revenue Service.
As a result of a U.S. income tax refund, a tax benefit was recognized in the second quarter of 2012. Management is not aware
of any uncertain tax positions taken or expected to be taken that would require recognition of a liability or asset for disclosure
in the financial statements.
NOTE 13. Fair Value Measurements
We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value
disclosure. We categorize assets and liabilities at fair value in three levels, based on the markets in which the assets and
liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are as follows:
Level 1 Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2 Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for
identical or similar instruments in markets that are not active, and model-based valuation techniques
for which all significant assumptions are observable in the market.
Level 3 Valuation is generated from model-based techniques that use at least one significant assumption not
observable in the market. These unobservable assumptions reflect estimates of assumptions that
market participants would use in pricing the asset or liability.
The following is a description of valuation methodologies used for our assets and liabilities recorded at fair value.
Foreign currency and commodity derivative contracts
Derivative instruments recognized on our balance sheet consist of foreign currency forward exchange contracts and commodity
futures contracts. These contracts are recognized at the estimated amount at which they could be settled based on market
observable inputs, such as forward market exchange rates and are recorded on our consolidated balance sheet as part of current
assets and liabilities under the heading “Fair value of derivatives.” We classify our derivative instruments as Level 2.