Income Taxes

The components of loss from continuing operations before income taxes were as follows:



	Years Ended December 31,
	2011			2010			2009
	(In millions)
U.S.	$	(67.0	)	$	(114.3	)	$	(116.0	)
International	24.1			37.9			39.3
Total	$	(42.9	)	$	(76.4	)	$	(76.7	)

The components of the income tax provision (benefit) from continuing operations were as follows:



	Years Ended December 31,
	2011			2010		2009
	(In millions)
Current
Federal	$	1.5		$	12.1	$	(27.0	)
State	—			3.8		(6.4		)
International	5.5			9.0		2.7
Deferred
Federal	—			44.7		(6.6		)
State	—			8.6		(0.9		)
International	(3.2		)	3.7		5.5
Total	$	3.8		$	81.9	$	(32.7	)

The income tax provision from continuing operations differs from the amount computed by applying the statutory United States income tax rate (35 percent) because of the following items:



	Years Ended December 31,
	2011			2010			2009
	(In millions)
Tax at statutory U.S. tax rate	$	(15.0	)	$	(26.8	)	$	(26.9	)
State income taxes, net of federal benefit	(2.2		)	(3.7		)	(5.6		)
Net effect of international operations	(1.3		)	(2.8		)	(7.2		)
Valuation allowances	17.6			105.2			1.4
U.S. tax on foreign earnings	4.8			5.1			0.6
Uncertain tax positions	0.2			1.3			3.5
Other	(0.3		)	3.6			1.5
Income tax provision (benefit)	$	3.8		$	81.9		$	(32.7	)

In comparing our 2011 tax provision of $3.8 million to our 2010 tax provision of $81.9, the primary change is due to the U.S. not receiving a tax benefit from the 2011 net operating loss, and the establishment of a valuation allowance in 2010 on our U.S. deferred tax assets. Other items that had an impact on the 2011 tax provision included a $5.0 million benefit for the reversal of a foreign net operating loss valuation allowance and changes in the mix of income/loss by jurisdiction.

The 2009 tax benefit included an increase in the state tax effective rate, additional reserves for uncertain tax positions and the change in proportion of income by jurisdiction.

In 2011, 2010 and 2009 the net cash received (or paid) for income taxes, relating to both continuing and discontinued operations, was ($4.9) million, $6.4 million and $14.8 million, respectively.

Tax laws require certain items to be included in our tax returns at different times than the items are reflected in our results of operations. Some of these items are temporary differences that will reverse over time. We record the tax effect of temporary differences as deferred tax assets and deferred tax liabilities in our Consolidated Balance Sheets.

The components of net deferred tax assets and liabilities were as follows:



	As of December 31,
	2011			2010
	(In millions)
Accounts receivable allowances	$	5.6		$	8.1
Inventories	12.3			13.0
Compensation and employee benefits	9.7			10.9
Tax credit carryforwards	35.0			20.4
Net operating loss carryforwards	49.5			54.2
Accrued liabilities and other reserves	16.3			19.1
Pension	8.7			6.0
Property, plant and equipment	14.0			3.2
Intangible assets	5.6			5.4
Other, net	5.5			5.0
Gross deferred tax assets	162.2			145.3
Valuation allowance	(141.1		)	(127.4		)
Deferred tax assets	21.1			17.9
Deferred tax liabilities	—			—
Net deferred tax assets	$	21.1		$	17.9

We regularly assess the likelihood that our deferred tax assets will be recovered in the future. A valuation allowance is recorded to the extent we conclude a deferred tax asset is not considered to be more-likely-than-not to be realized. We consider all positive and negative evidence related to the realization of the deferred tax assets in assessing the need for a valuation allowance. If we determine we will not realize all or part of our deferred tax assets, an adjustment to the deferred tax asset will be charged to earnings in the period such determination is made.

During the fourth quarter of 2010, we recognized significant restructuring charges related to our U.S. operations. Due to these charges and cumulative losses incurred in recent years, we were no longer able to conclude that it was more-likely-than-not that our U.S. deferred tax assets would be fully realized. Therefore, during 2010, we recorded a charge to establish a valuation allowance of $105.6 million related to our U.S. deferred tax assets, of which $53.3 million related to beginning of the year U.S. deferred tax assets. The valuation allowance charge is included in income tax provision on our Consolidated Statement of Operations.

Our accounting for deferred tax consequences represents our best estimate of future events. A valuation allowance established or revised as a result of our assessment is recorded through income tax provision (benefit) in our Consolidated Statements of Operations. Changes in our current estimates due to unanticipated events, or other factors, could have a material effect on our financial condition and results of operations.

The valuation allowance was $141.1 million, $127.4 million, and $22.9 million as of December 31, 2011, 2010 and 2009, respectively. During 2011, the valuation allowance increased due to $13.4 million of additional federal tax credits related to the repatriation of cash to the U.S., $3.8 million of additional U.S. net operating losses and $1.5 million of other items, offset by a $5.0 million benefit from the reversal of a foreign net operating loss valuation allowance.

The increase in 2010, as compared to 2009, was due to the establishment of a valuation allowance against our U.S. deferred tax assets in the amount of $105.6 million as discussed above, offset by expirations and releases of foreign valuation allowances in the amount of $1.1 million.

Federal net operating loss carry forwards totaling $89.0 million will expire between 2029 and 2031. State income tax operating losses of $215.6 million, will expire between 2013 and 2031. Federal and state tax credit carryforwards of $35.0 million will expire between 2012 and 2031. Of the aggregate foreign net operating loss carryforwards totaling $35.0 million, $11.5 million will expire at various dates up to 2031 and $23.5 million may be carried forward indefinitely.

During the fourth quarter of 2010, our U.S. parent company borrowed funds from certain foreign subsidiaries. These loans were treated as permanent repatriations of unremitted earnings during the fourth quarter of 2010. Our 2010 provision included a $5.1 million charge to record the U.S. tax liability associated with these earnings. During the fourth quarter of 2011, these funds were permanently repatriated to the U.S. as dividends.

Also during the fourth quarter of 2011, we distributed additional funds to the U.S. These distributions were treated as repatriations of unremitted earnings during the fourth quarter of 2011. Our 2011 provision includes an additional $4.0 million charge to record the U.S. tax liability associated with these earnings. Some of these distributions were loans of funds to the U.S. from our subsidiaries which at this time we expect to repay in future periods.

Any amount of earnings in excess of the amounts described above were either already invested in the foreign operations or needed as working capital. The remaining unremitted earnings of our foreign subsidiaries will continue to be permanently reinvested in their operations, and no additional deferred taxes have been recorded. The actual U.S. tax cost of any future repatriation of foreign earnings would depend on income tax law and circumstances at the time of distribution. Determination of the related tax liability is not practicable because of the complexities associated with the hypothetical calculation. As of December 31, 2011, approximately $109.2 million of earnings attributable to foreign subsidiaries were considered to be permanently invested in those operations. There were no taxable distributions of foreign dividends in 2010 or 2009.

Our income tax returns are subject to review by various U.S. and foreign taxing authorities. As such, we record accruals for items that we believe may be challenged by these taxing authorities. The threshold for recognizing the benefit of a tax return position in the financial statements is that the position must be more-likely-than-not to be sustained by the taxing authorities based solely on the technical merits of the position. If the recognition threshold is met, the tax benefit is measured and recognized as the largest amount of tax benefit that, in our judgment, is greater than 50 percent likely to be realized.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	Amount
	(In millions)
Balance at December 31, 2008	$	10.5
Additions:
Tax positions of prior years	4.4
Reductions:
Tax positions of prior years	(0.6		)
Settlements with tax authorities	(0.2		)
Lapse of statute of limitations	(0.3		)
Balance at December 31, 2009	$	13.8
Additions:
Tax positions of current years	0.3
Tax positions of prior years	1.3
Reductions:
Settlements with taxing authorities	(0.2		)
Lapse of statute of limitations	(0.3		)
Balance at December 31, 2010	$	14.9
Additions:
Tax positions of current year	0.3
Tax positions of prior years	0.1
Reductions:
Settlements with taxing authorities	—
Lapse of statute of limitations	(0.2		)
Balance at December 31, 2011	$	15.1

The total amount of unrecognized tax benefits as of December 31, 2011 was $15.1 million, excluding accrued interest and penalties described below. If the unrecognized tax benefits were recognized in our consolidated financial statements, $4.6 million would ultimately affect income tax expense and our related effective tax rate. The other $10.5 million of unrecognized tax benefit would reduce income tax expense, but would be offset by an increase in valuation allowance against deferred tax assets.

Interest and penalties recorded for uncertain tax positions are included in our income tax provision. During the years ended December 31, 2011, 2010, and 2009, we recognized approximately $(0.2) million benefit, $0.5 million expense, and $0.5 million expense, respectively, in interest and penalties. We had approximately $2.5 million, $2.6 million and $2.2 million accrued, excluding the tax benefit of deductible interest, for the payment of interest and penalties at December 31, 2011, 2010 and 2009, respectively. The reversal of accrued interest and penalties would affect income tax expense and our related effective tax rate.

It is reasonably possible that our unrecognized tax benefits could increase or decrease significantly during the next twelve months due to the resolution of certain U.S. and international tax uncertainties; however it is not possible to estimate the potential change at this time.

Our federal income tax returns for 2004 through 2010 remain subject to examination by the Internal Revenue Service (IRS). The IRS completed its field examination of our U.S. federal income tax returns for the years 2006 through 2008 in the second quarter of 2010. The IRS completed its field examination for the 2009 tax year in the fourth quarter of 2011. We have protested certain IRS positions in both audit cycles and the matters are currently pending in the IRS appeals process. With few exceptions, we are no longer subject to examination by foreign tax jurisdictions or state and city tax jurisdictions for years before 2005. In the event that we have determined not to file tax returns with a particular state or city, all years remain subject to examination by the tax jurisdiction.