12. Income Taxes

Components of the Company's income (loss) before income taxes and adjustment for non-controlling interests are as follows:


	Predecessor				Successor
	Year Ended December 31, 2009		Five Months Ended May 31, 2010		Seven Months Ended December 31, 2010		Year Ended December 31, 2011
Domestic	$	(285,177)	$	161,014	$	20,595	$	111,884
Foreign		(126,697)		158,940		25,625		(14,621)

	$	(411,874)	$	319,954	$	46,220	$	97,263

The Company's provision (benefit) for income taxes consists of the following:


	Predecessor				Successor
	Year Ended December 31, 2009		Five Months Ended May 31, 2010		Seven Months Ended December 31, 2010		Year Ended December 31, 2011
Current
Federal	$	(2,786)	$	-	$	-	$	5,030
State		417		2,003		(91)		695
Foreign		(12,001)		6,888		12,946		15,565
Deferred
Federal		(4,850)		614		-		-
State		-		55		-		-
Foreign		(36,466)		30,380		(7,760)		(525)

	$	(55,686)	$	39,940	$	5,095	$	20,765

The following schedule reconciles the United States statutory federal rate to the income tax provision:


	Predecessor				Successor
	Year Ended December 31, 2009		Five Months Ended May 31, 2010		Seven Months Ended December 31, 2010		Year Ended December 31, 2011
Tax at U.S. statutory rate	$	(144,156)	$	111,984	$	16,177	$	34,042
State and local taxes		(5,999)		7,899		1,606		860
Tax credits		(11,433)		(1,936)		(4,179)		(4,464)
Goodwill impairment		50,712		-		-		-
Reorganization items and fresh-start accounting adjustments, net		-		(37,761)		-		-
US-Canada APA settlement		7,132		5,867		(651)		2,658
Foreign withholding taxes		861		789		1,823		2,290
Effect of foreign tax rates		(1,141)		(7,376)		(3,788)		(7,739)
Valuation allowance		39,898		(38,915)		(5,377)		(10,839)
Other, net		8,440		(611)		(516)		3,957

Income tax provision	$	(55,686)	$	39,940	$	5,095	$	20,765

Effective income tax rate		13.5%		12.5%		11.0%		21.3%

Payments (refunds), net for income taxes for the year ended December 31, 2009, the five months ended May 31, 2010, the seven months December 31, 2010 and the year ended December 31, 2011 were $(1,006), $6,584, $4,367 and $20,643, respectively. These amounts do not include any payments or refunds of income taxes related to the US-Canada Advanced Pricing Agreement settlement.

Under the Bankruptcy Reorganization Plan, the Company's prepetition senior subordinated securities and other obligations were extinguished. Absent an exception, a debtor recognizes cancellation of debt income ("CODI") upon discharge of its outstanding indebtedness for an amount of consideration that is less than its adjusted issue price. The Internal Revenue Code ("IRC") provides that a debtor in a bankruptcy case may exclude CODI from income but must reduce certain of its tax attributes by the amount of any CODI realized as a result of the consummation of a plan of reorganization. The amount of CODI realized by a taxpayer is the adjusted issue price of any indebtedness discharged less the sum of (i) the amount of cash paid, (ii) the issue price of any new indebtedness issued and (iii) the fair market value of any other consideration, including equity, issued. As a result of the market value of the Company's equity upon emergence from Chapter 11 bankruptcy proceedings, the Company's U.S. net operating loss carryforward will be reduced to zero, however a portion of the Company's tax credit carryforwards (collectively, the "Tax Attributes") will be retained after reduction of the Tax Attributes for CODI realized on emergence from Chapter 11 bankruptcy proceedings.

IRC Sections 382 and 383 provide an annual limitation with respect to the ability of a corporation to utilize its Tax Attributes, as well as certain built-in-losses, against future U.S. taxable income in the event of a change in ownership. The Company's emergence from Chapter 11 bankruptcy proceedings is considered a change in ownership for purposes of IRC Section 382. The limitation under the IRC is based on the value of the corporation as of the emergence date. As a result, the Company's future U.S. taxable income may not be fully offset by the Tax Attributes if such income exceeds the Company's annual limitation, and they may incur a tax liability with respect to such income. In addition, subsequent changes in ownership for purposes of the IRC could further diminish the Company's Tax Attributes.

Deferred tax assets and liabilities reflect the estimated tax effect of accumulated temporary differences between the basis of assets and liabilities for tax and financial reporting purposes, as well as net operating losses, tax credit and other carryforwards. Significant components of the Company's deferred tax assets and liabilities at December 31 are as follows:


	Successor
	2010		2011
Deferred tax assets:
Postretirement and other benefits	$	80,630	$	67,629
Capitalized expenditures		9,015		7,221
Net operating loss and tax credit carryforwards		152,843		156,382
All other items		36,077		40,852

Total deferred tax assets		278,565		272,084
Deferred tax liabilities:
Property, plant and equipment		(48,321)		(49,884)
Intangibles		(48,717)		(42,930)
All other items		(2,193)		(121)

Total deferred tax liabilities		(99,231)		(92,935)
Valuation allowances		(155,363)		(152,373)

Net deferred tax assets	$	23,971	$	26,776

Net deferred taxes in the consolidated balance sheet are as follows:


	Successor
	2010		2011
Current assets	$	8,786	$	14,161
Non-current assets		39,461		31,968
Current liabilities		(5,939)		(550)
Non-current liabilities		(18,337)		(18,803)

	$	23,971	$	26,776

At December 31, 2011, the Company's foreign subsidiaries, primarily in France, Brazil, Germany, and UK, have operating loss carryforwards aggregating $162,000 with indefinite expiration periods while Spain has an operating loss carryforward of $20,700 with expiration dates beginning in 2012. Other foreign subsidiaries in China, Mexico, Italy, Netherlands, Poland and Korea have operating losses aggregating $78,000, with expiration dates beginning in 2013. The Company's Polish subsidiaries have special economic zone credits totaling $22,000. The Company's Czech Republic subsidiary has an income tax incentive totaling $4,200. The U.S. foreign tax credit carryforward is $29,400 with expiration dates beginning in 2015. The Company and its domestic subsidiaries have anticipated tax benefits of state net operating losses and credit carryforwards of $19,700 with expiration dates beginning in 2012.

The Company continues to maintain a valuation allowance related to their net deferred tax assets in the United States and several foreign jurisdictions. As of December 31, 2011, the Company had valuation allowances of $152,400 related to tax loss and credit carryforwards and other deferred tax assets in the United States and several foreign jurisdictions. The Company's current and future provision for income taxes is significantly impacted by the initial recognition of and changes in valuation allowances in certain countries, particularly the United States. The Company intends to maintain these allowances until it is more likely than not that the deferred tax assets will be realized. The Company's future provision for income taxes will include no tax benefit with respect to losses incurred and no tax expense with respect to income generated in these countries until the respective valuation allowance is eliminated.

In conjunction with the Company's ongoing review of its actual results and anticipated future earnings, the Company reassesses the possibility of releasing the valuation allowance currently in place on its U.S. deferred tax assets. Based upon this assessment, the Company has concluded that a release of a significant portion of the U.S. valuation allowance could possibly occur during the next 12 months. The required accounting for the release will involve significant tax amounts and will impact earnings in the quarter in which it is deemed appropriate to release the reserve.

Deferred income taxes have not been provided on approximately $341,000 of undistributed earnings of foreign subsidiaries as such amounts are considered permanently reinvested. It is not practical to estimate any additional income taxes and applicable withholding taxes that would be payable on remittance of such undistributed earnings.

At December 31, 2011, the Company has $3,303 ($3,373 including interest and penalties) of total unrecognized tax benefits. Of this total, $3,048 represents the amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate. The total unrecognized tax benefits differ from the amount which would affect the effective tax rate due primarily to the impact of the valuation allowance.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):


	Predecessor				Successor
	Year Ended December 31, 2009		Five Months Ended May 31, 2010		Seven Months Ended December 31, 2010		Year Ended December 31, 2011
Balance at beginning of period	$	4,728	$	3,218	$	2,996	$	2,758
Tax positions related to the current period
Gross additions		255		107		13		951
Gross reductions		-		-		(19)		-
Tax positions related to prior years
Gross additions		-		-		1,676		1,629
Gross reductions		(1,086)		(79)		(1,443)		-
Settlements		(59)		(250)		-		(1,630)
Lapses on statutes of limitations		(620)		-		(465)		(405)

Balance at end of period	$	3,218	$	2,996	$	2,758	$	3,303

The Company, or one of its subsidiaries, files income tax returns in the United States and other foreign jurisdictions. The Internal Revenue Service completed an examination of the Company's U.S. income tax returns for 2007 and 2008 during 2011. U.S. state and local jurisdictions tax claims for any taxable year prior to 2009 are generally limited to the amount of any claims they filed in the Bankruptcy Court by February 3, 2010. The Company's major foreign jurisdictions are Brazil, Canada, France, Germany, Italy, Mexico, and Poland. The Company is no longer subject to income tax examinations in major foreign jurisdictions for years prior to 2004.

During the next twelve months, it is reasonably possible that, as a result of audit settlements, the conclusion of current examinations and the expiration of the statute of limitations in certain jurisdictions, the Company may decrease the amount of its gross unrecognized tax benefits by approximately $552, of which an immaterial amount, if recognized, could impact the effective tax rate.

The Company classifies all tax related interest and penalties as income tax expense. The company has recorded in liabilities for the year ended December 31, 2009, the five months ended May 31, 2010, the seven months December 31, 2010 and the year ended December 31, 2011 amounts of $436, $352, $775 and $70 respectively, for tax related interest and penalties on its consolidated balance sheet.