12. Income Taxes

The components of income before taxes are as follows:


(In millions)	2012		2011		2010
Domestic	$	481.8	$	441.1	$	382.2
Foreign		60.7		53.5		36.1

Total	$	542.5	$	494.6	$	418.3

The following table summarizes the provision for U.S. federal, state and foreign income taxes:


(In millions)	2012		2011			2010
Current:
U.S. federal	$	132.0	$	92.7		$	79.0
State		27.7		16.3			15.4
Foreign		19.8		16.6			14.3

		179.5		125.6			108.7

Deferred:
U.S. federal		11.4		48.7			34.0
State		1.6		(3.3	)		8.0
Foreign		0.2		14.0			(3.1	)

		13.2		59.4			38.9

Total provision	$	192.7	$	185.0		$	147.6

Deferred tax assets (liabilities) consist of the following at December 31:


(In millions)	2012			2011
Deferred tax assets:
Accounts receivable	$	6.5		$	4.5
Deferred compensation		49.7			45.6
Pension, postretirement and postemployment benefits		16.5			15.1
Reserves		26.1			16.2
Tax credit carryforwards/other tax attributes		1.2			0.3
International operating loss carryforwards		9.2			11.3

Total gross deferred tax assets		109.2			93.0
Valuation allowances		(15.7	)		(17.8	)

Total deferred tax assets		93.5			75.2

Deferred tax liabilities:
Goodwill		(145.1	)		(129.8	)
Tradenames and other intangibles		(289.4	)		(130.3	)
Property, plant and equipment		(108.8	)		(98.1	)

Total deferred tax liabilities		(543.3	)		(358.2	)

Net deferred tax liability	$	(449.8	)	$	(283.0	)

Current net deferred tax asset	$	17.6		$	6.0
Long term net deferred tax asset		2.6			3.3
Long term net deferred tax liability		(470.0	)		(292.3	)

Net deferred tax liability	$	(449.8	)	$	(283.0	)

The difference between tax expense and the tax that would result from the application of the federal statutory rate is as follows:


(In millions)	2012			2011			2010
Statutory rate		35	%		35	%		35	%
Tax that would result from use of the federal statutory rate	$	189.9		$	173.1		$	146.4
State and local income tax, net of federal effect		19.0			12.1			15.2
Varying tax rates of foreign affiliates		(1.8	)		(2.5	)		(1.5	)
Benefit from domestic manufacturing deduction		(11.6	)		(8.3	)		(8.5	)
Resolution of tax contingencies		(3.2	)		(3.7	)		(4.1	)
Valuation Allowances		0.6			14.3			0.0
Other		(0.2	)		0.0			0.1

Recorded tax expense	$	192.7		$	185.0		$	147.6

Effective tax rate		35.5	%		37.4	%		35.3	%

At December 31, 2012, foreign subsidiaries of the Company had net operating loss carryforwards of approximately $36.3 million. Approximately $9.8 million of such net operating loss carryforwards expire on various dates through December 31, 2018. The remaining net operating loss carryforwards are not subject to expiration.

The Company believes that it is more likely than not that the benefit from certain of the net operating loss carryforwards will not be realized. In recognition of this risk, the Company has provided a valuation allowance of $9.2 million and $10.4 million at December 31, 2012 and 2011, respectively, on the deferred tax asset relating to these net operating loss carryforwards.

The Company also believes that it is more likely than not that the benefit from certain additional deferred tax assets of QGN will not be realized. In recognition of this risk, the Company maintains a valuation allowance of $6.5 million and $7.4 million at December 31, 2012 and 2011, respectively, on these deferred tax assets.

The Company had undistributed earnings of foreign subsidiaries of approximately $242.2 million at December 31, 2012 for which deferred taxes have not been provided. These earnings, which are considered to be permanently reinvested, would be subject to U.S. tax if they were remitted as dividends. It is not practicable to determine the deferred tax liability on these earnings.

The Company has recorded liabilities in connection with uncertain tax positions, which, although supportable by the Company, may be challenged by tax authorities. Under applicable accounting guidance, these tax positions do not meet the minimum threshold required for the related tax benefit to be recognized in the income statement.

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


(In millions)	2012			2011			2010
Unrecognized tax benefits at January 1	$	13.1		$	24.6		$	39.6
Gross increases—tax positions in current period		0.0			0.0			0.0
Gross increases—tax positions in prior period		1.9			1.0			4.6
Gross decreases—tax positions in prior period		(3.2	)		(5.5	)		(14.2	)
Settlements		(2.6	)		(6.8	)		(4.9	)
Lapse of statute of limitations		(0.1	)		(0.2	)		(0.5	)

Unrecognized tax benefits at December 31	$	9.1		$	13.1		$	24.6

In 2012, the Company recognized a benefit from the reversal of approximately $3.3 million in income tax expense and incurred $0.2 million in pretax interest expense associated with certain tax liabilities as a result of the settlement of an IRS audit for the years 2008 and 2009 and the lapse of applicable statutes of limitation of several state taxing authorities. In 2011, the Company recognized a benefit from the reversal of approximately $3.7 million in income tax expense and $1.6 million in pretax interest expense associated with certain tax liabilities as a result of the settlement of various state audits and the lapse of applicable statutes of limitation of several state taxing authorities. In 2010, the Company recognized a benefit from the reversal of approximately $4.0 million in income tax expense and $3.0 million in pretax interest expense associated with certain tax liabilities as a result of the settlement of an IRS audit and the lapse of applicable statutes of limitation of several state taxing authorities.

Included in the balance of unrecognized tax benefits at December 31, 2012, 2011 and 2010 are $8.7 million, $12.1 million and $15.0 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate. Also included in the balance of unrecognized tax benefits at December 31, 2012, 2011 and 2010, are $0.4 million, $1.0 million and $9.6 million, respectively, of tax benefits that, if recognized, would result in adjustments to balance sheet tax accounts, primarily deferred taxes.

The Company is subject to U.S. federal income tax as well as income tax in multiple state and international jurisdictions. Substantially all material federal, state, and international income tax matters have been effectively closed for years through 2007. The IRS has communicated its intention to audit the Company’s 2010 federal income tax return commencing early in 2013. The tax years 2008 and 2009 are currently under audit by several state and international taxing authorities. In addition, certain statutes of limitations are scheduled to expire in the near future. It is reasonably possible that a decrease of approximately $3.1 million in unrecognized tax benefits may occur within the next twelve months related to the settlement of these audits or the lapse of applicable statutes of limitations. Of this amount, $0.1 million would result in adjustments to balance sheet tax accounts, primarily deferred taxes and would not affect the effective tax rate.

The Company’s policy for recording interest associated with uncertain tax positions is to record interest as a component of Income Before Income Taxes. During the twelve months ended December 31, 2012, December 31, 2011 and December 31, 2010, the Company recognized a net reversal of accrued interest expense associated with uncertain tax positions of approximately $0.3 million, $1.9 million, and $4.2 million, respectively. As of December 31, 2012 and December 31, 2011, the Company had $0.4 million and $0.7 million, respectively, in accrued interest expense related to unrecognized tax benefits.