NOTE 12—INCOME TAXES

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state and local jurisdictions, and various non-U.S. jurisdictions.

The provision for income taxes consists of the following (Dollars in millions):


For the years ended October 31,	2012		2011			2010
Current
Federal	$	19.7	$	25.6		$	15.2
State and local		5.4		4.4			5.8
Non-U.S.		11.5		25.2			14.9

		36.6		55.2			35.9
Deferred
Federal		10.3		11.0			(0.4	)
State and local		2.7		5.0			0.7
Non-U.S.		7.2		(6.2	)		7.3

		20.2		9.8			7.6

	$	56.8	$	65.0		$	43.5

Non-U.S. income before income tax expense was $76.5 million, $130.7 million and $155.5 million in 2012, 2011, and 2010, respectively.

The following is a reconciliation of the provision for income taxes based on the federal statutory rate to the Company’s effective income tax rate:


For the years ended October 31,	2012			2011			2010
United States federal tax rate		35.00	%		35.00	%		35.00	%
Non-U.S. tax rates		-1.40	%		-10.00	%		-15.00	%
State and local taxes, net of federal tax benefit		2.20	%		1.90	%		1.30	%
United States tax credits		-0.70	%		-0.80	%		-4.00	%
Unrecognized tax benefits		-5.60	%		12.40	%		-1.50	%
Valuation allowance		1.50	%		-14.40	%		1.90	%
Withholding tax		1.10	%		1.10	%		1.30	%
Foreign partnerships		-4.20	%		-1.00	%		—
Other items		2.50	%		2.80	%		-1.50	%

		30.40	%		27.00	%		17.50	%

The components of the Company’s deferred tax assets and liabilities as of October 31 for the years indicated were as follows (Dollars in millions):


	2012			2011
Deferred Tax Assets
Net operating loss carryforwards	$	89.5		$	132.3
Minimum pension liabilities		61.9			51.0
Insurance operations		9.1			9.7
Incentives		4.1			6.6
Environmental reserves		7.4			7.1
Inventories		2.7			—
State income tax		9.2			9.0
Postretirement		7.4			9.5
Other		5.7			4.1
Derivatives instruments		0.5			—
Interest		6.2			7.0
Allowance for doubtful accounts		4.5			3.3
Restructuring reserves		1.1			2.6
Deferred compensation		2.5			2.9
Foreign tax credits		1.8			1.8
Vacation accruals		1.4			1.2
Stock options		1.4			2.1
Severance		0.2			—
Workers compensation accruals		2.5			1.0

Total Deferred Tax Assets		219.1			251.2
Valuation allowance		(56.6	)		(45.0	)

Net Deferred Tax Assets		162.5			206.2

Deferred Tax Liabilities
Properties, plants and equipment		121.6			108.4
Goodwill and other intangible assets		96.4			80.0
Inventories		—			1.0
Derivative instruments		—			0.3
Foreign exchange		7.8			1.2
Timberland transactions		95.7			95.7
Pension		13.6			22.6

Total Deferred Tax Liabilities		335.1			309.2

Net Deferred Tax Liability	$	(172.6	)	$	(103.0	)

As of October 31, 2012, the Company had tax benefits from non-U.S. net operating loss carryforwards of approximately $89.0 million and approximately $0.5 million of state net operating loss carryfowards. During 2012, the change in net operating loss carryforwards was primarily related to a settlement with the Dutch taxing authorities and to offset a Dutch taxable gain. The company has recorded valuation allowances of $56.6 million and $45.0 million as of October 31, 2012 and 2011, respectively against the tax benefits from non-U.S. net deferred tax assets.

As of October 31, 2012, the Company had undistributed earnings from certain non-U.S. subsidiaries that are intended to be permanently reinvested in non-U.S. operations. Because these earnings are considered permanently reinvested, no U.S. tax provision has been accrued related to the repatriation of these earnings. It is not practicable to determine the additional tax, if any, which would result from the remittance of these amounts.

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


	2012			2011			2010
Balance at November 1	$	79.6		$	35.4		$	45.5
Increases in tax provisions for prior years		6.8			49.7			0.1
Decreases in tax provisions for prior years		(2.1	)		(1.6	)		(2.7	)
Increases in tax positions for current years		3.9			—			1.5
Settlements with taxing authorities		(32.5	)		(4.5	)		(6.7	)
Lapse in statute of limitations		(0.3	)		—			—
Currency translation		(6.6	)		0.6			(2.3	)

Balance at October 31	$	48.8		$	79.6		$	35.4

The 2012 decrease in settlements with taxing authorities is primarily related to a settlement with the Dutch tax authorities relative to the application of Dutch Article 13(a) participation exemption.

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and various foreign jurisdictions. With a few exceptions, the Company is subject to audit by various taxing authorities for 2008 through the current fiscal year. The company has completed its U.S. federal tax audit for the tax years through 2009. The Company has open tax years in the Netherlands for the fiscal period 2001 through the current fiscal period.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense net of tax, as applicable. As of October 31, 2012 and October 31, 2011, the Company had $1.7 million and $0.9 million, respectively, accrued for the payment of interest and penalties.

The Company has estimated the reasonably possible expected net change in unrecognized tax benefits through October 31, 2013 based on lapses of the applicable statutes of limitations of unrecognized tax benefits. The estimated net decrease in unrecognized tax benefits for the next 12 months ranges from $0 to $28.0 million. Actual results may differ materially from this estimate.

The Company paid income taxes of $56.9 million, $64.9 million and $29.3 million in 2012, 2011, and 2010, respectively.