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,	2015			2014			2013
Current
Federal	$	18.3		$	53.1		$	54.3
State and local		4.0			9.8			8.8
Non-U.S.		29.6			38.0			33.1

		51.9			100.9			96.2
Deferred
Federal		2.4			2.7			(6.3	)
State and local		0.2			(1.6	)		(0.3	)
Non-U.S.		(6.1	)		13.0			9.2

		(3.5	)		14.1			2.6

	$	48.4		$	115.0		$	98.8

The non-U.S. income (loss) before income tax expense was $25.8 million, $(17.0) million and $80.3 million in 2015, 2014, and 2013, respectively. The 2014 non-U.S. pretax loss is primarily the result of the impairment of non-deductible goodwill. The U.S. income before income tax was $89.0 million, $175.0 million and $163.1 million in 2015, 2014, and 2013, 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,	2015			2014			2013
United States federal tax rate		35.00	%		35.00	%		35.00	%
Non-U.S. tax rates		(4.30	%)		2.90	%		2.20	%
State and local taxes, net of federal tax benefit		2.80	%		4.20	%		2.50	%
U.S. domestic production activity deduction		(0.90	%)		(3.10	%)		(2.00	%)
Unrecognized tax benefits		2.50	%		7.20	%		0.40	%
Net impact of released and new valuation allowances		3.00	%		12.70	%		0.50	%
Withholding tax		2.70	%		2.90	%		2.90	%
Foreign partnerships		(5.80	%)		(5.30	%)		(3.60	%)
Foreign income inclusion		0.40	%		—			1.70	%
Venezuela balance sheet remeasurement		5.90	%		—			—
Nondeductible goodwill		2.50	%		15.60	%		—
Other items		(1.60	%)		0.70	%		1.00	%

		42.20	%		72.80	%		40.60	%

Withholding tax is assessed and accrued for interest, royalties, and dividends on a quarterly basis for transactions primarily between non-U.S. entities.

As discussed in Note 1 herein, with respect to its operations in Venezuela, the Company changed from the official exchange rate to the SIMADI rate requiring remeasurement of the Venezuelan balance sheet during 2015. The net $19.4 million charge to the income statement had no tax benefit. This balance sheet remeasurement contributed 5.90 percent to our effective tax rate.

During 2014, the Company disposed of certain operations, including the divestiture of a nonstrategic business in the Rigid Industrial Packaging & Services segment in third quarter and the multiwall packaging business in the fourth quarter, which resulted in gains and losses recognized, including an amount related to goodwill of $13.6 million and $21.8 million, respectively, which did not have a tax basis. Moreover, the Flexible Products & Services reporting unit recognized the impairment of goodwill of $50.3 million that did not have any tax basis. For 2014, the combination of these items contributed 15.6 percent to our effective tax rate.

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):


	2015			2014
Deferred Tax Assets
Net operating loss and other carryforwards	$	80.8		$	108.5
Pension liabilities		53.6			48.2
Insurance operations		3.5			4.1
Incentive liabilities		5.4			12.9
Environmental reserves		0.4			5.4
Inventories		6.5			5.7
State income taxes		7.4			9.2
Postretirement benefit obligations		3.5			4.1
Other		11.3			7.6
Interest accrued		1.6			2.3
Allowance for doubtful accounts		3.4			4.6
Restructuring reserves		6.0			1.4
Deferred compensation		2.9			2.7
Foreign tax credits		2.3			2.3
Vacation accruals		1.5			1.8
Workers compensation accruals		3.5			4.6

Total Deferred Tax Assets		193.6			225.4
Valuation allowance		(89.5	)		(108.5	)

Net Deferred Tax Assets		104.1			116.9


Deferred Tax Liabilities
Properties, plants and equipment		84.7			109.0
Goodwill and other intangible assets		80.1			79.9
Foreign Income Inclusion		1.1			1.1
Foreign exchange gains		6.1			7.4
Timberland transactions		116.2			106.4

Total Deferred Tax Liabilities		288.2			303.8

Net Deferred Tax Liability	$	(184.1	)	$	(186.9	)

As of October 31, 2015, the Company had tax benefits from non-U.S. net operating loss and other carryforwards of approximately $79.8 million and approximately $1.0 million of U.S. federal and state net operating loss carryforwards. The Company has recorded valuation allowances of $87.2 million and $106.2 million as of October 31, 2015 and 2014, respectively, against the tax benefits from non-U.S. net deferred tax assets. The Company has also recorded valuation allowances of $2.3 million and $2.3 million as of October 31, 2015 and 2014, respectively, against tax benefits from U.S. net deferred tax assets. The Company’s $19.0 million decrease in valuation allowances during 2015 consists of the following: $17.9 million of currency translations; and $3.4 million net incremental increases in new valuation allowances resulting in a 3.0% rate impact disclosed separately in the rate reconciliation above; and $4.5 million of incremental net decreases against current year net operating losses and other net deferred tax assets resulting in a (3.9%) rate impact included within the non-U.S. tax rates line of the rate reconciliation above.

As of October 31, 2015, the Company has not recognized U.S. deferred income taxes on a cumulative total of $552 million of undistributed earnings from certain non-U.S. subsidiaries. The Company’s intention is to reinvest these earnings indefinitely outside of the U.S., or to repatriate the earnings only when it is tax-efficient to do so. Therefore, no U.S. tax provision has been accrued related to the repatriation of these earnings. It is not practicable to estimate the amount of any additional taxes which may be payable on the undistributed earnings given the various alternatives the Company could employ should the Company decide to repatriate these earnings in the future.

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


	2015			2014			2013
Balance at November 1	$	34.3		$	30.5		$	55.9
Increases in tax positions for prior years		8.5			5.7			4.5
Decreases in tax positions for prior years		(2.2	)		(8.2	)		(11.0	)
Increases in tax positions for current years		6.2			10.3			8.8
Settlements with taxing authorities		(5.7	)		(0.6	)		(30.3	)
Lapse in statute of limitations		(6.2	)		(0.8	)		—
Currency translation		(5.3	)		(2.6	)		2.6

Balance at October 31	$	29.6		$	34.3		$	30.5

The 2015 net decrease is primarily related to a net decrease in the lapse in statute of limitations and settlements with taxing authorities in various jurisdictions. The change in balance includes the impact of deferred items that do not impact the tax expense.

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 2010 through the current fiscal year. The Company has completed its U.S. federal tax audit for the tax years through 2012.

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, 2015 and October 31, 2014, the Company had $5.4 million and $4.6 million, respectively, accrued for the payment of interest and penalties.

The October 31, 2015, 2014, 2013 balances include $28.5 million, $28.0 million and $23.0 million, respectively, of unrecognized tax benefits that, if recognized, would have an impact on the effective tax rate. The remaining unrecognized tax benefits relate to tax positions for which ultimate deductibility is highly certain, but for which there is uncertainty as to the timing of such deductibility. Recognition of these tax benefits would not affect our effective tax rate.

The Company has estimated the reasonably possible expected net change in unrecognized tax benefits through October 31, 2016 under ASC 740. The Company’s estimate is based on lapses of the applicable statutes of limitations, settlements and payments of uncertain tax positions. The estimated net decrease in unrecognized tax benefits for the next 12 months ranges from $0 to $4.5 million. Actual results may differ materially from this estimate.

The Company paid income taxes of $73.5 million, $78.7 million and $74.0 million in 2015, 2014, and 2013, respectively.