Income Taxes

Income (loss) from continuing operations before income taxes and equity income as reported in the Consolidated Statements of Operations consists of the following:



(In thousands)	2012			2011			2010
United States	$	40,411		$	47,680		$	23,037
International	(258,906		)	(6,015		)	(2,561		)
Total income (loss) before income taxes and equity income	$	(218,495	)	$	41,665		$	20,476

Income tax expense as reported in the Consolidated Statements of Operations consists of the following:



(In thousands)	2012			2011		2010
Income tax expense (benefit):
Currently payable:
U.S. federal	$	22,603		$	4,249	$	(325	)
U.S. state	1,561			913		453
International	21,795			23,860		30,765
Total income taxes currently payable	45,959			29,022		30,893
Deferred U.S. federal	(3,831		)	670		6,228
Deferred U.S. state	(843		)	503		(56		)
Deferred international	(6,034		)	19,653		(32,789		)
Total income tax expense	$	35,251		$	49,848	$	4,276

Cash payments for income taxes, including taxes on the gain or loss from discontinued business, were $42.6 million, $42.3 million and $27.4 million for 2012, 2011 and 2010, respectively.

The following is a reconciliation of the normal expected statutory U.S. federal income tax rate to the effective income tax rate as a percentage of Income (loss) from continuing operations before income taxes and noncontrolling interest as reported in the Consolidated Statements of Operations:



	2012		2011		2010
U.S. federal income tax rate	35.0	%	35.0	%	35.0	%
U.S. state income taxes, net of federal income tax benefit	(0.1	)	2.9		5.1
U.S. domestic manufacturing deductions and credits	1.7		(9.6	)	(5.9	)
Change in permanent reinvestment assertion	—		—		9.3
Difference in effective tax rates on international earnings and remittances	(0.7	)	(11.7	)	(34.4	)
Uncertain tax position contingencies and settlements	2.5		(18.0	)	1.2
Changes in realization on beginning of the year deferred tax assets	(1.8	)	89.1		8.4
Restructuring charges with no realizable tax benefits	(9.8	)	23.0		11.2
U.S. nondeductible items	(0.7	)	6.0		8.7
Deferred charges	—		—		(19.0	)
Non-deductible goodwill impairment	(42.5	)	—		—
Cumulative effect of change in statutory tax rates/laws	0.1		3.5		3.4
Other, net	0.2		(0.6	)	(2.1	)
Effective income tax rate	(16.1	)%	119.6	%	20.9	%

The decrease in the effective income tax rate for 2012 compared with 2011 is the result of lower earnings from continuing operations, a non-deductible goodwill impairment charge of $265.0 million for which the Company has no tax basis as a result of historical stock acquisitions, and a change in the realizability of beginning of the year deferred tax assets of $37.3 million primarily related to the Company's U.K. deferred tax assets on its U.K. pension obligations recorded in 2011 and not repeated in 2012. The decrease in the effective tax rate for 2012 compared with 2011 was offset by a change in the earnings mix of the Company for year 2012 compared with prior years primarily due to the jurisdictional impact of the Company's restructuring charges, and the reduction in tax benefits from the lapse of several statutes of limitations for uncertain tax positions in 2012 compared to 2011.

The tax effects of the temporary differences giving rise to the Company's deferred tax assets and liabilities at December 31, 2012 and 2011 are as follows:



	2012					2011
(In thousands)	Asset			Liability		Asset			Liability
Depreciation and amortization	$	—		$	99,219	$	—		$	120,590
Expense accruals	38,595			—		43,418			—
Inventories	2,649			—		2,588			—
Provision for receivables	1,677			—		2,205			—
Deferred revenue	—			2,014		—			2,065
Operating loss carryforwards	99,475			—		79,408			—
Foreign tax credit carryforwards	24,223			—		29,540			—
Pensions	104,413			—		95,657			—
Currency adjustments	26,661			—		30,813			—
Post-retirement benefits	1,160			—		1,079			—
Other	25,324			—		19,299			—
Subtotal	324,177			101,233		304,007			122,655
Valuation allowance	(126,532		)	—		(99,617		)	—
Total deferred income taxes	$	197,645		$	101,233	$	204,390		$	122,655

The deferred tax asset and liability balances recognized on the Consolidated Balance Sheets at December 31, 2012 and 2011 are as follows:



(In thousands)	2012			2011
Other current assets	$	45,672		$	50,694
Other assets	70,271			59,200
Other current liabilities	(651		)	(729		)
Deferred income taxes	(18,880		)	(27,430		)

At December 31, 2012, the tax-effected amount of net operating loss carryforwards ("NOLs") totaled $99.5 million. Tax-effected NOLs from international operations are $90.4 million. Of that amount, $63.6 million can be carried forward indefinitely, and $26.8 million will expire at various times between 2013 and 2032. Tax-effected U.S. state NOLs are $9.1 million. Of that amount, $0.1 million expire at various times between 2013 and 2017, $3.1 million expire at various times between 2018 and 2022, $2.7 million expire at various times between 2023 and 2027, and $3.2 million expire at various times between 2028 and 2032.

The valuation allowances of $126.5 million and $99.6 million at December 31, 2012 and 2011, respectively, related principally to deferred tax assets for U.K. pension liabilities, NOLs, currency translation and foreign investment tax credits that are uncertain as to realizability. Due to the negative financial performance of the Company's U.K. operations and restructuring charges, the Company recorded a non-cash tax expense of approximately $6.1 million and $35.4 million in 2012 and 2011 to recognize a valuation allowance to fully offset the U.K. operations' net deferred tax assets primarily related to U.K. pension liabilities and losses from operations, as the Company determined it is more likely than not that these assets will not be realized. Additionally in 2011, the Company recorded an additional valuation allowance of approximately $22.9 million through Accumulated other comprehensive loss related to U.K. pension liability adjustments that were recorded through Accumulated other comprehensive loss during 2011. Excluding the valuation allowance activity related to the Company's U.K. operations, the remaining increase in valuation allowances resulted primarily from restructuring charges that were incurred in certain jurisdictions which generated losses, where the Company determined it is more likely than not that these assets will not be realized.

The Company has not provided U.S. income taxes on certain of its non-U.S. subsidiaries' undistributed earnings as such amounts are indefinitely reinvested outside the United States. At December 31, 2012 and 2011, such earnings were approximately $882 million and $834 million, respectively. If these earnings were repatriated at December 31, 2012, the one-time tax cost associated with the repatriation would be approximately $166 million.

The Company has a tax holiday in Asia that expired in 2012. The Company no longer has tax holidays in Europe and the Middle East as they have all expired. During 2011, the tax holidays resulted in a reduction of $0.1 million in income tax expense, while during 2010 and 2012 these tax holidays resulted in no change to income tax expense.

The Company recognizes accrued interest and penalty expense related to unrecognized income tax benefits ("UTB") in income tax expense. During 2012, 2011 and 2010 the Company recognized an income tax benefit of $1.8 million, $1.0 million and $0.3 million, respectively, for interest and penalties. The Company has accrued $8.0 million and $9.7 million for the payment of interest and penalties at December 31, 2012 and 2011, respectively.

A reconciliation of the change in the UTB balance from January 1, 2010 to December 31, 2012 is as follows:



(In thousands)	Unrecognized Income Tax Benefits			Deferred Income Tax Benefits			Unrecognized Income Tax Benefits, Net of Deferred Income Tax Benefits
Balances, January 1, 2010	$	36,791		$	(949	)	$	35,842
Additions for tax positions related to the current year (includes currency translation adjustment)	1,846			—			1,846
Additions for tax positions related to prior years (includes currency translation adjustment)	313			(44		)	269
Other reductions for tax positions related to prior years	(429		)	—			(429		)
Statutes of limitation expirations	(2,348		)	156			(2,192		)
Settlements	(284		)	99			(185		)
Balance at December 31, 2010	$	35,889		$	(738	)	$	35,151
Additions for tax positions related to the current year (includes currency translation adjustment)	2,534			(10		)	2,524
Additions for tax positions related to prior years (includes currency translation adjustment)	4,014			(11		)	4,003
Other reductions for tax positions related to prior years	(147		)	—			(147		)
Statutes of limitation expirations	(8,521		)	224			(8,297		)
Settlements	(361		)	18			(343		)
Balance at December 31, 2011	$	33,408		$	(517	)	$	32,891
Additions for tax positions related to the current year (includes currency translation adjustment)	584			(8		)	576
Additions for tax positions related to prior years (includes currency translation adjustment)	37			2			39
Other reductions for tax positions related to prior years	(3,987		)	—			(3,987		)
Statutes of limitation expirations	(5,124		)	154			(4,970		)
Settlements	—			—			—
Total unrecognized income tax benefits that, if recognized, would impact the effective income tax rate at December 31, 2012	$	24,918		$	(369	)	$	24,549

Included in the additions for tax positions related to the current year for 2012 is approximately $0.2 million of unrecognized tax benefits that created additional operating losses in a foreign jurisdiction. To the extent the unrecognized tax benefit is recognized, a full valuation allowance would be recorded against these operating losses.

Included in the other reductions for tax positions related to prior years for 2012 is $4.0 million of previously unrecognized tax benefits, which were recognized in 2012 as a result of changes in legislation in a foreign jurisdiction. These benefits were previously deemed to not meet the more likely than not standard.

Within the next twelve months, it is reasonably possible that up to $3.8 million of unrecognized income tax benefits will be recognized upon settlement of tax examinations and the expiration of various statutes of limitations

The Company files its income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. With few exceptions, the Company is no longer subject to U.S. and international examinations by tax authorities for the years through 2006.