11. INCOME TAXES

The provision for income taxes consists of the following:


(millions)	2011		2010		2009
Income taxes
Current
Federal	$	76.5	$	78.0	$	83.4
State		10.5		10.6		10.9
International		17.6		18.9		14.7
		104.6		107.5		109.0
Deferred
Federal		32.0		9.4		24.5
State		4.1		2.1		2.7
International		1.9		(1.0)		(3.2)
		38.0		10.5		24.0
Total income taxes	$	142.6	$	118.0	$	133.0

The components of income from consolidated operations before income taxes follow:


(millions)	2011		2010		2009
Pretax income
United States	$	338.7	$	357.4	$	338.3
International		152.7		105.3		78.2
	$	491.4	$	462.7	$	416.5

A reconciliation of the U.S. federal statutory rate with the effective tax rate follows:


	2011		2010		2009
Federal statutory tax rate		35.0%		35.0%		35.0%
State income taxes, net of federal benefits		1.9		1.8		2.1
International tax at different effective rates		(7.0)		(4.4)		(4.0)
U.S. tax on remitted and unremitted earnings		0.2		(1.6)		0.4
U.S. manufacturing deduction		(1.6)		(1.3)		(0.8)
Changes in prior year tax contingencies		(0.1)		(3.8)		(0.4)
Other, net		0.6		(0.2)		(0.4)
Total		29.0%		25.5%		31.9%

Deferred tax assets and liabilities are comprised of the following:


(millions)	2011		2010
Deferred tax assets
Employee benefit liabilities		$152.3		$127.5
Other accrued liabilities		16.6		24.6
Inventory		14.6		9.5
Net operating and capital loss carryforwards		22.8		24.2
Other		18.7		20.0
Valuation allowance		(26.6)		(22.9)
		198.4		182.9
Deferred tax liabilities
Depreciation		49.9		41.4
Intangible assets		145.3		114.0
Other		7.6		5.7
		202.8		161.1
Net deferred tax (liability) asset		$ (4.4)		$ 21.8

At November 30, 2011, our non-U.S. subsidiaries have tax loss carryforwards of $115.8 million, of which $12.5 million are from the excess tax benefits related to stock-based compensation deductions which will increase equity once the benefit is realized through a reduction of income taxes payable. Of these carryforwards, $33.7 million expire through 2015, $36.6 million from 2016 through 2024 and $45.5 million may be carried forward indefinitely.

At November 30, 2011, our non-U.S. subsidiaries have capital loss carryforwards of $5.9 million. All of these carryforwards may be carried forward indefinitely.

At November 30, 2011, we have tax credit carryforwards of $7.1 million, which expire in 2020.

A valuation allowance has been provided to record deferred tax assets at their net realizable value based on a more likely than not criteria. The $3.7 million net increase in the valuation allowance was mainly due to an additional valuation allowance related to losses generated in 2011 which may not be realized in future periods.

U.S. income taxes are not provided for unremitted earnings of international subsidiaries and affiliates where our intention is to reinvest these earnings permanently. Unremitted earnings of such entities were $864.0 million at November 30, 2011.

The total amount of unrecognized tax benefits as of November 30, 2011 and November 30, 2010 were $33.2 million and $20.7 million, respectively. If recognized, all of these tax benefits would affect the effective tax rate.

The following table summarizes the activity related to our gross unrecognized tax benefits for the years ended November 30, 2011, 2010 and 2009:


(millions)	2011		2010		2009
Balance at beginning of year		$20.7		$31.2		$28.6
Additions for current year tax positions		10.3		5.1		3.7
Additions for prior year tax positions		6.5		3.4		1.7
Reductions for prior year tax positions		(3.1)		(2.6)		(3.6)
Settlements		–		(0.6)		—
Statute expirations		(1.2)		(15.8)		—
Foreign currency translation		–		—		0.8
Balance at November 30,		$33.2		$20.7		$31.2

In 2010, the $15.8 million of statute expirations is mainly composed of a $13.9 million reserve reversal that was originally recorded based on uncertainties about the tax aspects of transactions related to the reorganization of our European operations and divestment of certain of our joint ventures.

We record interest and penalties on income taxes in income tax expense. We recognized interest and penalty expense of $0.6 million, interest and penalty income of $2.2 million, and interest and penalty expense of $0.7 million for the years ended November 30, 2011, 2010 and 2009, respectively. As of November 30, 2011 and 2010, we had accrued $1.7 million and $1.2 million, respectively, of interest and penalties related to unrecognized tax benefits.

We file income tax returns in the U.S. federal jurisdiction and various state and non-U.S. jurisdictions. The open years subject to tax audits varies depending on the tax jurisdictions. In major jurisdictions, we are no longer subject to income tax audits by taxing authorities for years before 2006. In 2010, the Internal Revenue Service commenced an examination of our U.S. income tax return for the tax years 2007 and 2008. We are also under normal recurring tax audits in several of our major operations outside the U.S. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our unrecognized tax benefits reflect the most likely outcome. We adjust these unrecognized tax benefits, and the related interest, in light of changing facts and circumstances. Settlement of any particular position could require the use of cash. Favorable resolution would be recognized as a reduction to our effective tax rate in the period of resolution.