Income Tax Expense

The components of (loss) income from continuing operations before income taxes are as follows:



	Years Ended December 31,
	2013			2012			2011
United States	$	(170.3	)	$	(98.2	)	$	(86.1	)
Foreign	27.0			75.0			98.7
(Loss) income from continuing operations before income tax expense	$	(143.3	)	$	(23.2	)	$	12.6

The components of income tax (benefit) expense are as follows:



	Years Ended December 31,
	2013			2012			2011
Current
U.S. Federal	$	—		$	(0.1	)	$	0.5
U.S. State	(0.6		)	(0.1		)	0.2
Foreign	13.6			16.0			15.9
Total	13.0			15.8			16.6
Deferred
U.S. Federal	(119.1		)	3.2			2.0
U.S. State	(9.4		)	0.7			0.1
Foreign	(2.2		)	1.0			(0.3		)
Total	(130.7		)	4.9			1.8
Total income tax (benefit) expense	$	(117.7	)	$	20.7		$	18.4

The reconciliation of the U.S. federal statutory tax rate to the actual tax rate is as follows:



	Years Ended December 31,
	2013		2012		2011
Statutory U.S. federal income tax rate	35.0	%	35.0	%	35.0	%
U.S. state income taxes, net of federal benefit	6.9	%	14.8	%	(35.8	)%
Federal benefit of R&D and AMT credits, net	0.5	%	9.9	%	(0.7	)%
Foreign earnings at lower rates than U.S. federal rate	(1.4	)%	39.7	%	(149.6	)%
Federal (benefit) expense of U.S. permanent differences	(8.8	)%	(116.1	)%	66.8	%
Federal valuation allowance adjustments	47.7	%	(72.7	)%	230.8	%
Other	2.2	%	0.2	%	(0.5	)%
Effective income tax rate	82.1	%	(89.2	)%	146.0	%

The effective income tax rates for the years ended December 31, 2013 and 2012 were 82.1% and (89.2)% respectively. In 2013, the Company recorded an income tax benefit of $131.1 million related to the net deferred tax liabilities acquired with the WMS acquisition. The income tax benefit was partially offset by income tax related to current-year profits of our foreign operations, the tax impact related to amortization of indefinite lived intangibles and our inability to recognize tax benefits associated with current-year losses in the U.S. After considering the net deferred tax liabilities acquired as a result of the WMS acquisition and the current-year U.S. loss, the Company recorded a partial release of the valuation allowance related to its net U.S. deferred tax assets in the amount of $68.9 million. Our 2013 effective income tax rate on foreign earnings is impacted by the mix of income and the statutory tax rates in our foreign jurisdictions, which range from a low of 0% to a high of 35%. The foreign jurisdictions that had the most impact on our foreign income tax expense (benefit) in 2013 include Austria, Bermuda, Canada, Ireland, Mexico and the U.K.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes.

The deferred income tax balances are established using the enacted statutory tax rates and are adjusted for changes in such rates in the period of change.



	December 31,
	2013			2012
Deferred tax assets:
Inventory valuation	$	19.1		$	11.5
Reserves and other accrued expenses	34.2			3.7
Compensation not currently deductible	17.1			7.1
Employee pension benefit included in other comprehensive (loss) income	3.3			5.3
Unrealized losses and income from derivative financial instruments included in other comprehensive (loss) income	0.9			0.5
Share based compensation	11.1			10.1
Net operating loss carry forwards	236.6			166.7
Tax credit carry forwards	35.5			32.8
Differences in financial reporting and tax basis for:
Property and Equipment	—			17.1
Valuation allowance	(178.7		)	(241.2		)
Realizable deferred tax assets	179.1			13.6
Deferred tax liabilities:
Deferred costs and prepaid expenses	(5.1		)	(2.8		)
Property and Equipment	(34.1		)	—
Differences in financial reporting and tax basis for:
Identifiable intangible assets	(220.2		)	(61.1		)
Total deferred tax liabilities	(259.4		)	(63.9		)
Net deferred tax liabilities on balance sheet	(80.3		)	(50.3		)
Reported As:
Current deferred tax assets	35.1			6.8
Non-current deferred tax assets	22.6			6.3
Current deferred tax liabilities	—			(1.1		)
Non-current deferred tax liabilities	(138.0		)	(62.3		)
Net deferred tax liabilities on the balance sheet	$	(80.3	)	$	(50.3	)

In accordance with ASC 740, Income Taxes, the current and non-current components of our deferred tax balances are generally based on the balance sheet classification of the asset or liability creating the temporary difference. If the deferred tax asset or liability is not related to a component of our balance sheet, such as our net operating loss carry forwards, the classification is presented based on the expected reversal date of the temporary difference. Our valuation allowance has been classified as current or non-current based on the percentage of current and non-current deferred tax assets to total deferred tax assets.

At December 31, 2013, we had net operating loss ("NOL") carry forwards (tax-effected) for federal, state and foreign income tax purposes of $144.1 million, $36.3 million and $56.2 million, respectively. If not utilized, the federal and state tax loss carry forwards will expire through 2033. Certain of our federal NOL carry forwards are limited due to prior-year changes in ownership. The foreign NOL carry forwards can be carried forward for periods that vary from ten years to indefinitely.

We have foreign tax credit carry forwards of $18.2 million which if unutilized will expire through 2023, R&D tax credit carry forwards of $13.1 million which if unutilized will expire through 2033, alternative minimum tax credit carry forwards of $2.1 million which can be carried forward indefinitely and state tax credits of $2.2 million which if unutilized will expire through 2023.

At December 31, 2013 and 2012, we established a valuation allowance of $178.7 million and $241.2 million against the U.S. and foreign deferred tax assets that, in the judgment of management, are more likely than not to expire before they can be utilized. In assessing the recoverability of our deferred tax assets, we analyzed all evidence, both positive and negative. We considered, among other things, our deferred tax liabilities, our historical earnings and losses, projections of future income, and tax-planning strategies available to us in the relevant jurisdiction.

At December 31, 2013 and 2012, we established valuation allowances of $74.7 million and $144.3 million, respectively, against the benefit of U.S. federal deferred tax assets and valuation allowances of $33.8 million and $33.1 million, respectively, against the benefit of state deferred tax assets.

At December 31, 2013 and 2012, we established valuation allowances of $18.2 million and $18.2 million, respectively, against the benefit of the deferred tax assets related to the U.S. foreign tax credit carry forwards.

At December 31, 2013 and 2012, we established valuation allowances of $51.9 million and $45.6 million, respectively, against the benefit of the deferred tax assets related to foreign NOL carry forwards to measure them at their expected realizable value.

The net decrease in the Company's total U.S. and foreign valuation allowances for 2013 was $62.5 million and the net increase for 2012 was $4.9 million, respectively.

Deferred taxes have not been provided on the excess of book basis over tax basis in the shares of certain foreign subsidiaries because these basis differences are not expected to reverse in the foreseeable future and are essentially permanent in duration. Our intention is to continue to reinvest the earnings of our foreign subsidiaries indefinitely. The estimated cumulative amount of earnings from foreign subsidiaries that are treated as permanently invested outside of the U.S. was $260.7 million as of December 31, 2013. We do not believe it is practicable to estimate with reasonable accuracy the hypothetical amount of the unrecognized deferred tax liability on our undistributed foreign earnings given the large number of tax jurisdictions involved and the many factors and assumptions required to estimate the amount of the U.S. federal income tax on the undistributed earnings.

Unrecognized Tax Benefits

The Company applies a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company recognizes the impact of a tax position in the financial statements when the position is more likely than not of being sustained on audit based on the technical merits of the position.

The total amount of unrecognized tax benefits as of December 31, 2013 was $8.1 million. Of this amount, $1.9 million, if recognized, would be included in our statement of operations and have an impact on our effective tax rate. The Company does not anticipate a material reduction of its liability for unrecognized tax benefits before December 31, 2014.

We recognize interest accrued for unrecognized tax benefits in interest expense and recognize penalties in income tax expense. The amount recognized for interest and penalties during the years ended December 31, 2013, 2012 and 2011 was not material. We had $0.4 million and $0.4 million for the payment of interest and penalties accrued at December 31, 2013 and 2012, respectively.

We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2010.

The Company had the following activity for unrecognized tax benefits:



	Year Ended December 31,
	2013			2012			2011
Balance at beginning of period	$	1.8		$	1.9		$	1.7
Tax positions related to current year additions	—			—			0.2
Additions for tax positions of prior years	7.2			0.1			0.2
Tax positions related to prior years reductions	(0.8		)	—			—
Reductions due to lapse of statute of limitations on tax positions	(0.1		)	—			—
Settlements	—			(0.2		)	(0.2		)
Balance at end of period	$	8.1		$	1.8		$	1.9