Income Taxes

For financial reporting purposes, income before income taxes includes the following components (in millions):



	Year Ended
	Dec 31, 2012		Dec 31, 2011		Dec 31, 2010
United States	$	38.4	$	51.2	$	32.1
Foreign	48.5		40.2		76.0
Total	$	86.9	$	91.4	$	108.1

The provision (benefit) for income taxes consisted of the following (in millions):



	Year Ended
	Dec 31, 2012			Dec 31, 2011			Dec 31, 2010
Current tax expense:
Federal	$	12.0		$	(8.6	)	$	(32.7	)
State	3.4			(0.4		)	(2.1		)
Foreign	52.6			40.2			60.0
Deferred tax expense (benefit):
Federal	5.7			19.3			24.1
State	(0.6		)	1.7			0.3
Foreign	5.5			(13.6		)	(3.7		)
Total	$	78.6		$	38.6		$	45.9

The reconciliation of reported income tax expense (benefit) to the amount of income tax expense that would result from applying domestic federal statutory tax rates to pretax income is as follows (in millions):



	Year Ended
	Dec 31, 2012			Dec 31, 2011			Dec 31, 2010
Income tax expense (benefit) at Federal statutory tax rate	$	30.4		$	32.0		$	37.8
Foreign tax rate differential	(0.2		)	0.1			(3.9		)
Foreign withholding tax and surcharges	4.7			3.4			4.9
Change in valuation allowance	31.2			5.3			9.5
Change in uncertain tax positions	11.7			(4.8		)	(11.4		)
Nondeductible / nontaxable items	(0.3		)	1.9			6.4
Other (net)	1.1			0.7			2.6
Total	$	78.6		$	38.6		$	45.9

The components of deferred tax assets and liabilities were as follows (in millions):



	Dec 31, 2012			Dec 31, 2011
Deferred tax assets:
Net operating loss carryforwards	$	78.6		$	54.2
Pension and retiree benefits accruals	46.4			34.2
Inventory	20.0			15.9
Depreciation and fixed assets	7.7			6.7
Tax credit carryforwards	6.5			6.9
Other liabilities	49.8			53.9
Valuation allowance	(77.8		)	(40.0		)
Total deferred tax assets	131.2			131.8
Deferred tax liabilities:
Convertible debt discount	147.7			131.2
Inventory	1.5			2.2
Depreciation and fixed assets	89.1			82.9
Intangibles	58.8			44.0
Other	6.3			18.6
Total deferred tax liabilities	303.4			278.9
Net deferred tax assets (liabilities)	$	(172.2	)	$	(147.1	)

The valuation of deferred tax assets is dependent on, among other things, the ability of the Company to generate a sufficient level of future taxable income in relevant taxing jurisdictions. In estimating future taxable income, the Company has considered both positive and negative evidence and has considered the implementation of prudent and feasible tax planning strategies. The Company has and will continue to review on a quarterly basis its assumptions and tax planning strategies and, if the amount of the estimated realizable net deferred tax asset is less than the amount currently on the balance sheet, the Company will reduce its deferred tax asset, recognizing a non-cash charge against reported earnings.

In the third quarter of 2012, the Company updated its 2012 forecasts and substantially completed its 2013 global business planning process, which indicated continuing weakness in its Iberian market and business. After weighing all positive and negative evidence, including the three year cumulative loss position, and factoring in prudent and feasible tax planning strategies, management judged that it was not more likely than not that a future tax benefit for the deferred tax assets of its Spanish and Portuguese business units would be realized. Tax expense of $15 million was recorded in 2012 to establish a full valuation allowance against Spanish and Portuguese deferred tax assets, of which $5.3 million related to the beginning of the year net deferred tax asset position.

In the fourth quarter of 2012, a valuation allowance was also recorded against deferred tax assets in the Company's German business unit. The German business unit incurred an equipment failure in the fourth quarter that adversely impacted its ability to meet its contractual obligations for its large project work and reduced profit expectations. In addition, the German business is encountering certain other project delay/cancellation and warranty issues. After weighing all positive and negative evidence, including the three year cumulative loss position, and factoring in prudent and feasible tax planning strategies, management judged that it was not more likely than not that a future tax benefit for the deferred tax assets of its German business would be realized. Tax expense of $8.3 million was recorded in 2012 to establish a full valuation allowance against German deferred tax assets, none of which related to a beginning of the year net deferred tax asset position.

A full valuation allowance was also recorded in the fourth quarter of 2012 for the Company's Colombian distribution business since it was rendered redundant by the fourth quarter acquisition of Procables. The Colombian distribution business will be wound down and is expected to generate losses until the business is terminated. Tax expense of $1.1 million was recorded in 2012 to establish a full valuation allowance against the Colombian deferred tax assets, of which $0.2 million related to the beginning of the year net deferred tax asset position.

The Company continuously monitors the deferred tax position of all business units to determine whether a valuation allowance should be recorded. Full valuation allowances are currently recorded against deferred tax assets in ten significant business units. The Company is closely monitoring the deferred tax asset situation in New Zealand. The New Zealand business unit has been operating at marginal profitability in recent years due to depressed economic conditions and increased competition in the local market. After weighing all positive and negative evidence and factoring in prudent and feasible tax planning strategies, management has judged that it is more likely than not that a future tax benefit for the New Zealand business's $5.8 million of net deferred tax assets will be realized. Future deterioration in the New Zealand unit's profitability could result in the need to record a valuation allowance against its deferred tax assets in a subsequent period.

As of December 31, 2012, the Company has recorded approximately $77.8 million of valuation allowance to adjust deferred tax assets to the amount judged more likely than not to be realized. The valuation allowance is primarily attributable to certain foreign temporary differences and tax loss and tax credit carryforwards due to uncertainties regarding the ability to obtain future tax benefits for these tax attributes.

The Company has recognized deferred tax assets of approximately $8.3 million for tax loss carryforwards in various taxing jurisdictions as follows (in millions):



	Tax Loss
Jurisdiction	Carryforward		Expiration
New Zealand	$	11.2	Indefinite
Spain	6.9		2026 - 2027
Colombia	5.6		Indefinite
Others	4.1		Various
Total	$	27.8

The Company also has various foreign subsidiaries with approximately $237 million of tax loss carryforwards in various jurisdictions that are subject to a valuation allowance due to statutory limitations on utilization, uncertainty of future profitability, and other relevant factors.

The Company does not provide for deferred taxes on the excess of the financial reporting over the tax basis in investments in foreign subsidiaries that are essentially permanent in duration. That excess was approximately $785 million as of December 31, 2012. The determination of the additional tax expense that would be incurred upon repatriation of assets or disposition of foreign subsidiaries is not practical.

The Company applies ASC 740 - Income Taxes in determining unrecognized tax benefits. ASC 740 - Income Taxes prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the year:



(in millions)	Dec 31, 2012			Dec 31, 2011			Dec 31, 2010
Unrecognized Tax Benefit — Beginning balance	$	58.8		$	66.1		$	79.4
Gross Increases — Tax Positions in Prior Period	3.4			2.1			4.7
Gross Decreases — Tax Positions in Prior Period	(4.2		)	(4.9		)	(10.3		)
Gross Increases — Tax Positions in Current Period	15.1			8.0			14.2
Gross Increases — Business Combinations	—			—			—
Settlements	—			(0.3		)	—
Lapse of Statute of Limitations	(9.6		)	(11.4		)	(22.9		)
Foreign Currency Translation	0.7			(0.8		)	1.0
Unrecognized Tax Benefit — Ending Balance	$	64.2		$	58.8		$	66.1

Included in the balance of unrecognized tax benefits at December 31, 2012, 2011 and 2010 are $61.7 million, $54.3 million and $58.3 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate. Also included in the balance of unrecognized tax benefits at December 31, 2012, 2011 and 2010 are $2.5 million, $4.5 million and $7.8 million of tax benefits that, if recognized, would result in adjustments to deferred taxes.

The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense. Related to the unrecognized tax benefits noted above, the Company accrued penalties of $1.2 million and interest of $2.4 million during 2012 and in total, as of December 31, 2012, has recognized a liability for penalties of $7.8 million and interest of $13.8 million. During 2011 and 2010, the Company accrued penalties of $(1.1) million and $0.6 million, respectively, and interest of $0.7 million and $(3.7) million, respectively, and in total, as of December 31, 2011 and 2010, had recognized liabilities for penalties of $6.5 million and $7.8 million, respectively and interest of $11.4 million and $10.9 million, respectively.

The Company files income tax returns in numerous tax jurisdictions around the world. Due to uncertainties regarding the timing and outcome of various tax audits, appeals and settlements, it is difficult to reliably estimate the amount of unrecognized tax benefits that could change within the next twelve months. The Company believes it is reasonably possible that approximately $5 million of unrecognized tax benefits could change within the next twelve months due to the resolution of tax audits and statute of limitations expirations.

The Company files income tax returns in the United States and numerous foreign, state, and local tax jurisdictions. Tax years that are open for examination and assessment by the Internal Revenue Service are 2007 — 2012. With limited exceptions, tax years prior to 2008 are no longer open in major foreign, state or local tax jurisdictions.