Income Taxes

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



	Year Ended
	Dec 31, 2014			Dec 31, 2013		Dec 31, 2012
United States	$	(5.1	)	$	2.0	$	38.4
Foreign	(631.0		)	25.0		48.5
Total	$	(636.1	)	$	27.0	$	86.9

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



	Year Ended
	Dec 31, 2014			Dec 31, 2013			Dec 31, 2012
Current tax expense (benefit):
Federal	$	(7.4	)	$	(11.5	)	$	12.0
State	0.5			(0.2		)	3.4
Foreign	29.6			51.9			52.6
Deferred tax expense (benefit):
Federal	15.1			9.0			5.7
State	0.7			(0.6		)	(0.6		)
Foreign	(30.2		)	(9.8		)	5.5
Total	$	8.3		$	38.8		$	78.6

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, 2014			Dec 31, 2013			Dec 31, 2012
Income tax expense (benefit) at Federal statutory tax rate	$	(222.6	)	$	9.4		$	30.4
Foreign tax rate differential	29.0			(5.1		)	(0.2		)
Foreign withholding tax and surcharges	5.8			7.3			4.7
Change in valuation allowance	98.1			24.8			31.2
Change in uncertain tax positions	(10.0		)	9.2			11.7
Nondeductible / nontaxable items⁽¹⁾	100.3			(6.8		)	(0.3		)
Other (net)	7.7			—			1.1
Total	$	8.3		$	38.8		$	78.6

^{(1) For the year ended December 31, 2014, the major components consist of}^{$40.5 million}^{for goodwill impairments,}^{$8.4 million}^{for the FCPA accrual and}^{$78.1 million}^{for Venezuela devaluation and functional currency adjustments, partially offset by}^{$32.9 million}^{for Venezuela inflation adjustments.}

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



	Dec 31, 2014			Dec 31, 2013
Deferred tax assets:
Net operating loss carryforwards	$	117.9		$	98.3
Pension and retiree benefits accruals	44.7			33.0
Inventory	9.3			12.8
Depreciation and fixed assets	13.6			12.0
Tax credit carryforwards	9.8			9.3
Other liabilities	72.3			67.7
Valuation allowance	(145.4		)	(93.8		)
Total deferred tax assets	122.2			139.3
Deferred tax liabilities:
Convertible debt discount	186.2			165.7
Inventory	1.8			1.2
Depreciation and fixed assets	43.2			87.4
Intangibles	13.5			42.8
Other	12.2			11.0
Total deferred tax liabilities	256.9			308.1
Net deferred tax assets (liabilities)	$	(134.7	)	$	(168.8	)

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.

As of December 31, 2014, the Company has recorded approximately $145.4 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 $15 million for tax loss carryforwards in various taxing jurisdictions as follows (in millions):



	Tax Loss
Jurisdiction	Carryforward		Expiration
United States	$	20.1	2033-2034
New Zealand	8.1		Indefinite
France	13.0		Indefinite
Others	5.5		Various
Total	$	46.7

The Company also has various foreign subsidiaries with approximately $367 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.

During 2014, after weighing all positive and negative evidence, including three year cumulative loss positions, forecasted future profitability, impairments and restructuring charges, difficult market and industry conditions, and factoring in prudent and feasible tax planning strategies, valuation allowances were recorded against deferred tax assets of certain business units that did not have deferred tax valuation allowances prior to 2014. Specifically, valuation allowances have been recorded against the December 31, 2014 deferred tax assets of the following business units: Venezuela ($10.7 million), Brazil ($8.4 million), Spain ($10.9 million) and Colombia ($2.3 million). In addition, several other business units maintained full deferred tax asset valuation allowances that had been established in prior years, some for which the valuation allowance amounts increased significantly due to impairments, restructuring charges and operating losses.

In general, it is the practice and intention of the Company to permanently reinvest the earnings of its non-U.S. subsidiaries in those operations. As such, historically, the Company has not provided for deferred income taxes on the excess of financial reporting over tax basis in investments in foreign subsidiaries. These basis differences would become taxable upon the repatriation of assets from the foreign subsidiaries or upon a sale or liquidation of the foreign subsidiaries.

On October 23, 2014, the Company’s Board of Directors authorized a plan to exit all of the Company’s Asia Pacific and African operations. As a result of this plan, the Company can no longer assert that the financial reporting over tax basis in investments in these foreign subsidiaries will never reverse. As such, during 2014, the Company recorded $10.1 million of income tax expense associated with changes in the intent to permanently reinvest earnings. The $10.1 million income tax expense includes $8.0 million of tax expense related to the December 22, 2014 sale of PDP and PDEP.

As of December 31, 2014, $2.8 million of deferred income tax liabilities were recorded for the excess of financial reporting over tax basis in investments in foreign subsidiaries and equity investees in Asia Pacific and Africa. With respect to certain Asia Pacific and Africa subsidiaries and equity investees with an excess of tax over financial reporting basis, the Company has not recorded deferred tax assets since it is not apparent that these basis differences will reverse in the foreseeable future or yield a future tax benefit. The $2.8 million of deferred income tax liabilities recorded as of December 31, 2014 relate solely to U.S. and foreign income taxes and foreign withholding taxes that would result from the future sales transactions. Deferred tax liabilities have not been recorded for the tax implications of repatriating cash to the U.S. from the sales proceeds of lower tier Asia Pacific and African subsidiaries that are landed offshore, as it is the Company’s intention to redeploy these cash proceeds in its non-U.S. operations indefinitely rather than repatriating the cash proceeds to the U.S. Assuming sales proceeds equal to net book value, the additional U.S. income tax and foreign withholding tax that would be incurred upon cash repatriation of the sales proceeds from the divestiture of the Asia Pacific and African entities that are not owned directly by the U.S. is estimated at $75 million.

The temporary difference associated with the excess of financial reporting over tax basis in investments in all foreign subsidiaries outside of the Asia Pacific and African regions is approximately $370 million as of December 31, 2014. This amount was estimated based on book retained earnings as reduced for retained earnings amounts that have been previously taxed in the U.S. The Company remains committed to permanently reinvesting these earnings and does not see a need in the foreseeable future to repatriate cash to fund operations, including investing and financing activities. Accordingly, no deferred income taxes have been recorded on the outside basis difference of foreign subsidiaries outside of the Asia Pacific and Africa regions. The determination of the additional income taxes that would be incurred upon repatriation of assets or disposition of such foreign subsidiaries is not practical due to the complexities, variables, and assumptions inherent in the hypothetical calculation.

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, 2014			Dec 31, 2013			Dec 31, 2012
Unrecognized Tax Benefit — Beginning balance	$	57.7		$	64.2		$	58.8
Gross Increases — Tax Positions in Prior Period	1.6			0.8			3.4
Gross Decreases — Tax Positions in Prior Period	(0.7		)	(0.9		)	(4.2		)
Gross Increases — Tax Positions in Current Period	7.3			8.9			15.1
Dispositions	(0.9		)	—			—
Settlements	(0.4		)	(4.5		)	—
Lapse of Statute of Limitations	(12.9		)	(3.6		)	(9.6		)
Foreign Currency Translation	(19.8		)	(7.2		)	0.7
Unrecognized Tax Benefit — Ending Balance	$	31.9		$	57.7		$	64.2

Included in the balance of unrecognized tax benefits at December 31, 2014, 2013 and 2012 are $30.0 million, $55.4 million and $61.7 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, 2014, 2013 and 2012 are $1.9 million, $2.3 million and $2.5 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 $(1.1) million and interest of $(0.2) million during 2014 and in total, as of December 31, 2014, has recognized a liability for penalties of $3.5 million and interest of $7.3 million. During 2013 and 2012, the Company accrued penalties of $0.7 million and $1.2 million, respectively, and interest of $3.8 million and $2.4 million, respectively, and in total, as of December 31, 2013 and 2012, had recognized liabilities for penalties of $7.6 million and $7.8 million, respectively and interest of $15.4 million and $13.8 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 $6 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 ("IRS") are 2011 — 2014. The IRS currently is in the process of examining the Company's 2012 consolidated tax return. The IRS completed its examination of the Company's 2007 - 2010 consolidated income tax returns in the second quarter of 2013 with insignificant tax adjustments. With limited exceptions, tax years prior to 2010 are no longer open in major foreign, state, or local tax jurisdictions.