Income Taxes

Prior to the fourth quarter of 2012, we had not recognized a deferred income tax liability related to the incremental U.S. taxes on approximately $2.5 billion of undistributed foreign earnings, as these earnings were deemed indefinitely reinvested. During the fourth quarter of 2012, as a result of the uncertainty of our financing arrangements and our domestic liquidity profile, we determined that the Company may repatriate offshore cash to meet certain domestic funding needs. Accordingly, we are no longer asserting that these undistributed earnings of foreign subsidiaries are indefinitely reinvested and, therefore, recorded an additional provision for income taxes of $168.3 on such earnings. At December 31, 2012, we have a deferred income tax liability of $224.8 for the U.S. income taxes on the undistributed earnings of subsidiaries outside of the U.S. We have not recorded a U.S. income tax benefit on $158.7 of undistributed earnings of our subsidiary in Venezuela where local regulations restrict cash distributions.

Deferred tax assets (liabilities) resulting from temporary differences in the recognition of income and expense for tax and financial reporting purposes at December 31 consisted of the following:



	2012			2011
Deferred tax assets:
Accrued expenses and reserves	$	273.9		$	261.5
Pension and postretirement benefits	195.6			166.0
Asset revaluations	39.4			39.5
Capitalized expenses	131.8			105.8
Intangible assets	142.3			74.7
Share-based compensation	62.2			54.9
Restructuring initiatives	26.4			18.0
Postemployment benefits	14.0			18.4
Tax loss carryforwards	648.3			576.8
Foreign tax credit carryforwards	356.0			282.1
Minimum tax and business credit carryforwards	47.5			47.0
All other	65.5			66.0
Valuation allowance	(627.4		)	(546.1		)
Total deferred tax assets	1,375.5			1,164.6
Deferred tax liabilities:
Depreciation and amortization	(44.3		)	(48.6		)
Unremitted foreign earnings	(224.8		)	(46.8		)
Prepaid expenses	(10.0		)	(7.9		)
Capitalized interest	(10.2		)	(10.1		)
All other	(18.8		)	(16.5		)
Total deferred tax liabilities	(308.1		)	(129.9		)
Net deferred tax assets	$	1,067.4		$	1,034.7

Deferred tax assets (liabilities) at December 31 were classified as follows:



	2012			2011
Deferred tax assets:
Prepaid expenses and other	$	273.5		$	319.0
Other assets	827.2			759.5
Total deferred tax assets	1,100.7			1,078.5
Deferred tax liabilities:
Income taxes	(6.1		)	(19.3		)
Long-term income taxes	(27.2		)	(24.5		)
Total deferred tax liabilities	(33.3		)	(43.8		)
Net deferred tax assets	$	1,067.4		$	1,034.7

The valuation allowance primarily represents amounts for foreign tax loss carryforwards. The basis used for recognition of deferred tax assets included the profitability of the operations, related deferred tax liabilities and the likelihood of utilizing tax credit carryforwards during the carryover periods. The net increase in the valuation allowance of $81.3 during 2012 was mainly due to several of our foreign entities continuing to incur losses during 2012, thereby increasing the tax loss carryforwards for which a valuation allowance was provided.

Income from continuing operations, before taxes for the years ended December 31 was as follows:



	2012			2011			2010
United States	$	(436.5	)	$	(395.1	)	$	(228.7	)
Foreign	655.1			1,137.7			1,174.1
Total	$	218.6		$	742.6		$	945.4

The provision for income taxes for the years ended December 31 was as follows:



	2012			2011			2010
Federal:
Current	$	38.8		$	41.7		$	40.1
Deferred	(183.9		)	(176.6		)	(117.2		)
	(145.1		)	(134.9		)	(77.1		)
Foreign:
Current	266.0			372.6			409.6
Deferred	144.5			(12.9		)	22.4
	410.5			359.7			432.0
State and other:
Current	1.2			(1.5		)	3.6
Deferred	(9.8		)	(7.1		)	(8.3		)
	(8.6		)	(8.6		)	(4.7		)
Total	$	256.8		$	216.2		$	350.2

The foreign provision for income taxes includes the U.S. tax cost on foreign earnings of $156.8, $24.7 and $24.3 for the years ended December 31, 2012, 2011 and 2010, respectively.

The effective tax rate for the years ended December 31 was as follows:



	2012		2011		2010
Statutory federal rate	35.0	%	35.0	%	35.0	%
State and local taxes, net of federal tax benefit	(2.5	)	(.4	)	(.4	)
Taxes on foreign income, including translation	(3.9	)	(4.4	)	(2.4	)
Audit settlements, statute expirations and amended returns	(4.2	)	(4.3	)	(2.5	)
Additional tax on unremitted prior year foreign earnings	77.0		—		—
Reserves for uncertain tax positions	5.8		1.6		.8
China goodwill impairment	7.0		—		—
Net change in valuation allowances	2.9		.1		(.2	)
Venezuela devaluation and highly inflationary accounting	—		—		6.0
Other	.4		1.5		.7
Effective tax rate	117.5	%	29.1	%	37.0	%

At December 31, 2012, we had tax loss carryforwards of $2,183.7. The loss carryforwards expiring between 2013 and 2032 are $168.3 and the loss carryforwards which do not expire are $2,015.4. We also had minimum tax credit carryforwards of $35.9 which do not expire, business credit carryforwards of $11.6 that will expire between 2020 and 2031, and foreign tax credit carryforwards of $356.0 that will expire between 2018 and 2022.

Uncertain Tax Positions

At December 31, 2012, we had $36.0 of total gross unrecognized tax benefits of which approximately $9.0 would impact the effective tax rate, if recognized.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:




Balance at December 31, 2009	$	113.4
Additions based on tax positions related to the current year	7.5
Additions for tax positions of prior years	6.4
Reductions for tax positions of prior years	(14.4		)
Reductions due to lapse of statute of limitations	(5.3		)
Reductions due to settlements with tax authorities	(23.3		)
Balance at December 31, 2010	84.3
Additions based on tax positions related to the current year	1.2
Additions for tax positions of prior years	9.3
Reductions for tax positions of prior years	(20.0		)
Reductions due to lapse of statute of limitations	(6.7		)
Reductions due to settlements with tax authorities	(32.1		)
Balance at December 31, 2011	36.0
Additions based on tax positions related to the current year	7.4
Additions for tax positions of prior years	9.3
Reductions for tax positions of prior years	(3.7		)
Reductions due to lapse of statute of limitations	(6.4		)
Reductions due to settlements with tax authorities	(6.6		)
Balance at December 31, 2012	$	36.0

We recognize interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes. We had $6.2 at December 31, 2012, and $12.9 at December 31, 2011, accrued for interest and penalties, net of tax benefit. We recorded benefits of $1.1, $3.8, and $4.5 for interest and penalties, net of taxes during 2012, 2011 and 2010, respectively.

We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. As of December 31, 2012, the tax years that remained subject to examination by major tax jurisdiction for our most significant subsidiaries were as follows:



Jurisdiction		Open Years
Brazil		2007-2012
China		2007-2012
Mexico		2007-2012
Poland		2007-2012
Russia		2011-2012
United States		2012

We anticipate that it is reasonably possible that the total amount of unrecognized tax benefits could decrease in the range of $15 to $25 within the next 12 months due to the closure of tax years by expiration of the statute of limitations and audit settlements.