INCOME TAXES

Income before income taxes for U.S. and non-U.S. operations was as follows:



	2013			2012			2011
	(in millions)
U.S. income (loss)	$	(23.8	)	$	(6.0	)	$	20.3
Non - U.S. income	110.1			37.5			117.8
Total income before income taxes	$	86.3		$	31.5		$	138.1

The following is a summary of the components of our provisions for income taxes:



	2013			2012			2011
	(in millions)
Current
Federal	$	(1.3	)	$	(3.3	)	$	(24.7	)
Other state and local	0.1			1.1			(0.2		)
Foreign	12.1			10.2			9.9
Total current	$	10.9		$	8.0		$	(15.0	)

Deferred
Federal	$	(9.3	)	$	(347.1	)	$	22.3
Other state and local	—			—			(1.4		)
Foreign	(9.8		)	3.9			(4.9		)
Total deferred	(19.1		)	(343.2		)	16.0
Total income tax expense (benefit)	$	(8.2	)	$	(335.2	)	$	1.0

The following is a reconciliation of our provision for income taxes to the expected amounts using statutory rates:



	2013		2012		2011
Federal statutory	35.0	%	35.0	%	35.0	%
Foreign income taxes	(48.5	)	(85.0	)	(34.6	)
Change in enacted tax rate	(9.9	)	—		—
State and local	0.2		3.5		(1.2	)
Valuation allowance	12.4		(985.0	)	(30.7	)
U.S. tax on unremitted foreign earnings	(0.2	)	(29.5	)	26.3
Other	1.5		(3.2	)	5.9
Effective income tax rate	(9.5	)%	(1,064.2	)%	0.7	%

Our income tax expense and effective tax rate for 2013 primarily reflect favorable foreign tax rates, along with our inability to realize a tax benefit for current foreign losses. In the fourth quarter of 2013, new Mexican tax reform was enacted that, among other things, increased the tax rate related to Maquiladora Companies from 17.5% to 30%. We recorded a tax benefit of $8.5 million as a result of revaluing our deferred tax assets at the newly enacted rate.

In 2013, we recorded tax expense of $4.8 million relating to changes in estimates in the U.S. and certain foreign jurisdictions. Our income tax benefit and effective tax rate for 2013 also reflects the impact of recording a tax benefit of $1.5 million relating to the release of a prior year unrecognized tax benefit due to the expiration of the applicable statute of limitations and a tax benefit of $3.3 million relating to an election we made in 2013 regarding the treatment of foreign exchange gains and losses in a foreign jurisdiction. During 2013, we also settled various income tax audits resulting in a reduction of our liability for unrecognized income tax benefits of $8.4 million and a cash payment of $4.7 million.

In 2012, our business returned to a position of cumulative profitability on a pre-tax basis, considering our operating results for the three years ended December 31, 2012. We concluded that this record of cumulative profitability in recent years, in addition to the restructuring of our U.S. operations and our long range forecast showing continued profitability, provided sufficient positive evidence that our net U.S. federal tax benefits more likely than not would be realized. Accordingly, in 2012, we released the valuation allowance against our net federal deferred assets for entities in the U.S., resulting in a $337.5 million benefit in our 2012 provision for income taxes. Our income tax benefit and effective tax rate in 2012 reflect the impact of this valuation allowance reversal.

Our income tax expense and effective tax rate for 2012 also reflect a net tax expense of $1.3 million related to the amendment of state income tax returns as a result of the settlement of federal income tax audits for the tax years 2004 through 2007.

Our income tax expense and effective tax rate for 2011 reflect the effect of recognizing a net operating loss (NOL) benefit against our taxable income in the U.S. Our income tax expense for 2011 also reflects net tax benefits of $4.5 million relating to the favorable resolution of income tax audits in the U.S. and the impacts of changes in tax laws in Brazil and the State of Michigan.

As of December 31, 2013 and 2012, we have refundable income taxes of $4.9 million and $4.7 million, respectively, classified as prepaid expenses and other on our Consolidated Balance Sheet. We also have income taxes payable of $2.6 million and $0.5 million classified as other accrued expenses on our Consolidated Balance Sheet as of December 31, 2013 and 2012, respectively. As of December 31, 2013 and 2012, we have accrued value added tax payable of $38.3 million and $27.1 million, respectively, classified as other accrued expenses on our Consolidated Balance Sheet.

The following is a summary of the significant components of our deferred tax assets and liabilities:



	December 31,
	2013			2012
	(in millions)
Current deferred tax assets
Employee benefits	$	14.5		$	16.9
Inventory	8.0			12.6
Prepaid taxes and other	24.6			15.5
Valuation allowance	(10.7		)	(10.1		)
Total current deferred tax assets	$	36.4		$	34.9

Current deferred tax liabilities
Unrealized foreign exchange gain and other	(0.1		)	(1.4		)
Current deferred tax asset, net	$	36.3		$	33.5

Current deferred tax assets and liabilities recognized in our Consolidated Balance Sheets are as follows:



	December 31,
	2013		2012
	(in millions)

U.S. federal and state deferred tax asset, net	$	17.1	$	23.0
Other foreign deferred tax asset, net	19.2		10.5
Current deferred tax asset, net	$	36.3	$	33.5

The following is a summary of the significant components of our noncurrent deferred tax assets and liabilities:



	December 31,
	2013			2012
	(in millions)
Noncurrent deferred tax assets
Employee benefits	$	161.5		$	200.7
NOL carryforwards	176.9			177.4
Tax credit carryforwards	82.9			79.0
Capital allowance carryforwards	16.0			17.9
Fixed assets	10.3			9.0
Deferred revenue	15.7			20.0
Capitalized expenditures	113.6			99.3
Other	2.9			4.0
Valuation allowances	(153.0		)	(156.0		)
Noncurrent deferred tax assets	426.8			451.3
Noncurrent deferred tax liabilities
U.S. tax on unremitted foreign earnings	(85.0		)	(85.2		)
Fixed assets and other	(9.8		)	(9.5		)
Noncurrent deferred tax asset, net	$	332.0		$	356.6

Noncurrent deferred tax assets and liabilities recognized in our Consolidated Balance Sheets are as follows:



	December 31,
	2013			2012
	(in millions)
U.S. federal and state deferred tax asset, net	$	337.2		$	363.3
Other foreign deferred tax asset (liability), net	(5.2		)	(6.7		)
Noncurrent deferred tax asset, net	$	332.0		$	356.6

DEFERRED INCOME TAX ASSETS AND LIABILITIES AND VALUATION ALLOWANCES The deferred income tax assets and liabilities previously summarized reflect the impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the basis of such assets and liabilities as measured by tax laws. As of December 31, 2013 and December 31, 2012, we had deferred tax assets from domestic and foreign NOL and tax credit carryforwards of $275.8 million and $274.3 million, respectively. Approximately $74.5 million of the deferred tax assets at December 31, 2013 relate to NOL carryforwards or tax credits that can be carried forward indefinitely with the remainder having carryover periods of 5 to 20 years.

Accounting guidance for income taxes requires a deferred tax liability be established for the U.S. tax impact of undistributed earnings of foreign subsidiaries unless it can be shown that these earnings will be permanently reinvested outside the U.S. We believe a portion of these accumulated foreign earnings in certain jurisdictions are likely to be remitted to the U.S. as dividends or intercompany loans and have established a deferred tax liability of $85.0 million and $85.2 million as of December 31, 2013 and 2012, respectively, which represents the estimated tax impact of the undistributed earnings of certain foreign subsidiaries. The remittance of these undistributed earnings may subject us to U.S. income taxes and certain foreign withholding taxes at the time of remittance.

In accordance with the accounting guidance for income taxes, we estimate whether recoverability of our deferred tax assets is “more likely than not,” based on forecasts of taxable income in the related tax jurisdictions. In this estimate, we use historical results, projected future operating results based upon approved business plans, eligible carry forward periods, tax planning opportunities and other relevant considerations.

As described above, in 2012, we released the valuation allowance against our net federal deferred assets for entities in the United States, resulting in a $337.5 million benefit in our 2012 provision for income taxes. As of December 31, 2013, we have a valuation allowance of approximately $163.7 million related to net deferred tax assets in several foreign jurisdictions and U.S. state and local jurisdictions. At December 31, 2012, our valuation allowance was $166.1 million.

UNRECOGNIZED INCOME TAX BENEFITS To the extent our uncertain tax positions do not meet the “more likely than not” threshold, we have derecognized such positions. To the extent our uncertain tax positions meet the “more likely than not” threshold, we have measured and recorded the highest probable benefit, and have established appropriate reserves for benefits that exceed the amount likely to be sustained upon examination.

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



	Unrecognized Income Tax			Interest and
	Benefits			Penalties
	(in millions)
Balance at January 1, 2011	$	47.6		$	21.4
Increase in prior year tax positions	—			1.0
Decrease in prior year tax positions	(0.8		)	(2.3		)
Increase in current year tax positions	1.3			—
Settlement	(22.3		)	(12.7		)
Balance at December 31, 2011	$	25.8		$	7.4
Increase in prior year tax positions	—			2.8
Decrease in prior year tax positions	(1.1		)	—
Increase in current year tax positions	0.4			—
Settlement	(4.4		)	—
Balance at December 31, 2012	$	20.7		$	10.2
Increase in prior year tax positions	6.1			0.1
Decrease in prior year tax positions	(4.4		)	(6.2		)
Increase in current year tax positions	4.0			—
Settlement	(4.7		)	—
Balance at December 31, 2013	$	21.7		$	4.1

At December 31, 2013 and December 31, 2012, we had $21.7 million and $20.7 million of net unrecognized income tax benefits, respectively.

In 2013, 2012 and 2011, we recognized a benefit of $6.1 million, expense of $2.8 million and a benefit of $1.3 million, respectively, of interest and penalties in income tax expense on our Consolidated Statement of Income. We have a liability of $4.1 million and $10.2 million related to the estimated future payment of interest and penalties at December 31, 2013 and 2012, respectively.

We file income tax returns in the U.S. federal jurisdiction, as well as various states and foreign jurisdictions. The Internal Revenue Service (IRS) commenced an examination of our U.S. income tax returns for 2010 and 2011 in 2013. The Mexican tax authorities commenced a transfer pricing examination of our income tax return for 2008 in 2013 and continue with its transfer pricing examination of our 2007 income tax return. 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 2007.

The U.S. federal income tax examination for the years 2004 through 2007 and the Mexico domestic income tax examination for the year 2006 were completed 2011. These settlements resulted in a reduction of a portion of our liability for unrecognized income tax benefits in 2011 and a cash payment of $9.5 million in 2011 and $4.1 million, which was paid in 2012. The U.S. federal income tax examination for the years 2008 and 2009 and the Mexico transfer pricing examination for the year 2006 were settled in 2013. These settlements resulted in a reduction of a portion of our liability for unrecognized income tax benefits and a cash payment of $4.7 million in 2013. At this time, we are not aware of any examinations underway in any other foreign jurisdictions.

Based on the status of the IRS audits and audits outside the U.S., and the protocol of finalizing audits by the relevant tax authorities, it is not possible to estimate the impact of changes, if any, to previously recorded uncertain tax positions. Although it is not possible to predict the timing of the conclusion of all ongoing audits with certainty, we anticipate that the current 2007 audit with the Mexican tax authorities will be completed during 2014 and the current U.S. IRS audits will be completed during 2015. It is possible that a reduction in the unrecognized tax benefits may occur; however, quantification of an estimated range cannot be made at this time