NOTE 12—INCOME TAXES

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state and local jurisdictions, and various non-U.S. jurisdictions.

The provision for income taxes consists of the following (Dollars in millions):


For the years ended October 31,	2014			2013			2012
Current
Federal	$	53.1		$	54.3		$	19.9
State and local		9.8			8.8			5.4
Non-U.S.		38.0			33.1			13.8

		100.9			96.2			39.1
Deferred
Federal		2.7			(6.3	)		10.3
State and local		(1.6	)		(0.3	)		2.7
Non-U.S.		13.0			9.2			9.0

		14.1			2.6			22.0

	$	115.0		$	98.8		$	61.1

The non-U.S. income (loss) before income tax expense was ($17.0) million, $80.3 million and $72.8 million in 2014, 2013, and 2012, respectively. The 2014 non-U.S. pretax loss is primarily the result of the impairment of non-deductible goodwill. The 2014 non-U.S. tax expense is a result of profitable ongoing operations and increases in valuation allowance.

The following is a reconciliation of the provision for income taxes based on the federal statutory rate to the Company’s effective income tax rate:


For the years ended October 31,	2014			2013			2012
United States federal tax rate		35.00	%		35.00	%		35.00	%
Non-U.S. tax rates		2.90	%		2.20	%		0.30	%
State and local taxes, net of federal tax benefit		4.20	%		2.50	%		2.30	%
U.S. Domestic Production Activity Deduction		(3.10	%)		(2.00	%)		(0.70	%)
Unrecognized tax benefits		7.20	%		0.40	%		(5.30	%)
Change in judgment regarding valuation allowance		12.70	%		0.50	%		1.50	%
Withholding tax		2.90	%		2.90	%		2.70	%
Foreign partnerships		(5.30	%)		(3.60	%)		(4.30	%)
Foreign Income Inclusion		—			1.70	%		1.60	%
Nondeductible Goodwill		15.60	%		—			—
Other items		0.70	%		1.00	%		0.20	%

		72.80	%		40.60	%		33.30	%

Withholding tax is assessed and accrued for interest, royalties, and dividends on a quarterly basis for transactions primarily between non-U.S. entities.

During 2014, the Company disposed of certain operations, including the divestiture of a nonstrategic business in the Rigid Industrial Packaging & Services segment in third quarter and the multiwall packaging business in the fourth quarter, which resulted in gains and losses recognized, including an amount related to goodwill of $13.6 million and $21.8 million, respectively, which did not have a tax basis. Moreover, the Flexible Products & Services reporting unit recognized the impairment of goodwill of $50.3 million that did not have any tax basis. For 2014, the combination of these items contributed 15.6 percent to our effective tax rate.

The components of the Company’s deferred tax assets and liabilities as of October 31 for the years indicated were as follows (Dollars in millions):


	2014			2013
Deferred Tax Assets
Net operating loss and other carryforwards	$	108.5		$	100.8
Pension liabilities		48.2			23.7
Insurance operations		4.1			6.4
Incentive liabilities		12.9			14.1
Environmental reserves		5.4			7.3
Inventories		5.7			6.1
State income taxes		9.2			9.6
Postretirement benefit obligations		4.1			5.6
Other		7.6			10.8
Interest accrued		2.3			5.6
Allowance for doubtful accounts		4.6			3.0
Restructuring reserves		1.4			0.5
Deferred compensation		2.7			2.4
Foreign tax credits		2.3			2.5
Vacation accruals		1.8			1.5
Workers compensation accruals		4.6			3.9

Total Deferred Tax Assets		225.4			203.8
Valuation allowance		(108.5	)		(79.0	)

Net Deferred Tax Assets		116.9			124.8

Deferred Tax Liabilities
Properties, plants and equipment		109.0			115.8
Goodwill and other intangible assets		79.9			98.6
Foreign Income Inclusion		1.1			0.8
Foreign exchange gains		7.4			7.7
Timberland transactions		106.4			102.1

Total Deferred Tax Liabilities		303.8			325.0

Net Deferred Tax Liability	$	(186.9	)	$	(200.2	)

As of October 31, 2014, the Company had tax benefits from non-U.S. net operating loss and other carryforwards of approximately $107.5 million and approximately $1.0 million of U.S. federal and state net operating loss carryfowards. The Company has recorded valuation allowances of $106.2 million and $76.4 million as of October 31, 2014 and 2013, respectively, against the tax benefits from non-U.S. net deferred tax assets. The Company has also recorded valuation allowances of $2.3 million and $2.6 million as of October 31, 2014 and 2013, respectively, against tax benefits from U.S. net deferred tax assets. The Company’s $29.5 million increase in valuation allowances during 2014 consists of the following: $20.0 million of net increases in new valuation allowances resulting in a 12.7% rate impact disclosed separately in the rate reconciliation above; and $9.5 million of incremental net increases against current year net operating losses and other net deferred tax assets resulting in a 6.0% rate impact included within the non-U.S. tax rates line of the rate reconciliation above.

As of October 31, 2014, the Company had undistributed earnings of $566.6 million from certain non-U.S. subsidiaries that are permanently reinvested in non-U.S. operations. Because these earnings are considered permanently reinvested, no U.S. tax provision has been accrued related to the repatriation of these earnings. It is not practicable to determine the additional tax, if any, which would result from the remittance of these amounts.

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


	2014			2013			2012
Balance at November 1	$	30.5		$	55.9		$	86.0
Increases in tax positions for prior years		5.7			4.5			9.9
Decreases in tax positions for prior years		(8.2	)		(11.0	)		(11.0	)
Increases in tax positions for current years		10.3			8.8			10.4
Settlements with taxing authorities		(0.6	)		(30.3	)		(32.5	)
Lapse in statute of limitations		(0.8	)		—			(0.3	)
Currency translation		(2.6	)		2.6			(6.6	)

Balance at October 31	$	34.3		$	30.5		$	55.9

The 2014 net increase is primarily related to a net increase in uncertain tax positions in foreign jurisdictions. In addition, the change in balance includes the impact of a deferred item that does not impact the tax expense.

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and various foreign jurisdictions. With a few exceptions, the Company is subject to audit by various taxing authorities for 2009 through the current fiscal year. The Company has completed its U.S. federal tax audit for the tax years through 2010.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense net of tax, as applicable. As of October 31, 2014 and October 31, 2013, the Company had $4.6 million and $1.4 million, respectively, accrued for the payment of interest and penalties.

The October 31, 2014, 2013, 2012 balances include $28.0 million, $ 23.0 million and $49.4 million, respectively, of unrecognized tax benefits that, if recognized, would have an impact on the effective tax rate. The remaining unrecognized tax benefits relate to tax positions for which ultimate deductibility is highly certain, but for which there is uncertainty as to the timing of such deductibility. Recognition of these tax benefits would not affect our effective tax rate.

The Company has estimated the reasonably possible expected net change in unrecognized tax benefits through October 31, 2014 under ASC 740. The Company’s estimate is based on lapses of the applicable statutes of limitations, settlements and payments of uncertain tax positions. The estimated net decrease in unrecognized tax benefits for the next 12 months ranges from $0 to $5.5 million. Actual results may differ materially from this estimate.

The Company paid income taxes of $78.7 million, $74.0 million and $56.9 million in 2014, 2013, and 2012, respectively.