Income Taxes

The Company’s provision (benefit) for income taxes from continuing operations consists of the following:



	Year Ended December 31,
	2012			2011			2010
Current:
United States federal	$	(0.9	)	$	79.7		$	(10.0	)
Foreign	8.0			11.0			5.2
State and local	(1.8		)	0.3			(2.8		)
Total current	5.3			91.0			(7.6		)
Deferred:
United States federal	(4.7		)	13.3			(5.3		)
Foreign	(0.8		)	(4.7		)	(6.0		)
State and local	1.3			6.9			11.4
Total deferred	(4.2		)	15.5			0.1
Total	$	1.1		$	106.5		$	(7.5	)

The Company’s combined pre-tax earnings from continuing operations relating to foreign subsidiaries or branches were $77.1, $52.0 and $63.4 during 2012, 2011 and 2010, respectively.

The following is a reconciliation of the statutory federal income tax rate with the effective tax rate from continuing operations for the tax expense in 2012, 2011 and 2010:



	Year Ended December 31,
	2012		2011		2010
U.S. federal statutory rate	35.0	%	35.0	%	35.0	%
Permanent differences	12.4		1.6		3.1
State and local income taxes, net of federal income tax	(3.4	)	0.9		(4.7	)
International rate differential, including tax holidays	(54.2	)	(3.3	)	17.0
Foreign valuation allowances	(4.9	)	1.3		(0.1	)
Impairments	46.5		—		(44.6	)
Adjustments for uncertain tax positions	(1.8	)	4.7		(1.4	)
Restructuring	(9.2	)	(10.6	)	—
Tax credits and other	(16.5	)	(2.2	)	2.1
Effective rate	3.9	%	27.4	%	6.4	%

The 23.5% decrease in the income tax rate in 2012 is primarily due to a shift in the geographical mix of worldwide income which was partially offset by the non-deductibility of goodwill impairments and the impact of internal restructurings. The Company’s foreign taxes for 2012, 2011 and 2010 included $3.5, $2.5 and $9.6, respectively, of benefit derived from tax holidays in the Philippines, India and Costa Rica. This resulted in a (11.6)%, (0.7)% and 8.3% impact to the effective tax rate in 2012, 2011 and 2010, respectively. The Company’s foreign taxes for 2012, 2011 and 2010 include $0.0, $0.9 and $7.5, respectively, related to a tax holiday in India which expired March 2011. The tax holidays in the Philippines were scheduled to expire by December 2012. The Company has applied for one- or two-year extensions of the Philippine tax holidays in accordance with local law.

The components of deferred tax assets and liabilities are as follows:



	At December 31,
	2012			2011
Deferred tax assets:
Loss and credit carryforwards	$	54.1		$	93.2
Pension and employee benefits	50.9			76.4
Restructuring charges	2.4			0.9
Deferred revenue	3.9			3.2
Foreign currency hedge	(7.2		)	0.7
Other	43.1			43.0
Valuation allowances	(19.7		)	(21.3		)
Total deferred tax assets	127.5			196.1
Deferred tax liabilities:
Depreciation and amortization	163.2			155.2
Deferred implementation costs	1.4			0.4
Contingent debt and accrued interest	50.4			44.0
Foreign currency hedge	—			—
Other	22.9			28.5
Total deferred tax liabilities	237.9			228.1
Net deferred tax (liabilities) / assets	$	(110.4	)	$	(32.0	)

Deferred tax assets and liabilities in the preceding table, after netting by taxing jurisdiction, are in the following captions in the Consolidated Balance Sheets at December 31, 2012 and 2011.



	At December 31,
	2012			2011
Current deferred tax asset	$	8.9		$	44.8
Non-current deferred tax asset	19.2			26.1
Current deferred tax liability	2.0			1.9
Non-current deferred tax liability	136.5			101.0
Total deferred tax (liability)/asset	(110.4		)	(32.0		)

As of December 31, 2012 and 2011, $0.3 and $14.3, respectively, of the valuation allowances relate to the Company’s foreign operations. Of these amounts, $12.9 related to discontinued operations in 2011.

As of December 31, 2012, the Company has federal, state, and foreign operating loss carryforwards of $49.5, $1,056.7 and $33.1, respectively. The federal operating loss carryforwards and state operating loss carryforwards expire between 2017 and 2027. The foreign operating loss carryforwards include $26.8 with no expiration date; the remainder will expire between 2013 and 2027. The federal and state operating loss carryforwards include losses of $49.5 and $107.6, respectively, that were acquired in connection with business combinations. Utilization of the acquired federal and state tax loss carryforwards may be limited pursuant to Section 382 of the Internal Revenue Code of 1986. At December 31, 2012, the Company also had $0.9 in state tax credits that expire at December 31, 2013.

The Company has not provided for U.S. federal income taxes or foreign withholding taxes on $443.4 of undistributed earnings of its foreign subsidiaries at December 31, 2012, because such earnings are intended to be reinvested indefinitely. It is not practicable to determine the amount of applicable taxes that would be due if such were distributed.

As of December 31, 2012 and 2011, the liability for unrecognized tax benefits was $54.0 and $112.3, respectively, including $19.1 and $23.5 of accrued interest and penalties, and is recorded within the other long-term liabilities in the accompanying Consolidated Balance Sheets. The total amount of net unrecognized tax benefits that would affect income tax expense, if ever recognized in the Consolidated Financial Statements, is $45.5. This amount includes net interest and penalties of $17.3. The Company’s policy is to recognize interest and penalties accrued on unrecognized tax benefits as part of income tax expense. During the year ended December 31, 2012, the Company recognized a benefit of $2.9 related to the reversal of prior period accruals, net of current year interest and penalties, and $3.0 in interest and penalties for the year ended December 31, 2011.

A reconciliation of the beginning and ending total amounts of unrecognized tax benefits (exclusive of interest and penalties) is as follows:



	2012			2011
Balance at January 1	$	88.8		$	63.9
Additions based on tax positions related to the current year	0.5			26.7
Additions for tax positions of prior years	2.8			—
Reductions for tax positions of prior years	(15.8		)	(1.5		)
Settlements	(40.0		)	2.4
Lapse of statutes	(1.4		)	(2.7		)
Balance at December 31	$	34.9		$	88.8

The liability for unrecognized tax benefits related to discontinued operations at December 31, 2012 and 2011 was $11.8 and $62.7, respectively.

The decrease in the liability for unrecognized tax benefits was largely due to resolution of tax audits and the lapsing of the statue of limitations in federal, state and foreign jurisdictions. The Company is currently attempting to resolve income tax audits relating to prior years in various jurisdictions. The Company has received assessments from these jurisdictions related to transfer pricing and deductibility of expenses. The Company believes that it is appropriately reserved with regard to these assessments as of December 31, 2012. Furthermore, the Company believes that it is reasonably possible that the total amounts of unrecognized tax benefits will decrease between $3.0 and $10.0 prior to December 31, 2013, based upon resolution of audits; however, actual developments could differ from those currently expected.

The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With a few exceptions, the Company is no longer subject to examinations by tax authorities for years before 2002.