INCOME TAXES

Domestic and foreign components of income before income taxes are shown below:



	Year Ended December 31,
(In millions)	2012		2011		2010
Domestic	$	125.5	$	132.7	$	64.6
Foreign	470.9		416.4		470.9
Income from continuing operations before income taxes attributable to FMC Technologies, Inc.	$	596.4	$	549.1	$	535.5

The provision for income taxes consisted of:



	Year Ended December 31,
(In millions)	2012			2011			2010
Current:
Federal	$	41.5		$	26.7		$	16.7
State	2.9			3.3			1.0
Foreign	131.8			134.4			55.3
Total current	176.2			164.4			73.0
Deferred:
Increase in the valuation allowance for deferred tax assets	0.5			0.2			0.1
Other deferred tax (benefit) expense	(10.3		)	(15.3		)	86.5
Total deferred	(9.8		)	(15.1		)	86.6
Provision for income taxes	$	166.4		$	149.3		$	159.6

Significant components of our deferred tax assets and liabilities were as follows:



	December 31,
(In millions)	2012			2011
Deferred tax assets attributable to:
Accrued expenses	$	47.6		$	56.1
Foreign tax credit carryforwards	2.6			1.4
Accrued pension and other post-retirement benefits	109.1			109.3
Stock-based compensation	24.3			20.0
Net operating loss carryforwards	31.5			23.7
Inventories	21.1			18.6
Norwegian correction tax (1)	71.0			39.2
Foreign exchange (1)	5.2			5.2
Deferred tax assets	312.4			273.5
Valuation allowance	(4.3		)	(3.7		)
Deferred tax assets, net of valuation allowance	308.1			269.8
Deferred tax liabilities attributable to:
Revenue in excess of billings on contracts accounted for under the percentage of completion method	147.1			138.0
U.S. tax on foreign subsidiaries’ undistributed earnings not indefinitely reinvested (1)	40.6			29.4
Property, plant and equipment, goodwill and other assets (1)	129.9			74.5
Deferred tax liabilities	317.6			241.9
Net deferred tax assets (liabilities)	$	(9.5	)	$	27.9

______________________________

(1)

Certain prior-year amounts have been reclassified to conform to the current year’s presentation. We have reclassified and separately stated our deferred taxes related to Norwegian correction tax. In addition, we have reclassified certain deferred taxes related to the foreign exchange impact on certain foreign subsidiaries’ undistributed earnings not indefinitely reinvested. These reclassifications increased the 2011 deferred tax liability balance of property, plant, and equipment, goodwill and other assets by $32.3 million. This change only impacted the presentation of information in the above table and did not impact our financial position or results of operations for 2011.

At December 31, 2012 and 2011, the carrying amount of net deferred tax assets and the related valuation allowance included the impact of foreign currency translation adjustments. Included in our deferred tax assets at December 31, 2012 were U.S. foreign tax credit carryforwards of $2.6 million, which, if not utilized, will begin to expire after 2021. Realization of these deferred tax assets is dependent on the generation of sufficient U.S. taxable income prior to the above date. Based on long-term forecasts of operating results, management believes that it is more likely than not that domestic earnings over the forecast period will result in sufficient U.S. taxable income to fully realize these deferred tax assets. In its analysis, management has considered the effect of foreign deemed dividends and other expected adjustments to domestic earnings that are required in determining U.S. taxable income. Foreign earnings taxable to us as dividends, including deemed dividends for U.S. tax purposes, were $118.3 million, $169.3 million and $341.2 million, in 2012, 2011 and 2010, respectively. Also included in deferred tax assets are tax benefits related to net operating loss carryforwards attributable to foreign entities. If not utilized, these net operating loss carryforwards will begin to expire in 2013. Management believes it is more likely than not that we will not be able to utilize certain of these operating loss carryforwards before expiration; therefore, we have established a valuation allowance against the related deferred tax assets.

Current and non-current deferred income taxes by country included in our consolidated balance sheet at December 31, 2012, were as follows:



	December 31, 2012
(In millions)	Current Asset		Non-Current Asset		Current (Liability)			Non-Current (Liability)			Total
United States	$	38.8	$	51.7	$	—		$	—		$	90.5
Brazil	10.6		—		—			(13.8		)	(3.2		)
Norway	—		—		(65.3		)	(8.6		)	(73.9		)
Other foreign	6.5		8.3		(2.2		)	(35.5		)	(22.9		)
Net deferred tax assets (liabilities)	$	55.9	$	60.0	$	(67.5	)	$	(57.9	)	$	(9.5	)

The following table presents a rollforward of our unrecognized tax benefits and associated interest and penalties:



(In millions)	Federal, State and Foreign Tax			Accrued Interest and Penalties			Total Gross Unrecognized Income Tax Benefits
Balance at December 31, 2009	37.7			6.0			43.7
Additions for tax positions related to the current year	17.2			—			17.2
Additions for tax positions related to prior years	12.4			3.9			16.3
Reductions for tax positions due to settlements	(15.3		)	(4.7		)	(20.0		)
Reductions due to a lapse of the statute of limitations	(2.7		)	(0.4		)	(3.1		)
Other reductions for tax positions related to prior years	(8.7		)	(0.4		)	(9.1		)
Balance at December 31, 2010	$	40.6		$	4.4		$	45.0
Additions for tax positions related to prior years	4.6			2.9			7.5
Reductions for tax positions due to settlements	(5.0		)	(1.1		)	(6.1		)
Reductions due to a lapse of the statute of limitations	(0.3		)	—			(0.3		)
Balance at December 31, 2011	$	39.9		$	6.2		$	46.1
Additions for tax positions related to prior years	(0.1		)	2.1			2.0
Reductions for tax positions due to settlements	(9.3		)	(1.9		)	(11.2		)
Balance at December 31, 2012	$	30.5		$	6.4		$	36.9

At December 31, 2012, 2011 and 2010, there were $36.4 million, $42.2 million and $41.3 million, respectively, of unrecognized tax benefits that if recognized would affect the annual effective tax rate.

It is reasonably possible that within twelve months unrecognized tax benefits related to certain tax reporting positions taken in prior periods could decrease by up to $16.0 million, due to either the expiration of the statute of limitations in certain jurisdictions or the resolution of current income tax examinations, or both.

In November 2010, we resolved an Internal Revenue Service (“IRS”) audit of our 2004 and 2005 federal income tax returns with the IRS Appeals office. As a result of the resolution, we recorded a benefit in the fourth quarter of 2010 of approximately $27.6 million, representing the resolution of the 2004 and 2005 matter, as well as the associated impact of remeasuring reserves related to intercompany transfer pricing for all other open tax years.

Our U.S. federal income tax returns for our 2007, 2008, and 2009 tax years are under examination by the IRS. In conjunction with this examination, in January 2013 the IRS proposed adjustments to such years’ taxable income related to our treatment of intercompany transfer pricing. We are evaluating alternative responses to these proposed adjustments, and the ultimate outcome of this matter is uncertain. However, management believes we are adequately reserved for this matter as of December 31, 2012.

Tax years that remain subject to examination are years after 2002 for Norway, after 2007 for Brazil and after 2007 for the United States.

The effective income tax rate was different from the statutory U.S. federal income tax rate due to the following:



	Year Ended December 31,
	2012		2011		2010
Statutory U.S. federal income tax rate	35	%	35	%	35	%
Net difference resulting from:
Foreign earnings subject to different tax rates	(12	)	(9	)	(14	)
Foreign earnings subject to U.S. tax	4		1		8
Nondeductible Multi Phase Meters earnout adjustments	2		—		—
Net change in unrecognized tax benefits	—		1		1
Other	(1	)	(1	)	—
Effective income tax rate	28	%	27	%	30	%

Our effective income tax rate for 2012 reflects U.S. tax law as it existed at December 31, 2012. On January 2, 2013, the American Taxpayer Relief Act of 2012 (the “Taxpayer Act”) was signed into law. The Taxpayer Act retroactively reinstated and extended certain provisions of U.S. tax law. If these provisions of the Taxpayer Act had been enacted and effective as of December 31, 2012, our income tax expense would have been approximately $7.1 million lower than as reported, resulting in an effective income tax rate of approximately 27%. We expect to recognize this retroactive benefit in our income tax provision in the first quarter of 2013. In addition, the deferred tax asset attributable to our U.S. foreign tax credit carryforwards would have been increased by approximately $5.1 million. These additional foreign tax credits, if not utilized, would begin to expire after 2015.

We have provided U.S. income taxes on $1,105.2 million of cumulative undistributed earnings of certain foreign subsidiaries where we have determined that the foreign subsidiaries’ earnings are not indefinitely reinvested. No provision for U.S. income taxes has been recorded on earnings of foreign subsidiaries that are indefinitely reinvested. The cumulative balance of foreign earnings with respect to which no provision for U.S. income taxes has been recorded was $1,279.0 million at December 31, 2012. The amount of applicable U.S. income taxes that would be incurred if these earnings were repatriated is approximately $317.4 million.

We benefit from income tax holidays in Singapore and Malaysia which will expire after 2018 for Singapore and 2015 for Malaysia. For the year ended December 31, 2012, these tax holidays reduced our provision for income taxes by $9.6 million, or $0.04 per share on a diluted basis. In the first quarter of 2011, we recognized a retroactive benefit of approximately $7.3 million, or $0.03 per share on a diluted basis, related to tax holidays in Singapore which were retroactive to January 1, 2009.