Income Tax

Our income (loss) from continuing operations before income taxes on which the provision for income taxes was computed is as follows:



	For the years ended
	December 31, 2013			December 29, 2012			December 31, 2011
	(In millions)
Domestic	$	809.7		$	712.8		$	767.2
Foreign	(155.2		)	(120.7		)	7.0
Total	$	654.5		$	592.1		$	774.2

Income tax expense (benefit) includes the following current and deferred provisions:



	For the years ended
	December 31, 2013			December 29, 2012		December 31, 2011
	(In millions)
Current:
Federal	$	39.1		$	45.5	$	29.8
State	11.8			8.3		5.7
Foreign	50.7			28.2		25.0
Total current tax expense (benefit)	$	101.6		$	82.0	$	60.5
Deferred:
Federal	$	59.6		$	47.9	$	58.8
State	5.1			6.3		2.1
Foreign	(82.3		)	18.3		(22.0		)
Total deferred tax expense (benefit)	$	(17.6	)	$	72.5	$	38.9
Total income tax expense (benefit) from continuing operations	$	84.0		$	154.5	$	99.4

The decrease in income tax expense in 2013 was primarily driven by the net foreign deferred tax benefits. These foreign deferred tax benefits largely resulted from the release of valuation allowances in Canada, as further discussed below, as well as decreases in deferred tax liabilities related to certain intangible assets that were impaired in 2013.

Our income tax expense varies from the amount expected by applying the statutory federal corporate tax rate to income as follows:



	For the years ended
	December 31, 2013		December 29, 2012		December 31, 2011
Statutory Federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefits	1.3	%	1.4	%	1.6	%
Effect of foreign tax rates	(27.4	)%	(24.5	)%	(21.4	)%
Effect of foreign tax law and rate changes	0.5	%	6.8	%	(0.4	)%
Effect of unrecognized tax benefits	3.3	%	(0.7	)%	(1.1	)%
Change in valuation allowance	(1.5	)%	6.0	%	—	%
Other, net	1.6	%	2.1	%	(0.9	)%
Effective tax rate	12.8	%	26.1	%	12.8	%

Our fiscal year effective tax rate was approximately 13% in 2013, 26% in 2012 and 13% in 2011. Our effective tax rates were significantly lower than the federal statutory rate of 35% primarily due to the impact of lower effective income tax rates applicable to our foreign businesses and tax planning. In addition, as part of the Acquisition, the statutory tax rates in the countries of Central Europe, ranging from 9% to 20%, in which we began doing business drove the 2013 and 2012 change in the effect of foreign tax rates versus 2011. The 2012 foreign tax law and rate change impact, primarily relates to the increased statutory corporate income tax rate in Serbia from 10% to 15%, effective January 1, 2013 (enacted in 2012). As a result of the impact of the rate change on differences between the book basis and tax basis of intangible and other assets purchased in the Acquisition, we increased our deferred tax liability by $38.3 million in the fourth quarter of 2012. We recorded additional tax expense in 2012 due to increases in our valuation allowance related to capital loss carryforwards and operating losses in several of our jurisdictions. See further discussion below.

The table below summarizes our deferred tax assets and liabilities:



	As of
	December 31, 2013			December 29, 2012
	(In millions)
Current deferred tax assets:
Compensation related obligations	$	1.2		$	2.9
Foreign exchange	29.3			—
Accrued liabilities and other	49.4			53.5
Tax loss carryforwards	—			6.1
Valuation allowance	(3.0		)	(20.2		)
Balance sheet reserves and accruals	2.4			—
Other	—			0.6
Total current deferred tax assets	$	79.3		$	42.9
Current deferred tax liabilities:
Partnership investments	160.9			151.6
Balance sheet reserves and accruals	—			4.5
Other	6.1			(0.1		)
Total current deferred tax liabilities	$	167.0		$	156.0
Net current deferred tax assets	—			—
Net current deferred tax liabilities	$	87.7		$	113.1



	As of
	December 31, 2013			December 29, 2012
	(In millions)
Non-current deferred tax assets:
Compensation related obligations	$	8.7		$	13.3
Postretirement benefits	94.8			209.6
Foreign exchange losses	14.8			119.5
Convertible debt	—			0.4
Hedging	—			9.4
Tax credit carryforward	1.7			—
Tax loss carryforwards	154.7			110.9
Intercompany financing	8.4			8.4
Partnership investments	11.8			12.2
Accrued liabilities and other	5.5			19.3
Other(1)	16.6			19.6
Valuation allowance	(94.7		)	(137.3		)
Total non-current deferred tax assets	$	222.3		$	385.3
Non-current deferred tax liabilities:
Fixed assets	120.5			132.6
Partnership investments	22.1			39.6
Intangibles	939.5			1,028.7
Hedging	7.2			—
Other	6.1			7.5
Total non-current deferred tax liabilities	$	1,095.4		$	1,208.4
Net non-current deferred tax assets	—			—
Net non-current deferred tax liabilities	$	873.1		$	823.1


(1)	Primarily relates to certain capitalized costs related to the Acquisition as of December 29, 2012. These capitalized costs are amortized over different periods for book and tax purposes, giving rise to differences in book basis and tax basis in 2012.

The following table presents our deferred tax assets and liabilities on a net basis:



	As of
	December 31, 2013		December 29, 2012
	(In millions)
Domestic net current deferred tax liabilities	$	138.1	$	152.3
Foreign net current deferred tax assets	50.4		39.2
Net current deferred tax liabilities	$	87.7	$	113.1
Domestic net non-current deferred tax assets	$	22.2	$	125.4
Foreign net non-current deferred tax assets	16.1		—
Foreign net non-current deferred tax liabilities	911.4		948.5
Net non-current deferred tax liabilities	$	873.1	$	823.1

The decrease in the net current deferred tax liabilities is primarily driven by the current classification of the deferred tax asset related to our outstanding cross currency swaps, which were to mature in March 2014. Specifically, the unrealized foreign exchange losses on the outstanding cross currency swaps resulted in a current deferred tax asset of $29.3 million as of December 31, 2013. In January 2014, we early settled the final remaining outstanding currency swaps, resulting in the realization of the related domestic deferred tax asset at the settled upon amount. See Note 17, "Derivative Instruments and Hedging Activities" for further discussion.

The increase in the net non-current deferred tax liabilities was primarily driven by the decrease in the non-current deferred tax assets. This decrease was largely due to the current classification of the outstanding cross currency swaps and settlement of a significant portion of our cross currency swaps throughout 2013, as well as the decrease in our pension and other postretirement benefit obligations and valuation allowances discussed below. See Note 16, "Employee Retirement Plans and Postretirement Benefits" for further discussion. The decrease in the non-current deferred tax assets was partially offset by the reduction of non-current deferred tax liabilities resulting from the intangible asset impairments recorded in 2013. See Note 12, "Goodwill and Intangible Assets" for further discussion.

We have deferred tax assets for U.S. tax loss carryforwards that expire between 2014 and 2029 of $8.6 million and $13.0 million at December 31, 2013, and December 29, 2012, respectively. We have foreign loss carryforwards that expire between 2014 and 2033 of $125.6 million and $109.1 million as of December 31, 2013, and December 29, 2012, respectively. We have foreign loss carryforwards that do not expire of $22.2 million and $9.3 million as of December 31, 2013, and December 29, 2012, respectively. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon available evidence, it is more likely than not that the deferred tax assets will not be realized. Our valuation allowance was $97.7 million and $157.5 million as of December 31, 2013, and December 29, 2012, respectively. The valuation allowance decrease in fiscal year 2013 was primarily due to changes in deferred tax assets resulting from decreased pension liabilities in Europe and Canada, realized ordinary and capital gains that offset previously valued losses in Canada and realization of capital gains that offset previously valued losses in the U.S. These decreases were offset by an increase in certain operating losses in Europe.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:



	For the years ended
	December 31, 2013			December 29, 2012			December 31, 2011
	(In millions)
Balance at beginning of year	$	75.5		$	70.7		$	84.9
Additions for tax positions related to the current year	3.7			9.9			9.6
Additions for tax positions of prior years	59.2			8.6			4.3
Reductions for tax positions of prior years	(3.2		)	(0.1		)	(0.1		)
Settlements	(2.6		)	(0.9		)	(1.5		)
Release due to statute expiration and legislative changes	(24.9		)	(14.4		)	(25.6		)
Foreign currency adjustment	(3.5		)	1.7			(0.9		)
Balance at end of year	$	104.2		$	75.5		$	70.7

Annual tax provisions include amounts considered sufficient to pay assessments that may result from examination of prior year tax returns; however, the amount ultimately paid upon resolution of issues may differ materially from the amount accrued. The net increase in our unrecognized tax benefits in 2013 was primarily driven by the addition for tax positions of prior years resulting from the proposed settlement of a tax audit in Canada, discussed below, an identified immaterial out-of-period adjustment to uncertain tax positions related to prior years, and the adjustments to unrecognized tax benefits in Europe upon finalization of purchase accounting related to the Acquisition, partially offset by increased releases in Canada resulting from the favorable impact of enacted tax law in the second quarter.

During 2014, we anticipate that approximately $19 million to $24 million of unrecognized tax benefits will be released to reflect settlement of the 2007-2008 tax years in Canada. The following is a reconciliation of our unrecognized tax benefits:



	For the years ended
	December 31, 2013			December 29, 2012			December 31, 2011
2013 Reconciliation of Unrecognized Tax Benefits balance	(In millions)
Estimated interest and penalties	$	15.5		$	8.5		$	8.6
Offsetting positions	(3.8		)	(1.9		)	(1.9		)
Unrecognized tax positions	104.2			75.5			70.7
Total unrecognized tax benefits	$	115.9		$	82.1		$	77.4

Current (included in accounts payable and other current liabilities)	$	23.2		$	0.3		$	1.0
Noncurrent	92.7			81.8			76.4
Total unrecognized tax benefits	$	115.9		$	82.1		$	77.4

Amount of unrecognized tax benefits that would impact the effective tax rate	$	104.2		$	75.5		$	70.7

We file income tax returns in most of the federal, state, and provincial jurisdictions in the U.S., U.K., Canada and various countries in Central Europe. Tax years through 2006 are closed in the U.S., while exam years 2007 and 2008 have been effectively settled and only remain open pending finalization of an advanced pricing agreement. At this time, we do not yet know the tax consequences that will result from finalizing the advanced pricing agreement, but we anticipate the effect on our tax rate would be significant. We expect that finalizing the advanced pricing agreement will have a significant effect on our consolidated financial statements, resulting in a reduction in the full-year effective tax rate and a discrete item in the quarter the agreement is signed. In Canada, tax years through fiscal year ended 2008 are closed or have been effectively settled through examination except for issues relating to an intercompany transaction. In the fourth quarter of 2013 we received a proposed audit settlement from the Canada tax authorities and have reflected the effect of this proposed settlement in our unrecognized tax benefits as of December 31, 2013 within additions for tax positions of prior years. We anticipate realizing existing current deferred tax assets to offset most of the tax liability resulting from the finalized settlement. Tax years through fiscal year 2005 are closed for most countries in European jurisdictions with statutes of limitations varying from 3-7 years.

We treat our portion of all foreign subsidiary earnings through December 31, 2013, as permanently reinvested under the accounting guidance and accordingly, have not provided any U.S. federal or state tax thereon. As of December 31, 2013, approximately $886.0 million of retained earnings attributable to foreign subsidiaries was considered to be indefinitely invested. Our intention is to reinvest the earnings permanently or to repatriate the earnings when it is tax efficient to do so. It is not practicable to determine the amount of incremental taxes that might arise were these earnings to be remitted. However, we believe that U.S. foreign tax credits would largely eliminate any U.S. taxes and offset any foreign withholding taxes due on remittance.