INCOME TAXES

The provision for income taxes consists of the following:



(millions)	2012			2011		2010
Income taxes
Current
Federal	$	79.4		$	76.5	$	78.0
State	10.1			10.5		10.6
International	26.0			17.6		18.9
	115.5			104.6		107.5
Deferred
Federal	21.3			32.0		9.4
State	4.0			4.1		2.1
International	(1.0		)	1.9		(1.0		)
	24.3			38.0		10.5
Total income taxes	$	139.8		$	142.6	$	118.0

The components of income from consolidated operations before income taxes follow:



(millions)	2012		2011		2010
Pretax income
United States	$	366.2	$	338.7	$	357.4
International	159.9		152.7		105.3
	$	526.1	$	491.4	$	462.7

A reconciliation of the U.S. federal statutory rate with the effective tax rate follows:



	2012		2011		2010
Federal statutory tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefits	1.7		1.9		1.8
International tax at different effective rates	(6.5	)	(7.0	)	(4.4	)
U.S. tax on remitted and unremitted earnings	(2.0	)	0.2		(1.6	)
U.S. manufacturing deduction	(1.6	)	(1.6	)	(1.3	)
Changes in prior year tax contingencies	(0.1	)	(0.1	)	(3.8	)
Other, net	0.1		0.6		(0.2	)
Total	26.6	%	29.0	%	25.5	%

Deferred tax assets and liabilities are comprised of the following:



(millions)	2012			2011
Deferred tax assets
Employee benefit liabilities	$	165.2		$	152.3
Other accrued liabilities	16.3			16.6
Inventory	14.9			14.6
Tax loss and credit carryforwards	49.7			29.9
Other	11.8			11.6
Valuation allowance	(27.5		)	(26.6		)
	230.4			198.4
Deferred tax liabilities
Depreciation	48.3			49.9
Intangible assets	158.8			145.3
Other	5.9			7.6
	213.0			202.8
Net deferred tax (liability) asset	$	17.4		$	(4.4	)

At November 30, 2012, our non-U.S. subsidiaries have tax loss carryforwards of $145.9 million, of which $15.0 million are from the excess tax benefits related to stock-based compensation deductions which will increase equity once the benefit is realized through a reduction of income taxes payable. Of these carryforwards, $32.5 million expire through 2015, $39.9 million from 2016 through 2024 and $73.5 million may be carried forward indefinitely.

At November 30, 2012, our non-U.S. subsidiaries have capital loss carryforwards of $6.0 million. All of these carryforwards may be carried forward indefinitely.

At November 30, 2012, we have tax credit carryforwards of $25.0 million, of which $8.0 million expire in 2020, $0.6 million in 2021 and $16.4 million in 2022.

A valuation allowance has been provided to record deferred tax assets at their net realizable value based on a more likely than not criteria. The $0.9 million net increase in the valuation allowance was mainly due to to the recognition of a deferred tax asset related to a subsidiary's net operating loss which is now more likely than not to be realized, offset by additional valuation allowance related to losses generated in other subsidiaries in 2012 which may not be realized in future periods.

U.S. income taxes are not provided for unremitted earnings of international subsidiaries and affiliates where our intention is to reinvest these earnings permanently. Unremitted earnings of such entities were $968.2 million at November 30, 2012.

The total amount of unrecognized tax benefits as of November 30, 2012 and November 30, 2011 were $46.7 million and $33.2 million, respectively. If recognized, $40.0 million of these tax benefits would affect the effective tax rate.

The following table summarizes the activity related to our gross unrecognized tax benefits for the years ended November 30:



(millions)	2012			2011			2010
Balance at beginning of year	$	33.2		$	20.7		$	31.2
Additions for current year tax positions	10.6			10.3			5.1
Additions for prior year tax positions	3.9			6.5			3.4
Reductions for prior year tax positions	—			(3.1		)	(2.6		)
Settlements	—			—			(0.6		)
Statute expirations	(1.2		)	(1.2		)	(15.8		)
Foreign currency translation	0.2			—			—
Balance at November 30,	$	46.7		$	33.2		$	20.7

In 2010, the $15.8 million of statute expirations is mainly composed of a $13.9 million reserve reversal that was originally recorded based on uncertainties about the tax aspects of transactions related to the reorganization of our European operations and divestment of certain of our joint ventures.

We record interest and penalties on income taxes in income tax expense. We recognized interest and penalty expense of $1.4 million and $0.6 million for the years ended November 30, 2012 and 2011, respectively, and interest and penalty income of $2.2 million for the year ended November 30, 2010. As of November 30, 2012 and 2011, we had accrued $4.0 million and $1.7 million, respectively, of interest and penalties related to unrecognized tax benefits.

We file income tax returns in the U.S. federal jurisdiction and various state and non-U.S. jurisdictions. The open years subject to tax audits varies depending on the tax jurisdictions. In major jurisdictions, we are no longer subject to income tax audits by taxing authorities for years before 2006.

In 2010, the Internal Revenue Service (IRS) commenced an examination of our U.S. federal income tax return for the 2007 and 2008 tax years. During the course of the examination, we have held discussions with the IRS on certain issues and in October 2012 we received proposed adjustments for these tax years. In November 2012 we deposited $18.8 million with the IRS to stop any potential interest on these proposed adjustments. We believe we have established appropriate deferred taxes or tax accruals under US GAAP for these issues in prior periods. We are also under normal recurring tax audits in several of our major operations outside the U.S. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our unrecognized tax benefits reflect the most likely outcome. We adjust these unrecognized tax benefits, and the related interest, in light of changing facts and circumstances. Settlement of any particular position could require the use of cash. Favorable resolution would be recognized as a reduction to our effective tax rate in the period of resolution.