10. Income Taxes

The components of income (loss) before income taxes from continuing operations are as follows:


*(in millions of dollars)*	2011			2010			2009
Domestic operations	$	(48.6	)	$	(38.5	)	$	(38.6	)
Foreign operations		91.5			77.0			46.0

Total	$	42.9		$	38.5		$	7.4

The reconciliation of income taxes computed at the U.S. federal statutory income tax rate to the Company's effective income tax rate for continuing operations is as follows:


*(in millions of dollars)*	2011			2010			2009
Income tax at US statutory rate	$	15.0		$	13.5		$	2.5
State, local and other tax net of federal benefit		(1.3	)		(0.8	)		(1.0	)
U.S. effect of foreign dividends and earnings		11.6			4.9			23.6
Unrealized foreign currency gain on intercompany debt		0.9			8.6			1.0
Foreign income taxed at a lower effective rate		(7.7	)		(6.7	)		(5.5	)
Increase in valuation allowance		5.4			15.7			109.9
Correction of deferred tax error at foreign subsidiary		—			(2.8	)		—
Change in prior year tax estimates		1.0			(1.3	)		(1.6	)
Miscellaneous		(0.6	)		(0.4	)		(2.9	)

Income taxes as reported	$	24.3		$	30.7		$	126.0

For 2011, the Company recorded income tax expense from continuing operations of $24.3 million on income before taxes of $42.9 million. This compares to income tax expense from continuing operations of $30.7 million on income before taxes of $38.5 million for 2010. Included in the results for 2010 is an out-of-period adjustment made to correct an error related to inaccurate calculations of deferred taxes at a foreign subsidiary. The correction of the error increased net income by $2.8 million through an increase in deferred tax assets and a corresponding reduction in income tax expense. The Company determined that the impact of the error was not significant to any current or prior individual period, and accordingly a restatement of prior period amounts was not determined to be necessary.

The high effective rates for 2011 and 2010 are due to an increase in the valuation allowance of $5.4 million, including $2.8 million reversal of a valuation reserve in the U.K., and $15.7 million, respectively, because no tax benefit is being provided on losses incurred in the U.S. and certain foreign jurisdictions where valuation allowances are recorded against certain tax benefits. Also contributing to the high effective tax rate for 2010 is an $8.6 million expense recorded to reflect the income tax impact of foreign currency fluctuations on an intercompany debt obligation, partially offset by the benefit of the $2.8 million out-of-period adjustment recorded in the second quarter.

During 2009, the Company established a valuation allowance against its domestic deferred tax assets to reduce them to the value more likely than not to be realized with a corresponding non-cash charge of $108.1 million to the provision for income taxes.

The effective tax rates for discontinued operations were 13.4% and 29.6% in 2011 and 2010, respectively. The lower rate in 2011 reflects the benefit of the goodwill tax basis and prior year capital loss carry-forwards that reduced the taxable gain on the sale of the GBC–Fordigraph Business in Australia.

The U.S. federal statute of limitations remains open for the years 2008 and forward. Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from 3 to 5 years. Years still open to examination by foreign tax authorities in major jurisdictions include Canada (2006 forward) and the U.K. (2008 forward). The Company is currently under examination in the U.S. and in certain foreign jurisdictions.

The components of the income tax expense from continuing operations are as follows:


*(in millions of dollars)*	2011			2010		2009
Current expense (benefit)
Federal	$	0.3		$	0.6	$	(0.6	)
Foreign		19.8			18.1		13.9

Total current income tax expense		20.1			18.7		13.3

Deferred expense (benefit)
Federal and other		4.9			4.8		111.6
Foreign		(0.7	)		7.2		1.1

Total deferred income tax expense		4.2			12.0		112.7

Total income tax expense	$	24.3		$	30.7	$	126.0

The components of deferred tax assets (liabilities) are as follows:


*(in millions of dollars)*	2011			2010
Deferred tax assets
Compensation and benefits	$	14.7		$	10.0
Pension		34.2			25.1
Inventory		5.4			5.6
Other reserves		7.2			7.7
Accounts receivable		3.7			4.3
Capital loss carryforwards		10.3			10.3
Foreign tax credit carryforwards		20.5			20.5
Net operating loss carryforwards		129.3			128.2
Depreciation		—			0.4
Miscellaneous		3.3			2.3

Gross deferred income tax assets		228.6			214.4
Valuation allowance		(204,3	)		(193.2	)

Net deferred tax assets		24.3			21.2
Deferred tax liabilities
Depreciation		(2.0	)		—
Identifiable intangibles		(73.0	)		(69.8	)
Unrealized foreign currency gain on intercompany debt		(10.6	)		(9.6	)
Miscellaneous		—			(3.3	)

Gross deferred tax liabilities		(85.6	)		(82.7	)

Net deferred tax liabilities	$	(61.3	)	$	(61.5	)

Deferred income taxes are not provided on certain undistributed earnings of foreign subsidiaries that are expected to be permanently reinvested in those companies, aggregating to approximately $517 million at December 31, 2011 and $495 million at December 31, 2010. If these amounts were distributed to the U.S., in the form of a dividend or otherwise, the Company would be subject to additional U.S. income taxes. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable.

At December 31, 2011, $390.7 million of net operating loss carryforwards and $29.4 million of capital loss carryforwards are available to reduce future taxable income of domestic and international companies. These loss carryforwards expire in the years 2012 through 2030 or have an unlimited carryover period.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income taxes in its results of operations. As of December 31, 2011, the Company had $0.4 million accrued for interest and penalties.

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


*(in millions of dollars)*	2011			2010
Balance at January 1	$	5.7		$	6.0
Additions for tax positions of prior years		0.1			0.2
Settlements		(0.3	)		(0.5	)

Balance at December 31	$	5.5		$	5.7

As of December 31, 2011 the amount of unrecognized tax benefits decreased to $5.5 million, of which $1.5 million would affect the Company's effective tax rate, if recognized. The Company expects the amount of unrecognized tax benefits to change within the next twelve months, but these changes are not expected to have a significant impact on the Company's results of operations or financial position. None of the positions included in the unrecognized tax benefit relate to tax positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility.