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NOTE 12 — INCOME TAXES

Income from Continuing Operations Before Income Taxes and Equity Income (Loss) from Ventures includes the following components:

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The components of the provision (benefit) for income taxes on continuing operations consist of the following:

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Reconciliation of our income tax attributable to continuing operations computed at the U.S. federal statutory rate is as follows:

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The components of income taxes for other than continuing operations consisted of the following:

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Significant components of our deferred tax assets and liabilities as of December 31, 2011 and 2010 are as follows:

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The deferred tax amounts are classified in the Statements of Consolidated Financial Position as current or long-term in accordance with the asset or liability to which they relate. Following is a summary:

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The PPACA and the Reconciliation Act were signed into law in March 2010. As a result of these two acts, tax benefits available to employers that receive the Medicare Part D subsidy related to qualified postretirement drug benefit are reduced beginning in years ending after December 31, 2012. The income tax effect related to the acts for the year ended December 31, 2010 was a reduction of $16.1 million to deferred tax asset related to the postretirement prescription drug benefits computed after the elimination of the deduction for the Medicare Part D subsidy beginning in taxable years ending after December 31, 2012.

We completed a legal entity restructuring during 2010 that resulted in a change to deferred tax liabilities of $78.0 million on certain foreign investments to a deferred tax asset of $9.4 million for tax basis in excess of book basis on foreign investments as of December 31, 2010. A valuation allowance of $9.4 million was recorded against this asset due to the uncertainty of realization.

At December 31, 2011 and 2010, we had $228.5 million and $153.4 million, respectively, of deferred tax assets related to U.S. alternative minimum tax credits that can be carried forward indefinitely.

We had gross state and foreign net operating loss carry forwards of $147.1 million, and $780.5 million, respectively, at December 31, 2011. We acquired $211.0 million of foreign net operating loss carryforwards as a result of the acquisition of Consolidated Thompson stock in 2011. We had U.S. federal, state and foreign net operating loss carry forwards at December 31, 2010 of $87.6 million, $338.9 million and $234.4 million, respectively. State net operating losses will begin to expire in 2022, and the foreign net operating losses will begin to expire in 2026. We had foreign tax credit carryforwards of $5.8 million at December 31, 2011 and December 31, 2010. The foreign tax credit carryforwards will begin to expire in 2020.

We had a $51.2 million change in the valuation allowance of certain deferred tax assets where management believes that realization of the related deferred tax assets is not more likely than not. Of this amount, $41.1 million increase relates to ordinary losses of certain foreign and state operations for which future utilization is currently uncertain and $10.1 million increase relates to certain foreign assets where tax basis exceeds book basis.

At December 31, 2011 and 2010, cumulative undistributed earnings of foreign subsidiaries included in consolidated retained earnings amounted to $1.7 billion and $1.0 billion, respectively. These earnings are indefinitely reinvested in international operations. Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation of these earnings, nor is it practical to estimate the amount of income taxes that would have to be provided if we were to conclude that such earnings will be remitted in the foreseeable future.

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

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At December 31, 2011 and 2010, we had $102.1 million and $79.8 million, respectively, of unrecognized tax benefits recorded in Other liabilities in the Statements of Consolidated Financial Position. During the third quarter of 2011, we recognized a $39.0 million tax benefit for the reduction in the amount of unrecognized tax benefits to reflect the closure of the U.S. federal audit for the years 2007 and 2008. Additionally, we recognized a tax benefit of $5.7 million for previously recorded uncertain tax positions to reflect the expiration of the statute of limitations in a foreign jurisdiction. If the $102.1 million were recognized, the full amount would impact the effective tax rate. We do not expect that the amount of unrecognized tax benefits will change significantly within the next twelve months. We recognized potential accrued interest and penalties of $4.1 million and $2.1 million related to unrecognized tax benefits in income tax expense in 2011 and 2010, respectively. At December 31, 2011 and 2010, we had $2.5 million and $11.6 million, respectively, of accrued interest and penalties related to the unrecognized tax benefits recorded in Other liabilities in the Statements of Consolidated Financial Position.

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Tax years that remain subject to examination are years 2009 and forward for the U.S., 1993 and forward for Canada, and 2007 and forward for Australia.