INCOME TAXES

12 Months Ended

Dec. 31, 2012

INCOME TAXES

NOTE 9: INCOME TAXES

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

in thousands	2012			2011			2010
Earnings (Loss) from Continuing   Operations before Income Taxes
Domestic		($134,929	)		($169,758	)		($213,598	)
Foreign		14,511			16,020			21,392
Total		($120,418	)		($153,738	)		($192,206	)
Provision for (benefit from) income taxes from continuing operations consists of the following:
in thousands	2012			2011			2010
Provision for (Benefit from) Income Taxes   from Continuing Operations Current
Federal		($5,631	)		$4,424			($46,671	)
State and local		5,271			5,482			3,909
Foreign		2,273			4,412			4,957
Total		1,913			14,318			(37,805	)
Deferred
Federal		(58,497	)		(76,558	)		(52,344	)
State and local		(8,464	)		(15,397	)		1,422
Foreign		(1,444	)		(846	)		(936	)
Total		(68,405	)		(92,801	)		(51,858	)
Total benefit		($66,492	)		($78,483	)		($89,663	)

The benefit from income taxes differs from the amount computed by applying the federal statutory income tax rate to losses from continuing operations before income taxes. The sources and tax effects of the differences are as follows:

dollars in thousands	2012				2011				2010
Income tax benefit at the   federal statutory tax rate of 35%		($42,146	)	35.0%		($53,809	)	35.0%		($67,272	)	35.0%
Provision for (Benefit from)   Income Tax Differences
Statutory depletion		(19,608	)	16.3%		(18,931	)	12.3%		(20,301	)	10.6%
State and local income taxes, net of federal   income tax benefit		(2,076	)	1.7%		(6,445	)	4.2%		3,465		-1.8%
Fair market value over tax basis of   charitable contributions		(2,007	)	1.7%		0		0.0%		(3,223	)	1.7%
Undistributed foreign earnings		0		0.0%		(2,553	)	1.7%		(3,331	)	1.7%
Prior year true up adjustments		(657	)	0.5%		3,115		-2.1%		(1,095	)	0.6%
Other, net		2		0.0%		140		-0.1%		2,094		-1.2%
Total income tax benefit		($66,492	)	55.2%		($78,483	)	51.0%		($89,663	)	46.6%

Deferred income taxes on the balance sheet result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The components of the net deferred income tax liability at December 31 are as follows:

in thousands	2012			2011
Deferred Tax Assets Related to
Pensions		$84,869			$58,193
Other postretirement benefits		44,030			52,433
Accruals for asset retirement obligations   and environmental accruals		40,202			37,145
Accounts receivable, principally allowance   for doubtful accounts		1,910			2,194
Deferred compensation, vacation pay   and incentives		102,048			97,741
Interest rate swaps		19,585			22,273
Self-insurance reserves		18,165			16,467
Inventory		8,011			6,984
Federal net operating loss carryforwards		57,679			48,496
State net operating loss carryforwards		45,929			36,912
Valuation allowance on state net operating   loss carryforwards		(38,837	)		(29,757	)
Foreign tax credit carryforwards		22,409			22,395
Alternative minimum tax credit carryforwards		15,711			10,724
Charitable contribution carryforwards		9,953			9,523
Other		20,561			18,619
Total deferred tax assets		452,225			410,342
Deferred Tax Liabilities Related to
Fixed assets		$754,697			$799,632
Intangible assets		295,429			286,317
Other		18,770			13,889
Total deferred tax liabilities		1,068,896			1,099,838
Net deferred tax liability		$616,671			$689,496

The above amounts are reflected in the accompanying Consolidated Balance Sheets as of December 31 as follows:

in thousands	2012			2011
Deferred Income Taxes
Current assets		($40,696	)		($43,032	)
Noncurrent liabilities		657,367			732,528
Net deferred tax liability		$616,671			$689,496

We have definite-lived deferred tax assets related to carryforwards at December 31, 2012 as follows:

in thousands	Deferred  Tax Asset		Valuation Allowance		Expiration
Federal net operating loss carryforwards		$57,679		$0		2027 - 2032
State net operating loss carryforwards		45,929		38,837		2014 - 2032
Foreign tax credit carryforwards		22,409		0		2018 - 2021
Charitable contribution carryforwards		9,953		0		2014 - 2017

A deferred tax asset is recognized for deductible temporary differences, operating loss carryforwards and tax credit carryforwards using the applicable enacted tax rate. A valuation allowance is recognized if, based on the analysis of all positive and negative evidence, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character in either the carryback or carryforward period under the tax law.

At each reporting date, we consider both positive and negative evidence that could impact our view with regard to the future realization of deferred tax assets. At December 31, 2012, negative evidence exists by the fact that we are in a cumulative loss position. This negative evidence is weighed against the positive evidence created by the future taxable income originating from reversing existing taxable temporary differences, our historically profitable foreign operations, and tax-planning actions and strategies. We have determined that the positive evidence outweighs the negative evidence, and therefore, conclude that it is more-likely-than-not that we will realize the benefit of all of our deferred tax assets related to deductible temporary differences and federal net operating loss, foreign tax credit and charitable contribution carryforwards.

At December 31, 2012, we had a valuation allowance of $38,837,000 against our state net operating loss carryforwards of $45,929,000. This conclusion regarding the valuation allowance is supported by the following negative evidence:

¡ required filing groups in many states are different from the federal filing group

¡ we no longer file in certain states for which we have net operating losses carryforwards

¡ certain states have short carryforward periods or limitations on the usage of a net operating loss

The amount of our deferred tax assets considered realizable could be adjusted if estimates of future taxable income increase or decrease during the carryforward period.

As of December 31, 2012, income tax receivables of $1,500,000 are included in accounts and notes receivable in the accompanying Consolidated Balance Sheet. These receivables relate to prior year state overpayments that we have requested to be refunded. There were similar receivables of $3,000,000 as of December 31, 2011.

Uncertain tax positions and the resulting unrecognized income tax benefits are discussed in our accounting policy for income taxes (see Note 1, caption Income Taxes). Changes in unrecognized income tax benefits for the years ended December 31, are as follows:

in thousands	2012			2011			2010
Unrecognized income tax benefits as of January 1		$13,488			$28,075			$20,974
Increases for tax positions related to
Prior years		0			389			14,685
Current year		1,356			913			1,447
Decreases for tax positions related to
Prior years		(43	)		(411	)		(8,028	)
Settlements with taxing authorities		(1,456	)		(15,402	)		0
Expiration of applicable statute of limitations		205			(76	)		(1,003	)
Unrecognized income tax benefits as of December 31		$13,550			$13,488			$28,075

We classify interest and penalties recognized on the liability for unrecognized income tax benefits as income tax expense. Interest and penalties recognized as income tax expense were $218,000 in 2012, $492,000 in 2011 and $1,525,000 in 2010. The balance of accrued interest and penalties included in our liability for unrecognized income tax benefits as of December 31 was $2,820,000 in 2012, $2,602,000 in 2011 and $4,496,000 in 2010.

Our unrecognized income tax benefits at December 31 in the table above include $9,170,000 in 2012, $9,205,000 in 2011 and $12,038,000 in 2010 that would affect the effective tax rate if recognized.

We are routinely examined by various taxing authorities. By mutual agreement between Vulcan and the IRS, we have extended the statutes of limitations for two examinations of our federal tax returns. The U.S. federal statutes of limitations for both 2006 and 2007 were extended to September 30, 2013. The U.S. federal statutes of limitations for both 2008 and 2009 were extended to April 15, 2014. We anticipate no single tax position generating a significant increase or decrease in our liability for unrecognized tax benefits within 12 months of this reporting date.

We file income tax returns in U.S. federal, various state and foreign jurisdictions. Generally, we are not subject to significant changes in income taxes by any taxing jurisdiction for the years prior to 2006.

As of December 31, 2011, we did not recognize deferred income taxes on $56,000,000 of accumulated undistributed earnings from one of our foreign subsidiaries. At that time, we considered such earnings to be indefinitely reinvested. If we were to distribute these earnings in the form of dividends, the distribution would be subject to U.S. income taxes resulting in $19,600,000 of previously unrecognized deferred income taxes. Beginning January 1, 2012, we removed our indefinite reinvestment assertion on future earnings of this foreign subsidiary and recorded deferred income taxes on its 2012 earnings.