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INCOME TAXES FROM CONTINUING OPERATIONS:

Earnings from continuing operations before income taxes for the years ended December 31 consists of the following ($ in millions):


	2011		2010		2009
United States	$	1,168.1	$	1,006.3	$	476.6
International		1,279.8		1,223.3		849.5

Total	$	2,447.9	$	2,229.6	$	1,326.1

The provision for income taxes from continuing operations for the years ended December 31 consists of the following ($ in millions):


	2011			2010			2009
Current:
Federal U.S.	$	(6.3	)	$	362.2		$	274.4
Non - U.S.		206.0			88.7			100.2
State and local		41.5			22.8			20.6
Deferred:
Federal U.S.		265.9			45.1			(41.8	)
Non - U.S.		(13.3	)		(12.4	)		(119.9	)
State and local		18.8			5.0			5.5

Income tax provision	$	512.6		$	511.4		$	239.0

The provision for income taxes from discontinued operations for the years ended December 31, 2011, 2010 and 2009 was $146 million, $38 million and, $34 million, respectively.

Net current deferred income tax assets are reflected in prepaid expenses and other current assets and net long-term deferred income tax liabilities are included in other long-term liabilities in the accompanying Consolidated Balance Sheet. Deferred income tax assets and liabilities as of December 31 consist of the following ($ in millions):


	2011			2010
Deferred Tax Assets:
Allowance for doubtful accounts	$	70.9		$	46.1
Inventories		154.5			74.5
Pension and postretirement benefits		382.0			173.7
Environmental and regulatory compliance		35.5			30.8
Other accruals and prepayments		338.1			300.3
Stock compensation expense		114.6			97.9
Tax credit and loss carryforwards		864.0			787.1
Other		2.8			15.2
Valuation allowance		(316.6	)		(283.9	)

Total deferred tax asset		1,645.8			1,241.7

Deferred Tax Liabilities:
Property, plant and equipment		(258.5	)		(69.5	)
Insurance, including self – insurance		(108.9	)		(55.3	)
Basis difference in LYONs		(118.6	)		(151.3	)
Goodwill and other intangibles		(2,016.4	)		(1,098.1	)
Deferred service income		(174.7	)		(180.9	)
Unrealized gains on marketable securities		(56.8	)		(42.5	)

Total deferred tax liability		(2,733.9	)		(1,597.6	)

Net deferred tax liability	$	(1,088.1	)	$	(355.9	)

Deferred taxes associated with temporary differences resulting from timing of recognition for income tax purposes of fees paid for services rendered between consolidated entities are reflected as deferred service income in the above table. These fees are fully eliminated in consolidation and have no effect on reported revenue, income or reported income tax expense. The Company evaluates the future realizability of tax credits and loss carryforwards considering the anticipated future earnings of the Company's subsidiaries as well as tax planning strategies in the associated jurisdictions. Deferred taxes associated with U.S. entities consist of net deferred tax liabilities of approximately $1,075 million and $528 million as of December 31, 2011 and 2010, respectively. Deferred taxes associated with non-U.S. entities consist of net deferred tax liabilities of approximately $13 million and net deferred tax assets of $172 million as of December 31, 2011 and 2010, respectively.

The effective income tax rate for the years ended December 31 varies from the statutory federal income tax rate as follows:


	Percentage of Pre-Tax Earnings
	2011			2010			2009
Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
Increase (decrease) in tax rate resulting from:
State income taxes (net of Federal income tax benefit)		1.0			1.4			1.6
Foreign income taxed at lower rate than U.S. statutory rate		(12.8	)		(10.5	)		(12.7	)
Resolution of uncertain tax positions/statute expirations		(2.4	)		(0.6	)		(7.3	)
Acquisition costs		0.4			—			0.6
Research and experimentation credits and other		(0.3	)		(0.3	)		0.8
Joint venture formation		—			(2.1	)		—

Effective income tax rate		20.9	%		22.9	%		18.0	%

The Company's effective tax rate related to continuing operations for each of 2011, 2010 and 2009 differs from the U.S. federal statutory rate of 35% due principally to the Company's earnings outside the United States that are indefinitely reinvested and taxed at rates lower than the U.S. federal statutory rate. The tax rates are also lower than the U.S. statutory rate due to recognition of tax benefits associated with certain international and domestic tax positions being resolved in the Company's favor, tax rulings, court decisions and the lapse of statutes of limitations. The impact of the favorable resolutions have been treated as discrete items in the period they were resolved and, in addition to changes in estimates related to reserves associated with prior period uncertain tax positions reduced the provision for income taxes by approximately 240 basis points ($59 million or $0.08 per diluted share), 60 basis points ($12 million, or $0.02 per diluted share), and 730 basis points ($97 million, or $0.15 per diluted share) during the years ended December 31, 2011, 2010, and 2009, respectively.

The Company made income tax payments related to continuing operations of $303 million, $282 million, and $283 million in 2011, 2010 and 2009, respectively. In addition, the Company made tax payments related to discontinued operations, including the gain on the sale of PSA (refer to Note 3) totaling $129 million in 2011. Current income tax payable has been reduced by $25 million, $57 million, and $53 million in 2011, 2010 and 2009, respectively, for tax deductions attributable to stock-based compensation. The net income tax benefit attributable to stock-based compensation in excess of the benefit recorded for financial reporting purposes has been recorded as an increase to additional paid-in capital.

Included in deferred income taxes as of December 31, 2011 are tax benefits for U.S. and non-U.S. net operating loss carryforwards totaling $337 million (net of applicable valuation allowances of $316 million). Certain of the losses can be carried forward indefinitely and others can be carried forward to various dates from 2012 through 2031. In addition, the Company had general business and foreign tax credit carryforwards of $210 million (net of applicable valuation allowances of $1 million) at December 31, 2011. Included in the deferred tax asset related to net operating loss carryforwards and tax credits is $140 million associated with the indirect impact of certain unrecognized tax benefits (see below).

As of December 31, 2011, gross unrecognized tax benefits totaled approximately $518 million ($451 million, net of offsetting indirect tax benefits and including $129 million associated with potential interest and penalties). As of December 31, 2010, gross unrecognized tax benefits totaled approximately $518 million ($402 million, net of offsetting indirect tax benefits and including $84 million associated with potential interest and penalties). The Company recognized approximately $56 million, $25 million and $18 million in potential interest and penalties associated with uncertain tax positions during 2011, 2010 and 2009, respectively. To the extent unrecognized tax benefits (including interest and penalties) are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. Unrecognized tax benefits and associated accrued interest and penalties are included in taxes, income and other in accrued expenses as detailed in Note 9.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding amounts accrued for potential interest and penalties, is as follows ($ in millions):


	2011			2010			2009
Unrecognized tax benefits, beginning of year	$	517.5		$	439.3		$	446.9
Additions based on tax positions related to the current year		46.6			62.2			33.4
Additions for tax positions of prior years		77.1			101.8			82.3
Reductions for tax positions of prior years		(59.7	)		(50.0	)		(11.8	)
Acquisitions		85.5			5.7			3.0
Lapse of statute of limitations		(124.3	)		(32.8	)		(104.5	)
Settlements		(21.2	)		(4.9	)		(21.6	)
Effect of foreign currency translation		(3.2	)		(3.8	)		11.6

Unrecognized tax benefits, end of year	$	518.3		$	517.5		$	439.3

The Company and its subsidiaries are routinely examined by various taxing authorities. The Internal Revenue Service ("IRS") has initiated examinations of certain of the Company's federal income tax returns for the years 2008 and 2009. It is expected that these examinations will be completed in early 2013. In addition, the Company has subsidiaries in Austria, Belgium, Germany, Denmark, Canada, France, Hong Kong, India, Australia and various other states, provinces and countries that are currently under audit for years ranging from 2000 through 2010.

The Company files numerous consolidated and separate income tax returns in the United States Federal jurisdiction and in many state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal income tax examinations for years before 2006 and is no longer subject to state, local and foreign income tax examinations by tax authorities for years before 2000.

Management estimates that it is reasonably possible that the amount of unrecognized tax benefits may be reduced by approximately $53 million within twelve months as a result of resolution of worldwide tax matters, tax audit settlements and/or statute expirations.

The Company operates in various non–U.S. tax jurisdictions where "tax holiday" income tax incentives have been granted for a specified period. These tax benefits are not material to the Company's financial statements.

As of December 31, 2011, the Company held $523 million of cash and cash equivalents outside of the United States. Although repatriation of some foreign balances may be restricted by local laws, most of the amounts held outside the United States could be repatriated to the United States but, under current law, could be subject to U.S. federal income taxes, less applicable foreign tax credits. For most of its foreign subsidiaries, the Company makes an election regarding the amount of earnings intended for indefinite reinvestment, with the balance available to be repatriated to the United States. A deferred tax liability has been accrued for the funds that are available to be repatriated to the United States. No provision for U.S. income taxes has been made with respect to earnings that are planned to be reinvested indefinitely outside the United States, and the amount of U S. income taxes that may be applicable to such earnings is not readily determinable given the various tax planning alternatives the Company could employ if it repatriated these earnings. The cash that the Company's foreign subsidiaries hold for indefinite reinvestment is generally used to finance foreign operations and investments, including acquisitions. As of December 31, 2011 and 2010, the total amount of earnings planned to be reinvested indefinitely outside the United States for which deferred taxes have not been provided was approximately $7.8 billion and $6.5 billion, respectively.