Income taxes

The provision (benefit) for income taxes on income from continuing operations consists of the following:



In thousands of dollars
2012	Current			Deferred			Total
Federal	$	82,200		$	106,000		$	188,200
State and other	(2,600		)	17,100			14,500
Foreign	(6,900		)	(400		)	(7,300		)
Total	$	72,700		$	122,700		$	195,400



In thousands of dollars
2011	Current			Deferred			Total
Federal	$	81,500		$	74,600		$	156,100
State and other	(800		)	30,100			29,300
Foreign	(25,400		)	(7,200		)	(32,600		)
Total	$	55,300		$	97,500		$	152,800



In thousands of dollars
2010	Current			Deferred		Total
Federal	$	135,442		$	129,829	$	265,271
State and other	(51,252		)	19,150		(32,102		)
Foreign	9,460			1,384		10,844
Total	$	93,650		$	150,363	$	244,013

The components of income from continuing operations attributable to Gannett Co., Inc. before income taxes consist of the following:



In thousands of dollars
	2012		2011		2010
Domestic	$	538,988	$	530,660	$	729,485
Foreign	80,692		80,888		81,856
Total	$	619,680	$	611,548	$	811,341

The provision for income taxes on continuing operations varies from the U.S. federal statutory tax rate as a result of the following differences:



	2012		2011		2010
U.S. statutory tax rate	35.0	%	35.0	%	35.0	%
Increase (decrease) in taxes resulting from:
Non-deductible goodwill impairment	5.2		—		0.6
State/other income taxes net of federal income tax	2.2		3.0		3.5
Statutory rate differential and permanent differences in earnings in foreign jurisdictions	(5.6	)	(5.4	)	(2.7	)
Audit resolutions	(4.6	)	(4.2	)	—
Permanent stock basis deductions	—		(1.8	)	—
Lapse of statutes of limitations net of federal income tax	(1.8	)	(1.6	)	(7.2	)
Other, net	1.1		—		0.9
Effective tax rate	31.5	%	25.0	%	30.1	%

The permanent stock basis deduction is primarily related to the disposal of certain business assets in 2011. An impairment charge for these assets had been recorded in previous years, however no related tax benefit had been taken as the formal disposal of the assets did not occur until 2011.

Absent the effect of facility consolidation, asset impairment and workforce restructuring charges in the years 2010-2012, the special net tax benefit from the release of certain tax reserves due to audit settlements and the lapse of statutes of limitations for the years from 2010 to 2012, and the special net tax benefit from the permanent stock basis deduction for 2011, the company’s effective tax rate would have been 30.9% for 2012, 31.6% for 2011, and 33.1% for 2010.

In addition to the income tax provision presented above for continuing operations, the company also recorded federal and state income taxes payable on discontinued operations in 2010.

Taxes provided on the earnings from discontinued operations include amounts reclassified from previously reported income tax provisions and totaled $11.7 million for 2010, covering U.S. federal and state income taxes and representing an effective rate of 36%. Also included in discontinued operations for 2010 is a recognized gain of $21.2 million, which is net of tax. Taxes provided on the gains from the disposals totaled approximately $12.2 million for 2010, covering U.S. federal and state income taxes and represent an effective rate of 36%.

Deferred income taxes reflect temporary differences in the recognition of revenue and expense for tax reporting and financial statement purposes. Amortization of intangibles represents the largest component of the deferred provision. Deferred tax liabilities and assets are adjusted for enacted changes in tax laws or tax rates of the various tax jurisdictions. The amounts of such adjustments for 2012, 2011 and 2010 are not significant.

Deferred tax liabilities and assets were composed of the following at the end of 2012 and 2011:



In thousands of dollars
	Dec. 30, 2012		Dec. 25, 2011
Liabilities
Accelerated depreciation	$	255,612	$	295,391
Accelerated amortization of deductible intangibles	174,229		121,679
Other	26,989		29,890
Total deferred tax liabilities	456,830		446,960
Assets
Accrued compensation costs	77,684		97,532
Pension	368,803		346,000
Postretirement medical and life	65,573		71,674
Federal tax benefits of uncertain state tax positions	31,002		43,631
Partnership investments including impairments	39,542		52,344
Loss carryforwards	58,596		44,452
Other	66,164		77,035
Total deferred tax assets	707,364		732,668
Valuation allowance	76,419		54,287
Total net deferred tax assets	$	174,115	$	231,421
Amounts recognized in Consolidated Balance Sheet
Net current deferred tax assets	$	15,840	$	22,771
Net long-term deferred tax assets	$	158,275	$	208,650

Included in total deferred tax assets are valuation allowances of approximately $76 million and $54 million in 2012 and 2011, respectively, primarily related to foreign tax credits, foreign losses, and state net operating losses available for carry forward to future years. The change in valuation allowance from 2011 to 2012 is related primarily to additional foreign and state losses.

Realization of deferred tax assets for which valuation allowances have not been established is dependent upon generating sufficient future taxable income. The company expects to realize the benefit of these deferred tax assets through future reversals of its deferred tax liabilities, through the recognition of taxable income in the allowable carryback and carryforward periods, and through implementation of future tax planning strategies. Although realization is not assured, the company believes it is more likely than not that all deferred tax assets for which valuation allowances have not been established will be realized.

The company’s legal and tax structure reflects acquisitions that have occurred over the years as well as the multi-jurisdictional nature of the company’s businesses.

The following table summarizes the activity related to unrecognized tax benefits, excluding the federal tax benefit of state tax deductions:



In thousands of dollars
	Dec. 30, 2012			Dec. 25, 2011
Change in unrecognized tax benefits
Balance at beginning of year	$	110,282		$	153,531
Additions based on tax positions related to the current year	9,093			10,958
Additions for tax positions of prior years	11,929			17,009
Reductions for tax positions of prior years	(30,110		)	(44,155		)
Settlements	(7,857		)	(15,618		)
Reductions due to lapse of statutes of limitations	(7,157		)	(11,443		)
Balance at end of year	$	86,180		$	110,282

The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $63 million as of Dec. 30, 2012, and $78 million as of Dec. 25, 2011. This amount includes the federal tax benefit of state tax deductions.

The company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. The company also recognizes interest income attributable to overpayment of income taxes as a component of income tax expense, and it recognizes interest credits for the reversal of interest expense previously recorded for uncertain tax positions which are subsequently released. The company recognized income from interest and the release of penalty reserves of $8 million, $4 million and $40 million in 2012, 2011 and 2010, respectively. The amount of accrued interest and penalties payable related to unrecognized tax benefits was $29 million and $35 million as of Dec. 30, 2012 and Dec. 25, 2011, respectively.

The company files income tax returns in the U.S. and various state and foreign jurisdictions. The 2009 through 2011 tax years remain subject to examination by the IRS. The 2005 through 2011 tax years generally remain subject to examination by state authorities, and the years 2010 and 2011 are subject to examination in the U.K. In addition, tax years prior to 2005 remain subject to examination by certain states primarily due to the filing of amended tax returns as a result of the settlement of the IRS examination for these years and due to ongoing audits.

It is reasonably possible that the amount of unrecognized benefit with respect to certain of the company’s unrecognized tax positions will significantly increase or decrease within the next 12 months. These changes may be the result of settlement of ongoing audits, lapses of statutes of limitations or other regulatory developments. At this time, the company estimates that the amount of its gross unrecognized tax positions may decrease by up to approximately $50 million within the next 12 months primarily due to lapses of statutes of limitations and settlement of ongoing audits in various jurisdictions.