INCOME TAXES

The following table accounts for the difference between the actual tax provision and the amounts obtained by applying the statutory U.S. federal income tax rate of 35% to income before taxes.



	Three Months Ended June 30,				Six Months Ended June 30,
Effective Tax Rate Reconciliation (Percent)	2012		2011		2012		2011
Statutory federal tax rate	35.0	%	35.0	%	35.0	%	35.0	%
Foreign rate differential	(0.1	)	(0.1	)	(0.1	)	—
Domestic manufacturing/export tax incentive	(1.6	)	(1.8	)	(1.3	)	(0.6	)
Dividends paid to CEOP	(0.4	)	(0.5	)	(0.4	)	(0.2	)
State income taxes, net	0.2		2.3		0.8		0.9
Return to provision	0.2		1.1		0.1		0.2
Remeasurement of deferred taxes	1.3		(2.4	)	0.9		(1.7	)
Section 45O tax credit	(9.5	)	—		(4.9	)	—
Incremental tax effect of SunBelt remeasurement	—		—		—		4.4
Change in tax contingencies	1.7		—		1.0		—
Change in valuation allowance	(1.4	)	—		(0.7	)	—
Other, net	(0.6	)	0.3		(0.1	)	—
Effective tax rate	24.8	%	33.9	%	30.3	%	38.0	%

The effective tax rates for the three months ended June 30, 2012 and 2011 included the cumulative effect of changes to our annual estimated effective tax rate from prior quarters.

The effective tax rate for the three and six months ended June 30, 2012 included a $6.0 million benefit associated with the Agricultural Chemicals Security Tax Credit under Section 45O of the Internal Revenue Code (Section 45O), (which is scheduled to sunset on December 31, 2012), that will be claimed on our 2008 to 2012 U.S. federal income tax returns and a $0.8 million benefit associated with the reduction of valuation allowance against certain state tax credit carryforwards that we believe are more likely than not to be realized in future periods. The effective tax rate for the three and six months ended June 30, 2012 included expenses of $1.1 million and $1.2 million, respectively, associated primarily with increases in unrecognized tax benefits associated with prior years' tax positions. The effective tax rate for the three and six months ended June 30, 2012 also included expenses of $0.8 million and $1.2 million, respectively, related to the remeasurement of deferred taxes due to an increase in state effective tax rates.

The effective tax rate for the three months ended June 30, 2011 included a benefit of $1.6 million related to the remeasurement of deferred taxes due to a change in state tax law implemented during the second quarter, which had a favorable impact on our state apportionment allocation, and a $0.7 million expense associated with the finalization of our 2010 Canadian income tax returns. The effective tax rate for the six months ended June 30, 2011 included a benefit of $4.9 million related to remeasurement of deferred taxes due to an increase in state tax effective rates and included a deferred tax expense of $76.0 million related to the tax effect of our gain on the remeasurement of our previously held 50% equity interest in SunBelt.

As of June 30, 2012, we had $40.3 million of gross unrecognized tax benefits, which would have a net $38.5 million impact on the effective tax rate, if recognized. As of June 30, 2011, we had $41.7 million of gross unrecognized tax benefits, of which $39.5 million would have impacted the effective tax rate, if recognized. The amount of unrecognized tax benefits was as follows:



	June 30,
	2012			2011
	($ in millions)
Balance at beginning of year	$	37.9		$	41.5
Increases for prior year tax positions	2.8			0.2
Decreases for prior year tax positions	(0.3		)	—
Increases for current year tax positions	0.1			—
Settlement with taxing authorities	(0.2		)	—
Balance at end of period	$	40.3		$	41.7

As of June 30, 2012, we believe it is reasonably possible that our total amount of unrecognized tax benefits will decrease by approximately $0.8 million over the next twelve months. The anticipated reduction primarily relates to settlements with taxing authorities and the expiration of federal, state and foreign statutes of limitation.

We operate primarily in North America and file income tax returns in numerous jurisdictions. Our tax returns are subject to examination by various federal, state and local tax authorities. We believe we have adequately provided for all tax positions; however, amounts asserted by taxing authorities could be greater than our accrued position. For our primary tax jurisdictions, the tax years that remain subject to examination are as follows:



	Tax Years
U.S. federal income tax	2007 – 2010
U.S. state income tax	2004 – 2010
Canadian federal income tax	2007 – 2010
Canadian provincial income tax	2007 – 2010