Note 7 – Income Taxes

The components of income (loss) before income taxes were taxed under the following jurisdictions:

(In thousands)	2011		2010		2009

Domestic	$	118,208	$	88,262	$	36,478
Foreign		11,953		33,588		(13,349	)

Income before income taxes	$	130,161	$	121,850	$	23,129

Income tax expense consists of the following:

(In thousands)	2011			2010			2009

Current tax expense:
Federal	$	43,127		$	32,132		$	14,834
Foreign		1,740			6,292			3,248
State and local		2,398			2,518			2,264

Current tax expense		47,265			40,942			20,346

Deferred tax (benefit) expense:
Federal		(6,480	)		(4,057	)		(4,321	)
Foreign		344			(2,036	)		3,893
State and local		1,946			(534	)		(2,126	)

Deferred tax (benefit) expense		(4,190	)		(6,627	)		(2,554	)

Income tax expense	$	43,075		$	34,315		$	17,792

No provision is made for U.S. income taxes applicable to undistributed earnings of foreign subsidiaries that are indefinitely reinvested in foreign operations. It is not practicable to compute the potential deferred tax liability associated with these undistributed foreign earnings.

The difference between the reported income tax expense and a tax determined by applying the applicable U.S. federal statutory income tax rate to income before income taxes is reconciled as follows:

(In thousands)	2011			2010			2009

Expected income tax expense	$	45,556		$	42,647		$	8,095
State and local income tax, net of federal benefit		4,267			2,867			2,844
Effect of foreign statutory rate different from U.S. and other foreign adjustments		(560	)		(2,143	)		435
Valuation allowance changes		(443	)		(5,496	)		52
U.S. production activities deduction		(3,850	)		(2,975	)		(700	)
Gain on early retirement of debt		-			-			(45	)
Goodwill impairment		-			-			8,728
Tax contingency changes		(1,934	)		(1,516	)		(973	)
Other, net		39			931			(644	)

Income tax expense	$	43,075		$	34,315		$	17,792

During 2011, the Company released a valuation allowance of $0.4 million, or one cent per diluted share, due to the expectation that certain state tax attributes will be utilized.

During 2010, as a result of income from an insurance settlement in a foreign jurisdiction, the Company utilized a deferred tax asset and released a related valuation allowance of $5.5 million, or 15 cents per diluted share. Additional valuation allowance releases totaled $1.1 million, or 3 cents per diluted share, due to the expectation that certain state tax attributes will be utilized. The Company also added a valuation allowance of $1.1 million, or 3 cents per diluted share, to offset a foreign deferred tax asset generated during 2010.

During 2009, the Company added valuation allowances of $3.6 million, or 10 cents per diluted share, due to the expectation that certain foreign deferred tax assets will not be realized. This expense was partially offset by the reduction of a valuation allowance of $2.6 million, or 7 cents per diluted share, due to an increase in the expected future utilization of a state deferred tax asset and the net reduction of a valuation allowance of $0.9 million, or 2 cents per diluted share, related to a federal deferred tax asset.

The following summarizes the activity related to the Company's unrecognized tax benefits:

(In thousands)	2011			2010

Beginning balance	$	8,565		$	11,282
Increases related to prior year tax positions		-			134
Increases related to current year tax positions		-			47
Decreases related to prior year tax positions		(802	)		(612	)
Decreases related to settlements with taxing authorities		-			(392	)
Decreases due to lapses in the statute of limitations		(1,191	)		(1,894	)

Ending balance	$	6,572		$	8,565

Federal income tax benefits associated with state tax uncertainties and interest on federal tax uncertainties are recorded as a deferred tax asset. As of December 31, 2011, this asset totaled $0.2 million. Of the $6.6 million total unrecognized tax benefits and $0.2 million of accrued interest, up to $4.0 million could affect the effective tax rate, if recognized. Due to ongoing federal, state, and foreign income tax audits and potential lapses of the statutes of limitations in various taxing jurisdictions, it is reasonably possible that the Company's unrecognized tax benefits and accrued interest may decrease in the next twelve months up to $3.6 million.

The Company includes interest and penalties related to income tax matters as a component of income tax expense. Cumulative potential interest and penalties accrued related to unrecognized tax benefits totaled $0.2 million as of December 31, 2011 and $0.7 million as of December 25, 2010, without consideration of any applicable federal benefit. The net reduction to income tax expense related to penalties and interest was $0.5 million in 2011, $0.2 million in 2010, and $0.7 million in 2009.

The Internal Revenue Service concluded the audit of the Company's 2007 federal income tax return during 2010, the adjustments from which were immaterial. Audit settlements of the 2004 and 2005 years in Mexico resulted in tax expense of $2.0 million, or 5 cents per diluted share during 2010. The Company is currently under audit in various state jurisdictions.

The statute of limitations is still open for the Company's federal tax return and most state income tax returns for the 2008 return and all subsequent years. The statutes of limitations for certain state and foreign returns are also open for some earlier tax years due to ongoing audits and differing statute periods. While the Company believes that it is adequately reserved for possible audit adjustments, the final resolution of these examinations cannot be determined with certainty and could result in final settlements that differ from current estimates.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:

(In thousands)	2011			2010

Deferred tax assets:
Accounts receivable	$	424		$	1,961
Inventories		11,075			7,885
Other postretirement benefits and accrued items		13,880			13,889
Pension		19,262			14,764
Other reserves		14,671			13,516
Federal and foreign tax attributes		7,421			6,651
State tax attributes, net of federal benefit		30,478			32,138
Other		2,296			2,062

Total deferred tax assets		99,507			92,866
Less valuation allowance		(29,705	)		(28,714	)

Deferred tax assets, net of valuation allowance		69,802			64,152

Deferred tax liabilities:
Property, plant, and equipment		44,757			48,330
Foreign withholding tax		-			719
Pension		8,589			8,621
Other		893			1,093

Total deferred tax liabilities		54,239			58,763

Net deferred tax asset	$	15,563		$	5,389

As of December 31, 2011, after consideration of the federal impact, the Company had state income tax credit carryforwards of $0.6 million with various expirations through 2026, and other state income tax credit carryforwards of $15.4 million with unlimited lives. The Company had state net operating loss (NOL) carryforwards with potential tax benefits of $14.4 million expiring between 2014 and 2026. The state tax credit and NOL carryforwards are offset by valuation allowances totaling $22.8 million.

As of December 31, 2011, the Company had federal and foreign tax attributes with potential tax benefits of $7.4 million, of which $2.2 million has an unlimited life and $5.2 million expire from 2013 to 2018. These attributes were offset by valuation allowances of $6.9 million.

Income taxes paid were approximately $45.9 million in 2011, $46.0 million in 2010, and $20.0 million in 2009.