21. INCOME TAXES

The following table shows the components of the provision for income taxes:


	2011		2010		2009
Federal
Current		$14.7		$100.5		$88.1
Deferred		181.6		47.4		18.1
		196.3		147.9		106.2
State
Current		20.1		2.7		35.8
Deferred		2.6		4.3		(20.9	)
		22.7		7.0		14.9
Foreign
Current		187.9		140.1		113.7
Deferred		1.5		44.5		(49.5	)
		189.4		184.6		64.2
		$408.4		$339.5		$185.3

The significant components of deferred tax assets and liabilities are as follows:


30 September	2011			2010
Gross Deferred Tax Assets
Retirement benefits and compensation accruals		$513.5			$491.0
Tax loss carryforwards		43.7			62.2
Tax credits		49.6			67.4
Reserves and accruals		95.8			75.4
Acquisition-related costs		—			35.9
Asset impairment		8.6			6.7
Currency losses		28.7			29.5
Other		58.9			153.2
Valuation allowance		(28.6	)		(55.4	)
Deferred Tax Assets		770.2			865.9
Gross Deferred Tax Liabilities
Plant and equipment		1,006.7			840.9
Investment in partnerships		7.3			5.6
Unrealized gain on cost investments		—			11.8
Unremitted earnings of foreign entities		37.9			—
Intangible assets		50.5			57.0
Other		15.5			76.5
Deferred Tax Liabilities		1,117.9			991.8
Net Deferred Income Tax Liability		$347.7			$125.9

Deferred tax assets and liabilities are included within the consolidated financial statements as:


	2011		2010
Deferred Tax Assets
Other receivables and current assets		$104.0		$124.1
Other noncurrent assets		123.8		85.5
Total Deferred Tax Assets		227.8		209.6
Deferred Tax Liabilities
Payables and accrued liabilities		5.4		0.4
Deferred income taxes		570.1		335.1
Total Deferred Tax Liabilities		575.5		335.5
Net Deferred Income Tax Liability		$347.7		$125.9

Foreign and state loss carryforwards as of 30 September 2011 were $105.1 and $323.3, respectively. The foreign losses have expiration periods beginning in fiscal year 2012. Some of the foreign operations operate in jurisdictions with unlimited carryforward periods. State operating loss carryforwards have expiration periods that range between fiscal year 2012 and 2031.

The net change in the valuation allowance was a decrease of $26.8 and an increase of $23.5, for the years ended 30 September 2011 and 2010, respectively. The valuation allowance as of 30 September 2011 primarily relates to the tax loss carryforwards referenced above. If events warrant the reversal of the $28.6 valuation allowance, it would result in a reduction of tax expense. We believe it is more likely than not that future earnings will be sufficient to utilize our deferred tax asset, net of existing valuation allowance, at 30 September 2011.

Income tax payments, net of refunds, were $162.5 in 2011, $192.0 in 2010, and $124.5 in 2009.

Major differences between the United States federal statutory tax rate and the effective tax rate are:


(Percent of income before taxes)	2011			2010			2009
U.S. federal statutory tax rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal benefit		.9			.3			1.1
Income from equity affiliates		(3.1	)		(3.0	)		(4.7	)
Foreign taxes and credits		(7.0	)		(8.3	)		(7.3	)
Domestic production activities		(.5	)		(.6	)		(1.1	)
Tax audit settlements and adjustments		(1.0	)		—			(.8	)
Donation of investments		—			(.4	)		—
Other		0.3			1.4			(.1	)
Effective Tax Rate		24.6	%		24.4	%		22.1	%

The following table summarizes the income of U.S. and foreign operations, before taxes:


	2011		2010		2009
Income from Continuing Operations before Taxes
United States		$625.5		$464.5		$374.3
Foreign		881.2		802.6		350.1
Income from equity affiliates		154.3		126.9		112.2
Total		$1,661.0		$1,394.0		$836.6

We do not pay or record U.S. income taxes on the undistributed earnings of our foreign subsidiaries and corporate joint ventures as long as those earnings are permanently reinvested in the companies that produced them. These cumulative undistributed earnings are included in retained earnings on the consolidated balance sheets and amounted to $4,051.6 at the end of 2011. An estimated $967.9 in U.S. income and foreign withholding taxes would be due if these earnings were remitted as dividends after payment of all deferred taxes.

At 30 September 2011 and 2010, we had $126.4 and $197.8 of unrecognized tax benefits, excluding interest and penalties, of which $93.1 and $108.0, respectively, would impact the effective tax rate if recognized. Interest and penalties related to unrecognized tax benefits are recorded as a component of income tax expense and totaled $(2.4) in 2011, $5.5 in 2010, and $2.5 in 2009. Our accrued balance for interest and penalties was $33.3 and $35.9 in 2011 and 2010, respectively.

In the third quarter of 2011, a U.S. Internal Revenue Service audit over tax years 2007 and 2008 was completed resulting in a decrease in unrecognized tax benefits of $36.0 and a favorable impact to current year earnings of $23.9. This included a tax benefit of $8.9 or $.04 per share, recognized in income from discontinued operations for fiscal year 2011, as it relates to the previously divested U.S. Healthcare business. Refer to Note 6, Discontinued Operations, for additional information on this divestiture.

A reconciliation of the beginning and ending amount of the unrecognized tax benefits is as follows:


Unrecognized Tax Benefits	2011			2010			2009
Balance at beginning of year		$197.8			$163.1			$154.7
Additions for tax positions of the current year		16.3			31.8			23.6
Additions for tax positions of prior years		5.7			12.9			36.3
Reductions for tax positions of prior years		(72.4	)		(1.0	)		(43.5	)
Settlements		(15.6	)		—			(4.9	)
Statute of limitations expiration		(4.8	)		(6.1	)		(5.4	)
Foreign currency translation		(0.6	)		(2.9	)		2.3
Balance at End of Year		$126.4			$197.8			$163.1

The unrecognized tax benefits include an amount related to certain transactions of a Spanish subsidiary for years 1991 and 1992, a period before we controlled this subsidiary. In March 2009 the Spanish appeals court (Audiencia Nacional) ruled in favor of our Spanish subsidiary. The Spanish government appealed this court decision to the Spanish Supreme Court. We did not reverse the liability accrued for these unrecognized tax benefits as this decision was appealed. We expect this case to be heard and decided within the next twelve months. As a result, we believe it is reasonably possible that the unrecognized tax benefits could be reduced by $60, including interest, within the next twelve months for this matter. If we prevail, this decrease would reduce income tax expense.

We are also currently under examination in a number of other tax jurisdictions, some of which may be resolved in the next twelve months. As a result, it is reasonably possible that a change in the unrecognized tax benefits may occur during the next twelve months. However, quantification of an estimated range cannot be made at this time.

We generally remain subject to examination in the following major tax jurisdictions for the years indicated below:


Major Tax Jurisdiction	Open Tax Years
North America
United States		2009–2011
Canada		2007–2011
Europe
United Kingdom		2008–2011
Germany		2006–2011
Netherlands		2005–2011
Poland		2005–2011
Spain		2009–2011
Asia
China		2006–2011
Taiwan		2006–2011
Korea		2006–2011

We have been challenged by the Spanish tax authorities over income tax deductions taken by certain of our Spanish subsidiaries during fiscal years 2005-2011. Although we continue to believe that all positions taken were compliant with applicable laws, in November 2011 we reached a settlement with the Spanish tax authorities for approximately € 40 (approximately $55) in resolution of all tax issues under examination. A significant portion of the settlement amount will be recorded as an increase to income tax expense in the first quarter of fiscal year 2012.