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Notes to Consolidated Financial Statements

Note 1 – Summary of Significant Account Policies Note 2 – Segment Information Note 3 – Earnings Per Share Note 4 – Employee and Retiree Benefits Note 5 – Investments held by VEBA Trust Note 6 – Former Natural Resource Operations Note 7 – Costs Associated With Exit Activities Note 8 – Property and Equipment Note 9 – Impairment of Long-Lived Assets Note 10 – Other Assets Note 11 – Accrued Liabilities Note 12 – Other Liabilities Note 13 – Long-Term Debt Note 14 – Accounts Receivable and Asset Securitization Note 15 – Operating Leases Note 16 – Share-Based Compensation Plans Note 17 – Capital Stock Note 18 – Income Taxes Note 19 – Supplemental Cash Flow Information Note 20 – Other Operating Income, Net Note 21 – Other Nonoperating Income (Expense), Net Note 22 – Risk Management Note 23 – Other Commitments and Contingencies Note 24 – Selected Quarterly Financial Data (unaudited)

Note 18 – Income Taxes

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

		Years Ended December 31,
(In millions)		2004	2003	2002
Current tax provision
U.S. federal	$	0.2	-	12.0
State		5.6	1.0	3.1
Foreign		33.3	24.5	25.8
		39.1	25.5	40.9
Deferred tax provision (benefit)
U.S. federal		18.5	(8.6)	2.1
State		0.4	20.4	(4.1)
Foreign		2.9	18.4	1.5
		21.8	30.2	(0.5)
	$	60.9	55.7	40.4

The U.S. federal current income tax provision on continuing operations in 2002 was offset by U.S. federal current tax benefits included in the loss from discontinued operations.

		Years Ended December 31,
(In millions)		2004	2003	2002
Comprehensive provision (benefit) for income taxes allocable to
Continuing operations	$	60.9	55.7	40.4
Discontinued operations		12.5	8.0	(22.0)
Other comprehensive income (loss)		(3.9)	15.9	(80.3)
Shareholders’ equity		(4.7)	(0.2)	(0.2)
	$	64.8	79.4	(62.1)

The components of the net deferred tax asset are as follows:

		December 31,
(In millions)		2004	2003
Deferred tax assets
Accounts receivable	$	7.9	6.8
Postretirement benefits other than pensions		125.2	178.2
Pension liabilities		56.0	35.4
Multi-employer pension plan withdrawal liabilities		12.8	18.2
Workers’ compensation and other claims		46.8	47.3
Deferred revenue		60.4	58.0
Other assets and liabilities		129.4	139.5
Net operating loss carryforwards		78.4	51.3
Alternative minimum tax credits		56.1	54.9
Subtotal		573.0	589.6
Valuation allowances		(55.8)	(43.5)
Total deferred tax assets		517.2	546.1
Deferred tax liabilities
Property and equipment, net		130.1	116.2
Prepaid pension assets		9.5	5.5
Other prepaid assets		20.4	19.1
VEBA		-	36.8
Other assets and miscellaneous		33.4	20.7
Total deferred tax liabilities		193.4	198.3
Net deferred tax asset	$	323.8	347.8
Included in:
Current assets	$	116.0	91.7
Noncurrent assets		234.7	282.7
Current liabilities, included in accrued liabilities		(0.9)	(0.1)
Noncurrent liabilities		(26.0)	(26.5)
Net deferred tax asset	$	323.8	347.8

The valuation allowances relate to deferred tax assets in certain state and non-U.S. jurisdictions. Based on the Company’s historical and expected future taxable earnings, management believes it is more likely than not that the Company will realize the benefit of the existing deferred tax assets, net of valuation allowances, at December 31, 2004.

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

		Years Ended December 31,
(In millions)		2004	2003	2002
Income from continuing operations before income taxes:
United States	$	66.4	10.1	61.9
Foreign		95.1	63.8	47.9
Total	$	161.5	73.9	109.8
Tax provision computed at statutory rate	$	56.5	25.9	38.4
Increases (reductions) in taxes due to:
Adjustments to valuation allowances		10.2	34.3	1.5
Federal benefit for valuation allowance on state deferred tax assets		(0.3)	(5.9)	-
State income taxes (net of federal tax benefit exclusive of valuation allowance)		3.0	2.9	(0.7)
Medicare subsidy of postretirement costs		(2.0)	-	-
Foreign income taxes		(4.7)	(3.7)	1.5
Taxes on undistributed earnings of foreign affiliates		(1.7)	1.2	-
Changes in accrual for tax contingencies		0.6	(2.0)	(3.4)
Adjustments to current and deferred tax accounts		(0.3)	3.3	1.6
Other		(0.4)	(0.3)	1.5
Actual tax provision from continuing operations	$	60.9	55.7	40.4

Adjustments to the beginning-of-year valuation allowance in 2004 were $5.6 million and related primarily to several European operations with a recent history of losses. The valuation allowance also increased by $4.6 million in 2004 to offset the net 2004 increase in deferred tax assets in jurisdictions where the Company had concluded in prior years that valuation allowances were necessary. Adjustments to the beginning-of-year valuation allowance in 2003 were $34.3 million and related primarily to certain state and foreign deferred tax assets. The valuation allowances were required due to the Company’s assessment that these assets did not meet the more-likely-than-not recognition criteria of SFAS No. 109.

Adjustments were made to the Company’s current and deferred tax assets and liabilities in the prior three years based on a detailed analysis conducted by the Company. In 2003 and 2002, the Company also reversed contingency accruals related to favorable settlements of issues relating primarily to the Company’s U.S. federal tax returns.

As of December 31, 2004, the Company has not recorded U.S. federal deferred income taxes on $340.7 million of undistributed earnings of its foreign subsidiaries. With the exception of amounts discussed below, it is expected that these earnings will be permanently reinvested in operations outside the U.S. It is not practical to compute the estimated deferred tax liability on these earnings.

The Company does not expect to be able to complete its evaluation of the repatriation provision of the new American Jobs Creation Act of 2004 until after Congress passes statutory technical corrections and the Treasury Department issues further guidance on key elements of the provision. In January 2005, the Treasury Department began to issue the first of a series of clarifying guidance documents related to this provision. The Company expects to complete its evaluation of the effects of the repatriation provision within the first two fiscal quarters of 2005, provided Congress and the Treasury Department issue guidance by that time. The range of possible amounts that the Company is considering for repatriation under this provision is between zero and $150 million. While the Company estimates that the related potential range of additional income tax payments is between zero and $10 million, this estimate may change based on the passage of technical correction legislation.

The Company’s U.S. entities file a consolidated U.S. federal income tax return.

As of December 31, 2004, the Company had approximately $56 million of alternative minimum tax credits available to offset future U.S. federal income taxes and, under current tax law, the carryforward period for these credits is unlimited.

The gross amount of the net operating loss carryforwards as of December 31, 2004 was $416.7 million. The tax benefit of net operating loss carryforwards, before valuation allowances, as of December 31, 2004 was $78.4 million. Tax benefits related to operating losses of $2.8 million were recognized in 2004 as a benefit in income from continuing operations. Net operating loss carryforwards expire as follows:

(In millions)		Federal	State	Foreign	Total
Year of expiration:
2005-2009	$	-	2.9	5.8	8.7
2010-2014		-	3.2	1.2	4.4
2015 and thereafter		14.1	10.4	-	24.5
Unlimited		-	-	40.8	40.8
	$	14.1	16.5	47.8	78.4

The Company and its subsidiaries are subject to tax examinations in various U.S. and foreign jurisdictions and the Company has accrued approximately $16 million for related contingencies. While it is difficult to predict the final outcome of the various issues that may arise during an examination, the Company believes that it has adequately provided for all contingent income tax liabilities and interest.