Notes to Consolidated Financial Statements

NOTE 11. INCOME TAXES

Income from continuing operations before income taxes consisted of:

(thousands)	2004	2003	2002
Domestic	$ 278,841	$ 286,003	$ 258,779
Foreign	209,937	162,415	93,192
Total	$ 488,778	$ 448,418	$ 351,971

The provision for income taxes consisted of:

(thousands)	2004	2003	2002
Federal and state	$  86,300	$  78,928	$  59,601
Foreign	67,681	49,687	30,557
Currently payable	153,981	128,615	90,158
Federal and state	22,966	33,178	43,974
Foreign	1,343	9,277	5,949
Deferred	24,309	42,455	49,923
Provision for income taxes	$178,290	$171,070	$140,081

The company's overall net deferred tax assets and deferred tax liabilities were comprised of the following:

December 31 (thousands)	2004	2003	2002
Deferred tax assets      Postretirement health care          and pension benefits	$       827	$    1,008	$ 19,249
Other accrued liabilities	57,316	53,924	52,399
Loss carryforwards	11,709	11,756	13,932
Other, net	27,250	27,856	28,090
Valuation allowance	(2,847)	(2,719)	(1,462)
Total	94,255	91,825	112,208
Deferred tax liabilities      Property, plant and equipment          basis differences	72,204	61,062	53,320
Intangible assets	74,064	49,465	38,696
Other, net	4,055	4,714	3,273
Total	150,323	115,241	95,289
Net deferred tax assets (liabilities)	$(56,068)	$(23,416)	$ 16,919

A reconciliation of the statutory U.S. federal income tax rate to the company's effective income tax rate was:

	2004	2003	2002
Statutory U.S. rate	35.0%	35.0%	35.0%
State income taxes, net      of federal benefit	2.5	2.7	3.2
Foreign operations	(1.0)	0.5	1.0
Other, net	0.0	(0.1)	0.6
Effective income tax rate	36.5%	38.1%	39.8%

Cash paid for income taxes was approximately $163 million in 2004, $90 million in 2003 and $95 million in 2002.

As of December 31, 2004, the company had undistributed earnings of international affiliates of approximately $525 million. These earnings are considered to be reinvested indefinitely or available for distribution with foreign tax credits available to offset the amount of applicable income tax and foreign withholding taxes that might be payable on earnings. It is impractical to determine the amount of incremental taxes that might arise if all undistributed earnings were distributed.

On October 22, 2004, the President signed the American Jobs Creation Act of 2004 (the "Act"). The Act provides a deduction for income from qualified domestic production activities, which will be phased in from 2005 through 2010. In return, the Act also provides for a two-year phase-out of the existing extra-territorial income exclusion (ETI) for foreign sales that was viewed to be inconsistent with international trade protocols by the European Union.

Under the guidance in FASB Staff Position No. FAS 109-1, Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004, the deduction will be treated as a "special deduction" as described in SFAS No. 109. As such, the special deduction has no effect on deferred tax assets and liabilities existing at the enactment date. Rather, the impact of this deduction will be reported in the period in which the deduction is claimed on the company's tax return. The company expects to benefit from this deduction with a modest benefit beginning in 2005.

The Act also creates a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an 85 percent dividends received deduction for certain dividends from controlled foreign corporations. The deduction is subject to a number of limitations and, as of today, uncertainty remains as to how to interpret numerous provisions in the Act. As such, we are not yet in a position to decide on whether, and to what extent, we might repatriate foreign earnings that have not yet been remitted to the U.S. The company does not expect to be able to complete its evaluation until after Congress or the Treasury Department provides clarifying language on key elements of the provision. The company expects to complete its evaluation of the effects of the repatriation provision within a reasonable period of time following the publication of the additional clarifying language.