NOTE 13 – INCOME TAXES

Our tax provision for the three and nine months ended September 30, 2011 was $17.8 million and $312.3 million, respectively. Our tax provision for the same periods ended September 30, 2010 was $116.1 million and $282.5 million, respectively. The effective tax rate for the first nine months of 2011 is approximately 16.2 percent, while the effective tax rate for the first nine months of 2010 was 31 percent. The difference in the effective rate from the prior year is primarily due to the impact of the 2010 tax law change that occurred in 2010, the impact of higher pre-tax book income in 2011 over 2010 with similar book to tax differences, and the remeasurement of foreign deferred tax liabilities and assets for which the functional currency is the U.S. dollar. Additionally, the effective tax rate decreased as a result of the recognition of uncertain tax positions due to audit closures and statute expiration. Our 2011 estimated annual effective tax rate before discrete items is approximately 22.7 percent. This estimated annual effective tax rate differs from the U.S. statutory rate of 35 percent primarily due to deductions for percentage depletion in excess of cost depletion related to U.S. operations, income not subject to tax, non-taxable hedging income, non-taxable income related to noncontrolling interests in partnerships and benefits derived from operations outside the U.S., which are taxed at rates lower than the U.S. statutory rate of 35 percent.

As of September 30, 2011, our valuation allowance against certain deferred tax assets increased by $25.9 million from December 31, 2010. This increase primarily relates to ordinary losses of certain foreign operations for which future utilization is currently uncertain.

As of September 30, 2011, cumulative undistributed earnings of foreign subsidiaries included in consolidated retained earnings continue to be indefinitely reinvested in international operations. Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation of these earnings, nor is it practical to estimate the amount of income taxes that would have to be provided if we concluded that such earnings will be remitted in the future.

As of January 1, 2011, we had $79.8 million of unrecognized tax benefits recorded in Other liabilities on the Statements of Consolidated Financial Position. During the third quarter of 2011, we recognized a tax benefit for the reduction in the amount of unrecognized tax benefits to reflect the closure of the U.S. federal audit for the years 2007 and 2008. Additionally, we recognized a tax benefit for previously recorded uncertain tax positions to reflect the expiration of the statute of limitations in a foreign jurisdiction. We do not expect that the amount of unrecognized tax benefits will change significantly within the next twelve months.

Tax years that remain subject to examination are years 2009 and forward for the United States, 1993 and forward for Canada, and 2007 and forward for Australia.