Note 12.    Income Taxes

Income tax expense from continuing operations is summarized as follows (in thousands):

Income tax expense from continuing operations recognized in the accompanying consolidated statements of earnings differs from the amounts computed by applying the Federal income tax rate to earnings from continuing operations before income tax expense. A reconciliation of income taxes at the Federal statutory rate to the effective tax rate is summarized in the following table:

Temporary differences and carryforwards that gave rise to deferred tax assets and liabilities include the following items (in thousands):

The valuation allowance primarily represents a reserve for foreign loss carryforwards for which utilization is uncertain. Certain of these foreign loss carryforwards may be carried forward indefinitely, with the remaining $5.8 million expiring at various dates between 2013 and 2021.

Changes in the Company’s gross liability for unrecognized tax benefits, excluding interest and penalties, are as follows (in thousands):

Substantially all of these unrecognized tax benefits, if recognized, would impact the effective income tax rate. As of August 31, 2012, 2011 and 2010, the Company recognized $4.5 million, $5.1 million and $4.2 million, respectively for interest and penalties related to unrecognized tax benefits. With few exceptions, the Company is no longer subject to U.S. federal, state and local and foreign income tax examinations by tax authorities in our major tax jurisdictions for years before fiscal 2005. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits could decrease by approximately $6.5 to $8.0 million within the next twelve months.

The Company’s policy is to remit earnings from foreign subsidiaries only to the extent any resultant foreign income taxes are creditable in the United States. Accordingly, the Company does not currently provide for the additional United States and foreign income taxes which would become payable upon remission of undistributed earnings of foreign subsidiaries. Undistributed earnings on which additional income taxes have not been provided amounted to approximately $412.8 million at August 31, 2012. If all such undistributed earnings were remitted, an additional income tax provision of approximately $86.2 million would have been necessary as of August 31, 2012.

Earnings before income taxes, including both continuing and discontinued operations, are summarized as follows (in thousands):

Both domestic and foreign pre-tax earnings are impacted by changes in sales levels, acquisition and divestiture activities (see Note 2 “Acquisitions” and Note 3 “Discontinued Operations”), restructuring costs and the related benefits, growth investments, debt levels, interest rates and the impact of changes in foreign currency exchange rates. In addition, fiscal 2012 pre-tax earnings include a $62.5 million (foreign) non-cash asset impairment charge and a $16.8 million (domestic) debt refinancing charge.

Cash paid for income taxes, net of refunds was $56.5 million, $23.1 million and $6.5 million during the years ended August 31, 2012, 2011 and 2010, respectively.