Income Taxes

Income before income taxes and income taxes (benefit) are comprised of the following:



(Thousands)	2012			2011			2010
Income before income taxes:
Domestic	$	23,379		$	53,648		$	65,489
Foreign	10,263			618			5,479
Total income before income taxes	$	33,642		$	54,266		$	70,968

Income taxes:
Current income taxes:
Domestic	$	7,825		$	15,487		$	10,130
Foreign	3,615			468			788
Total current	$	11,440		$	15,955		$	10,918

Deferred income taxes:
Domestic	$	(3,084	)	$	(2,710	)	$	14,075
Foreign	(44		)	(351		)	719
Valuation allowance	666			1,393			(1,171		)
Total deferred	$	(2,462	)	$	(1,668	)	$	13,623

Total income taxes	$	8,978		$	14,287		$	24,541

The reconciliation of the federal statutory and effective income tax rates follows:



	2012		2011		2010
Federal statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal tax effect	(0.3	)	0.7		(0.4	)
Effect of excess of percentage depletion over cost depletion	(7.3	)	(3.9	)	(2.5	)
Medicare Part D	—		—		2.2
Manufacturing production deduction	(2.2	)	(3.5	)	(1.9	)
Officers’ compensation	1.1		0.7		1.5
Adjustment to unrecognized tax benefits	(0.6	)	(3.4	)	0.8
Taxes on foreign source income	(0.1	)	(0.2	)	(1.3	)
Retiree medical expense	(2.0	)	—		—
Valuation allowance	2.0		2.5		1.6
Other items	1.1		(1.6	)	(0.4	)
Effective tax rate	26.7	%	26.3	%	34.6	%

Included in domestic income taxes, as shown in the Consolidated Statements of Income, are $(0.1) million, $0.6 million and $(0.4) million of state and local income taxes in 2012, 2011 and 2010, respectively.

The Company had domestic and foreign income tax payments of $13.2 million, $20.7 million and $8.8 million in 2012, 2011 and 2010, respectively.

Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting bases and the tax bases of assets and liabilities. Deferred tax assets and (liabilities) recorded in the Consolidated Balance Sheets consist of the following:



	December 31,
(Thousands)	2012			2011
Asset (liability)
Post-retirement benefits other than pensions	$	12,003		$	11,047
Other reserves	12,804			11,476
Environmental reserves	1,958			1,932
Inventory	4,303			3,776
Pensions	27,547			21,790
Net operating loss and credit carryforwards	5,186			5,199
Miscellaneous	357			377
Subtotal	64,158			55,597
Valuation allowance	(4,584		)	(3,917		)
Total deferred tax assets	59,574			51,680
Depreciation	(19,388		)	(21,133		)
Amortization	(7,939		)	(8,016		)
Capitalized interest expense	(195		)	(224		)
Mine development	(2,832		)	(782		)
Derivative instruments and hedging activities	(168		)	(581		)
Total deferred tax liabilities	(30,522		)	(30,736		)
Net deferred tax asset	$	29,052		$	20,944

The Company had deferred income tax assets offset with a valuation allowance for state and foreign net operating losses and state investment tax credit carryforwards. The Company intends to maintain a valuation allowance on these deferred tax assets until a realization event occurs to support reversal of all or a portion of the allowance.

At December 31, 2012, for income tax purposes, the Company had foreign net operating loss carryforwards of $2.9 million that do not expire, and $11.8 million that expire in calendar years 2013 through 2021. The Company had state net operating loss carryforwards of $18.3 million that expire in calendar years 2013 through 2029. The Company had state tax credits of $2.6 million that expire in calendar years 2013 through 2026.

The Company files income tax returns in the U.S. federal jurisdiction, and in various state, local and foreign jurisdictions. With limited exceptions, the Company is no longer subject to U.S. federal examinations for years before 2009, state and local examinations for years before 2008, and foreign examinations for tax years before 2006. The Company is presently under examination for the income tax filings in four state jurisdictions.

A reconciliation of the Company’s unrecognized tax benefits for the year-to-date period ending December 31, 2012 is as follows:



(Thousands)	2012			2011
Balance as of January 1	$	1,969		$	2,944
Additions to tax provisions related to the current year	149			—
Additions to tax positions related to prior years	174			878
Reduction to tax positions related to prior years	(20		)	—
Lapses on statutes of limitations	(455		)	(1,853		)
Settlements	(50		)	—
Balance as of December 31	$	1,767		$	1,969

At December 31, 2012, the Company had $1.8 million of unrecognized tax benefits, of which $0.8 million would affect the Company’s effective tax rate if recognized.

The Company classifies all interest and penalties as income tax expense. The amount of interest and penalties, net of related federal tax benefit, recognized in earnings was immaterial during 2012 and 2011. As of December 31, 2012 and 2011, accrued interest and penalties, net of related federal tax benefit, was immaterial and $0.1 million, respectively.

A provision has not been made with respect to $41.7 million of unremitted earnings at December 31, 2012 because such earnings may be considered to be reinvested indefinitely. It is not practical to estimate the amount of unrecognized deferred tax liability for undistributed foreign earnings.