Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes

Income Taxes

G.        Income Taxes

The Company estimates an annual effective income tax rate based on projected results for the year and applies this rate to income before taxes to calculate income tax expense.  Any refinements made due to subsequent information that affects the estimated annual effective income tax rate are reflected as adjustments in the current period.  Separate effective income tax rates are calculated for net income from continuing operations and any other separately reported net income items, such as discontinued operations.

The Company’s effective income tax rate for the nine months ending September 30, 2011 was 37.1%, including a 38.2% discrete tax rate for the Big Sandy Pipeline gain.  The Company currently estimates the 2011 annual effective income tax rate to be approximately 36.9%.  The estimated annual effective income tax rate as of September 30, 2010 was 36.2%.  The increase in the expected annual effective tax rate from 2010 is primarily the result of increased state income taxes partially offset by a decrease in the reserves for uncertain tax positions.

There were no material changes to the Company’s methodology or for unrecognized tax benefits during the nine months ended September 30, 2011.

During the second quarter of 2011, the Company finalized a settlement with the Internal Revenue Service (IRS) relating to its research and experimentation tax credits claimed from 2001 through 2005.  Except for claims related to tax losses carried back to those years, the consolidated federal income tax liability of the Company has been settled with the IRS through 2005.  During the second quarter of 2010 the IRS began its audit and review of the Company’s income tax filings for the 2006 through 2009 years.  The Company also is the subject of various state income tax examinations.  The Company believes that it is appropriately reserved for any uncertain tax positions.