Note 6. Income Taxes

Total income taxes for the years ended December 31, 2011, 2010 and 2009 were allocated as follows:

	2011			2010			2009
	(in thousands)
Income tax expense on continuing operations	$	10,667		$	13,393		$	17,510
Income tax benefit on discontinued operations		(359	)		(480	)		(6,507	)
Shareholders' equity, for compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes		(5	)		(70	)		(63	)
Accumulated other comprehensive income for changes in unrecognized actuarial losses on pensions		-			1,549			55
	$	10,303		$	14,392		$	10,995

The Company and its subsidiaries file income tax returns in several jurisdictions. The provision for the federal and state income taxes attributable to income from continuing operations consists of the following components:

	Years Ended December 31,
	2011			2010		2009
	(in thousands)
Current expense (benefit)
Federal taxes	$	(8,539	)	$	6,240	$	12,536
State taxes		3,233			2,535		3,979
Total current provision (benefit)		(5,306	)		8,775		16,515
Deferred expense (benefit)
Federal taxes		15,749			3,991		1,787
State taxes		224			627		(792	)
Total deferred provision		15,973			4,618		995
Income tax expense on continuing operations	$	10,667		$	13,393	$	17,510

A reconciliation of income taxes determined by applying the federal and state tax rates to income from continuing operations is as follows for the years ended December 31, 2011, 2010 and 2009:

		Years Ended December 31
		2011			2010		2009
	(in thousands)
Computed “expected” tax expense (35%)		$	8,472		$	11,258	$	14,932
State income taxes, net of federal tax effect			2,247			2,055		2,071
Other, net			(52	)		80		507
Income tax expense on continuing operations		$	10,667		$	13,393	$	17,510

Net deferred tax assets and liabilities consist of the following at December 31, 2011 and 2010:

	2011			2010
Deferred tax assets:	(in thousands)
State net operating loss carry-forwards, net of federal tax	$	590		$	707
Lease obligations		1,168			1,073
Deferred revenues		64			242
Accrued pension/ERO costs		902			962
Loss on investments, net		783			564
Accrued compensation costs		697			274
Inventory reserves		80			152
Asset retirement obligations		3,131			2,688
Allowance for doubtful accounts		320			173
Other, net		256			238
Total gross deferred tax assets		7,991			7,073
Less valuation allowance		(518	)		(629	)
Net deferred tax assets		7,473			6,444

Deferred tax liabilities:
Plant and equipment, including intangibles		58,593			41,592
Deferred activation charges		53			52
Total gross deferred tax liabilities		58,646			41,644
Net deferred tax liabilities	$	51,173		$	$35,200

In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon generating future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods for which the deferred tax assets are deductible, management believes it more likely than not that the state net operating loss carry-forwards from its Converged Services segment will not be realized. Primarily as a result of the sales of service contracts and assets described above (see Note 2), the valuation allowance has been reduced by $111 thousand during 2011, bringing the total valuation allowance to $518 thousand at December 31, 2011. The Company has generated net operating loss carry-forwards of approximately $13.4 million from its operations in several states. These carry-forwards expire at varying dates beginning in the year 2019 and ending in 2031.

A Federal net operating loss was generated in 2011 in the amount of $25 million, which is primarily attributable to 100% bonus depreciation. The Federal net operating loss expires in 2031, but is expected to be fully realized with a carryback refund claim.

As of December 31, 2011 and 2010, the Company had no unrecognized tax benefits. It is the Company's policy to record interest and penalties related to unrecognized tax benefits in income before taxes.

The Company files U.S. federal income tax returns and various state and local income tax returns. With few exceptions, years prior to 2008 are no longer subject to examination. The Company is under audit in the state of Maryland for the 2007, 2008 and 2009 tax years, which is estimated to begin in May, 2012. The Company is under audit in the state of Pennsylvania for the 2009 tax year, which is estimated to begin in December, 2012. No other state or federal income tax audits were in process as of December 31, 2011.