Income Taxes

The components of income (loss) before income taxes from continuing operations for each of the years ended December 31 were as follows:



	2011		2010		2009
	(In thousands)
United States	$	333,486	$	336,450	$	(227,021	)
Foreign	2,740		30,100		7,655
Income (loss) before income taxes from continuing operations	$	336,226	$	366,550	$	(219,366	)

Income tax expense (benefit) from continuing operations for the years ended December 31 was as follows:



	2011			2010			2009
	(In thousands)
Current:
Federal	$	(7,188	)	$	37,014		$	64,389
State	778			10,589			8,284
Foreign	127			4,451			254
	(6,283		)	52,054			72,927
Deferred:
Income taxes -
Federal	105,528			62,618			(147,607		)
State	13,157			4,147			(22,370		)
Investment tax credit - net	240			(180		)	213
	118,925			66,585			(169,764		)
Change in uncertain tax benefits	(1,048		)	3,230			562
Change in accrued interest	(1,320		)	661			183
Total income tax expense (benefit)	$	110,274		$	122,530		$	(96,092	)

Components of deferred tax assets and deferred tax liabilities at December 31 were as follows:



	2011			2010
	(In thousands)
Deferred tax assets:
Regulatory matters	$	119,189		$	114,427
Accrued pension costs	95,260			82,085
Asset retirement obligations	26,380			24,391
Legal and environmental contingencies	21,788			13,622
Compensation-related	16,241			17,261
Other	41,055			40,307
Total deferred tax assets	319,913			292,093
Deferred tax liabilities:
Depreciation and basis differences on property, plant and equipment	715,482			679,809
Basis differences on natural gas and oil producing properties	210,146			152,455
Regulatory matters	84,963			64,017
Intangible asset amortization	14,307			14,843
Other	23,774			20,348
Total deferred tax liabilities	1,048,672			931,472
Net deferred income tax liability	$	(728,759	)	$	(639,379	)

As of December 31, 2011 and 2010, no valuation allowance has been recorded associated with the previously identified deferred tax assets.

The following table reconciles the change in the net deferred income tax liability from December 31, 2010, to December 31, 2011, to deferred income tax expense:



	2011
(In thousands)
Change in net deferred income tax liability from the preceding table	$	89,380
Deferred taxes associated with other comprehensive loss	9,678
Deferred taxes associated with discontinued operations	8,090
Other	11,777
Deferred income tax expense for the period	$	118,925

Total income tax expense (benefit) differs from the amount computed by applying the statutory federal income tax rate to income (loss) before taxes. The reasons for this difference were as follows:



Years ended December 31,	2011					2010					2009
	Amount			%		Amount			%		Amount			%
	(Dollars in thousands)
Computed tax at federal statutory rate	$	117,679		35.0		$	128,293		35.0		$	(76,778	)	35.0
Increases (reductions) resulting from:
State income taxes, net of federal income tax benefit (expense)	10,653			3.2		10,210			2.8		(7,280		)	3.3
Resolution of tax matters and uncertain tax positions	(3,906		)	(1.2	)	667			.2		881			(.4	)
Federal renewable energy credit	(3,485		)	(1.0	)	(2,185		)	(.6	)	(1,452		)	.7
Depletion allowance	(3,266		)	(1.0	)	(2,810		)	(.8	)	(2,320		)	1.0
Deductible K-Plan dividends	(2,282		)	(.7	)	(2,309		)	(.6	)	(2,369		)	1.1
Foreign operations	(391		)	(.1	)	(588		)	(.2	)	(1,148		)	.5
Domestic production activities deduction	—			—		—			—		(856		)	.4
Other	(4,728		)	(1.4	)	(8,748		)	(2.4	)	(4,770		)	2.2
Total income tax expense (benefit)	$	110,274		32.8		$	122,530		33.4		$	(96,092	)	43.8

The income tax benefit in 2009 resulted largely from the Company's write-down of natural gas and oil properties, as discussed in Note 1.

Deferred income taxes have been accrued with respect to temporary differences related to the Company's foreign operations. The amount of cumulative undistributed earnings for which there are temporary differences is approximately $6.9 million at December 31, 2011. The amount of deferred tax liability, net of allowable foreign tax credits, associated with the undistributed earnings at December 31, 2011, was approximately $1.6 million.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state, local and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years ending prior to 2007.

A reconciliation of the unrecognized tax benefits (excluding interest) for the years ended December 31 was as follows:



	2011			2010		2009
	(In thousands)
Balance at beginning of year	$	9,378		$	6,148	$	5,586
Additions for tax positions of prior years	4,172			3,230		562
Settlements	(2,344		)	—		—
Balance at end of year	$	11,206		$	9,378	$	6,148

Included in the balance of unrecognized tax benefits at December 31, 2011 and 2010, were $6.6 million and $3.8 million, respectively, of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $6.0 million, including approximately $1.4 million for the payment of interest and penalties at December 31, 2011, and was $7.1 million, including approximately $1.5 million for the payment of interest and penalties at December 31, 2010.

It is likely that substantially all of the unrecognized tax benefits, as well as interest, at December 31, 2011, will be settled in the next twelve months due to the anticipated settlement of federal and state audits.

For the years ended December 31, 2011, 2010 and 2009, the Company recognized approximately $780,000, $2.0 million and $190,000, respectively, in interest expense. Penalties were not material in 2011, 2010 and 2009. The Company recognized interest income of approximately $1.9 million, $20,000 and $165,000 for the years ended December 31, 2011, 2010 and 2009, respectively. The Company had accrued liabilities of approximately $970,000 and $2.3 million at December 31, 2011 and 2010, respectively, for the payment of interest.