Income Taxes

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



	2012			2011		2010
	(In thousands)
United States	$	(47,175	)	$	333,486	$	336,450
Foreign	1,708			2,740		30,100
Income (loss) before income taxes from continuing operations	$	(45,467	)	$	336,226	$	366,550

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



	2012			2011			2010
	(In thousands)
Current:
Federal	$	(26,858	)	$	(7,188	)	$	37,014
State	858			778			10,589
Foreign	(75		)	127			4,451
	(26,075		)	(6,283		)	52,054
Deferred:
Income taxes:
Federal	(1,224		)	105,528			62,618
State	(6,323		)	13,157			4,147
Investment tax credit - net	44			240			(180		)
	(7,503		)	118,925			66,585
Change in uncertain tax positions	1,974			(1,048		)	3,230
Change in accrued interest	458			(1,320		)	661
Total income tax expense (benefit)	$	(31,146	)	$	110,274		$	122,530

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



	2012			2011
	(In thousands)
Deferred tax assets:
Regulatory matters	$	121,781		$	119,189
Accrued pension costs	85,037			95,260
Asset retirement obligations	26,748			26,380
Compensation-related	23,441			16,241
Legal and environmental contingencies	8,046			21,788
Other	39,792			41,055
Total deferred tax assets	304,845			319,913
Deferred tax liabilities:
Depreciation and basis differences on property, plant and equipment	755,392			715,482
Basis differences on oil and natural gas producing properties	167,113			210,146
Regulatory matters	82,077			84,963
Intangible asset amortization	14,078			14,307
Other	18,441			23,774
Total deferred tax liabilities	1,037,101			1,048,672
Net deferred income tax liability	$	(732,256	)	$	(728,759	)

As of December 31, 2012 and 2011, 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, 2011, to December 31, 2012, to deferred income tax expense:



	2012
(In thousands)
Change in net deferred income tax liability from the preceding table	$	3,497
Deferred taxes associated with other comprehensive loss	1,267
Deferred taxes associated with discontinued operations	(9,863		)
Other	(2,404		)
Deferred income tax expense for the period	$	(7,503	)

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,	2012					2011					2010
	Amount			%		Amount			%		Amount			%
	(Dollars in thousands)
Computed tax at federal statutory rate	$	(15,914	)	35.0		$	117,679		35.0		$	128,293		35.0
Increases (reductions) resulting from:
State income taxes, net of federal income tax benefit (expense)	2,469			(5.4	)	10,653			3.2		10,210			2.8
Resolution of tax matters and uncertain tax positions	2,559			(5.6	)	(3,906		)	(1.2	)	667			.2
Federal renewable energy credit	(3,401		)	7.5		(3,485		)	(1.0	)	(2,185		)	(.6	)
Depletion allowance	(3,728		)	8.2		(3,266		)	(1.0	)	(2,810		)	(.8	)
Deductible K-Plan dividends	(2,829		)	6.2		(2,282		)	(.7	)	(2,309		)	(.6	)
Deferred tax rate changes	(3,083		)	6.8		(417		)	(.1	)	(1,262		)	(.3	)
AFUDC equity	(1,500		)	3.3		(873		)	(.3	)	(1,494		)	(.4	)
Other	(5,719		)	12.5		(3,829		)	(1.1	)	(6,580		)	(1.9	)
Total income tax expense (benefit)	$	(31,146	)	68.5		$	110,274		32.8		$	122,530		33.4

The income tax benefit in 2012 resulted largely from the Company's write-downs of oil and natural gas 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 $7.7 million at December 31, 2012. The amount of deferred tax liability, net of allowable foreign tax credits, associated with the undistributed earnings at December 31, 2012, was approximately $2.0 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. The 2007 through 2009 tax years are currently under audit.

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



	2012		2011			2010
	(In thousands)
Balance at beginning of year	$	11,206	$	9,378		$	6,148
Additions for tax positions of prior years	3,708		4,172			3,230
Settlements	—		(2,344		)	—
Balance at end of year	$	14,914	$	11,206		$	9,378

Included in the balance of unrecognized tax benefits at December 31, 2012 and 2011, were $8.4 million and $6.6 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 $8.5 million, including approximately $2.0 million for the payment of interest and penalties at December 31, 2012, and was $6.0 million, including approximately $1.4 million for the payment of interest and penalties at December 31, 2011.

It is likely that substantially all of the unrecognized tax benefits, as well as interest, at December 31, 2012, will be settled in the next twelve months due to the anticipated settlement of federal and state audits.

For the years ended December 31, 2012, 2011 and 2010, the Company recognized approximately $740,000, $780,000 and $2.0 million, respectively, in interest expense. Penalties were not material in 2012, 2011 and 2010. The Company recognized interest income of approximately $290,000, $1.9 million and $20,000 for the years ended December 31, 2012, 2011 and 2010, respectively. The Company had accrued liabilities of approximately $1.4 million and $970,000 at December 31, 2012 and 2011, respectively, for the payment of interest.