INCOME TAXES

9 Months Ended

Sep. 30, 2011

INCOME TAXES [Abstract]

INCOME TAXES [Text Block]

6. INCOME TAXES

The effective income tax rate for the three months ended September 30, 2011 increased to 61.0 percent from 39.9 percent in the prior year.  The effective income tax rate for both quarters is higher than the expected annual effective income tax rate as it reflects the impact of a reduction in projected annual untaxed foreign shipping earnings identified in the respective quarters.  The year-to-date adjustment to income taxes recognized in the quarter resulting from these changes has a larger impact in quarters with lower income.  The effective income tax rate for the nine months ended September 30, 2011 increased to 35.4 percent from 33.7 percent in the prior year.  The higher effective income tax rate for the nine months ended September 30, 2011 is due primarily to lower forecasted annual untaxed foreign shipping earnings and an increase to the Illinois state income tax rate, partially offset by an adjustment to reduce certain state income tax liabilities in the first quarter of 2011 and lower forecasted annual pretax income.  Effective January 1, 2011, the State of Illinois raised the corporate income tax rate from 7.3 percent to 9.5 percent.

In 2006, the company reorganized certain shipping and related operations.  The reorganization allows the company to take advantage of certain provisions of the Jobs Act that provide the opportunity for tax savings subsequent to the date of the reorganization.  Generally, to the extent foreign shipping earnings are not repatriated to the United States, such earnings are not expected to be subject to current taxation.  In addition, to the extent such earnings are determined to be indefinitely reinvested offshore, no deferred income tax expense would be recorded by the company.  For the three months ended September 30, 2011 and 2010, an income tax benefit (expense) has not been recognized (provided) on approximately $6 million and $(1) million, respectively, of foreign company shipping losses (earnings).  For the nine months ended September 30, 2011, an income tax benefit has not been recognized on approximately $14 million of foreign company shipping losses.  There were no significant untaxed foreign company shipping earnings for the nine months ended September 30, 2010.  As of September 30, 2011, Nicor has not recorded deferred income taxes of approximately $54 million on approximately $156 million of cumulative undistributed foreign earnings.

The company's major tax jurisdictions include the United States and Illinois, with tax returns examined by the IRS and IDR, respectively.  At September 30, 2011, the years that remain subject to examination include years beginning after 2007 for the IRS and after 2006 for the IDR.  The company had no liability for unrecognized tax benefits at September 30, 2011.  The decrease in the liability for unrecognized tax benefits from $2.9 million at December 31, 2010 was due to a reduction in state tax reserves.  The company does not believe that it is reasonably possible that a significant change in the liability for unrecognized tax benefits could occur within 12 months.

The balance of unamortized investment tax credits at September 30, 2011, December 31, 2010 and September 30, 2010 was $22.9 million, $24.3 million and $23.7 million, respectively.