TAXES ON INCOME:

The following tables provide a summary of the current and deferred components of income tax expense (benefit) from continuing operations for the periods presented:



	Successor			Predecessor
	Period from Acquisition (March 26, 2012) to December 31, 2012			Period from January 1, 2012 to March 25, 2012			Years Ended December 31,
				Period from January 1, 2012 to March 25, 2012			2011			2010
Current expense (benefit):
Federal	$	(43	)	$	—		$	2		$	(11	)
State	3			(1		)	(7		)	(3		)
Total	(40		)	(1		)	(5		)	(14		)
Deferred expense (benefit):
Federal	81			10			76			82
State	(2		)	3			9			12
Total	79			13			85			94
Total income tax expense from continuing operations	$	39		$	12		$	80		$	80

Effective tax rate	78		%	27		%	27		%	29		%

The differences between the Company’s EITR and the U.S. federal income tax statutory rate for the periods presented were as follows:



	Successor			Predecessor
	Period from Acquisition (March 26, 2012) to December 31, 2012			Period from January 1, 2012 to March 25, 2012			Years Ended December 31,
				Period from January 1, 2012 to March 25, 2012			2011			2010
Computed statutory income tax expense at 35%	$	17		$	16		$	103		$	97
Changes in income taxes resulting from:
Earnings from unconsolidated investments related to anticipated receipt of dividends	5			(5		)	(27		)	(27		)
Nondeductible executive compensation	18			—			—			—
State income taxes, net of federal income tax benefit	1			1			1			6
Other	(2		)	—			3			4
Actual income tax expense from continuing operations	$	39		$	12		$	80		$	80

Deferred income taxes result from temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The table below summarizes the principal components of the Company’s deferred tax assets (liabilities) as follows:



	Successor			Predecessor
	December 31, 2012			December 31, 2011
Deferred income tax assets:
Alternative minimum tax credit	$	37		$	38
Pension and other postretirement benefits	24			54
Derivative financial instruments (interest rates)	31			32
Long-term debt	78			—
Net operating loss	70			25
Other	34			35
Total deferred income tax assets	274			184

Deferred income tax liabilities:
Property, plant and equipment	(1,423		)	(1,139		)
Unconsolidated investments	(280		)	(29		)
Other	(56		)	(48		)
Total deferred income tax liabilities	(1,759		)	(1,216		)

Net deferred income tax liability	(1,485		)	(1,032		)
Less: current income tax assets	105			13
Accumulated deferred income taxes	$	(1,590	)	$	(1,045	)

The Company has federal net operating loss (NOL) carryforwards of $184 million, of which $18 million will expire in 2030, $40 million will expire in 2031, and $126 million will expire in 2032. The Company has state NOL carryforward benefits of $7 million, expiring between 2013 and 2032.

A reconciliation of the changes in unrecognized tax benefits for the periods presented is as follows:



	Successor			Predecessor
	Period from Acquisition (March 26, 2012) to December 31, 2012			Period from January 1, 2012 to March 25, 2012		Years Ended December 31,
				Period from January 1, 2012 to March 25, 2012		2011		2010
Beginning balance	$	19		$	19	$	16	$	13
Additions:
Tax positions taken in prior years	—			—		—		—
Tax positions taken in current year	—			—		3		3
Reductions:
Lapse of statute	(3		)	—		—		—
Ending balance	$	16		$	19	$	19	$	16

As of December 31, 2012, the Company has unrecognized tax benefits for capitalization policies and state filing positions of $2 million and $14 million, respectively. However, only the $14 million ($9 million, net of federal tax) unrecognized tax benefits for certain state filing positions would impact the Company’s EITR if recognized. The Company believes it is reasonably possible that its unrecognized tax benefits may be reduced by $4 million ($2 million, net of federal tax) within the next twelve months due to settlement of certain state filing positions.

The Company’s policy is to classify and accrue interest expense and penalties on income tax underpayments (overpayments) as a component of income tax expense in its consolidated statements of operations, which is consistent with the recognition of these items in prior reporting periods.

During 2012, the Company recognized interest and penalties of less than $1 million. At December 31, 2012, the Company has interest and penalties accrued of $2 million ($2 million, net of tax).

The Company is no longer subject to U.S. federal, state or local examinations for the tax years prior to 2004.

The Company is under examination for the tax years 2004 through 2009. As of December 31, 2012, the IRS has proposed only one adjustment for the years under examination. For the 2006 tax year, the IRS is challenging $545 million of the $690 million of deferred gain associated with a like-kind exchange involving certain assets of the Distribution segment and the Gathering and Processing segment. The Company will vigorously defend and believes it will prevail against this challenge by the IRS. Accordingly, no unrecognized tax benefit has been recorded with respect to this tax position.