INCOME TAXES

12 Months Ended

Dec. 31, 2011

INCOME TAXES [Abstract]

INCOME TAXES

INCOME TAXES

	Years ended December 31,
Components of Income Before Taxes	2011		2010			2009
	($ in millions)
Domestic	$	360.3	$	74.4		$	193.9
Foreign		19.1		2.5			16.0
Income before taxes	$	379.4	$	76.9		$	209.9
Components of Income Tax Provision
Current expense:
Federal	$	39.5	$	6.7		$	5.3
State		6.1		6.4			(3.5	)
Foreign		5.5		(2.7	)		-
		51.1		10.4			1.8
Deferred		86.6		1.7			72.4
Income tax provision	$	137.7	$	12.1		$	74.2

The following table accounts for the difference between the actual tax provision and the amounts obtained by applying the statutory U.S. federal income tax rate of 35% to the income before taxes.

	Years ended December 31,
Effective Tax Rate Reconciliation (Percent)	2011			2010			2009
Statutory federal tax rate		35.0	%		35.0	%		35.0	%
Foreign rate differential		(0.1	)		(0.6	)		(0.1	)
Domestic manufacturing/export tax incentive		(1.0	)		(0.9	)		(0.3	)
Dividends paid to CEOP		(0.3	)		(1.5	)		(0.6	)
State income taxes, net		1.1			1.6			2.6
Change in tax contingencies		(1.1	)		(11.9	)		(0.9	)
Change in valuation allowance		0.1			(5.6	)		0.1
Return to provision		0.5			(0.8	)		(0.7	)
Remeasurement of deferred taxes		(1.3	)		-			-
Incremental tax effect of SunBelt remeasurement		3.3			-			-
Other, net		0.1			0.4			0.3
Effective tax rate		36.3	%		15.7	%		35.4	%

	December 31,
Components of Deferred Tax Assets and Liabilities	2011			2010
	($ in millions)
Deferred tax assets:
Pension and postretirement benefits	$	48.4		$	43.4
Environmental reserves		66.5			68.7
Asset retirement obligations		28.5			29.8
Accrued liabilities		42.4			46.8
Tax credits		10.2			15.7
Federal and state net operating losses		5.7			5.7
Capital loss carryforward		15.0			14.7
Other miscellaneous items		13.7			2.8
Total deferred tax assets		230.4			227.6
Valuation allowance		(24.1	)		(23.0	)
Net deferred tax assets		206.3			204.6
Deferred tax liabilities:
Property, plant and equipment		147.8			157.1
Intangible amortization		10.5			10.4
Inventory and prepaids		4.3			7.4
Partnerships		92.4			7.2
Total deferred tax liabilities		255.0			182.1
Net deferred tax (liability) asset	$	(48.7	)	$	22.5

Realization of the net deferred tax assets, irrespective of indefinite lived deferred tax liabilities, is dependent on future reversals of existing temporary differences and adequate future taxable income, exclusive of reversing temporary differences and carryforwards.  Although realization is not assured, we believe that it is more likely than not that the net deferred tax assets will be realized.

At December 31, 2011, we had no actual foreign tax credit carryforwards.  At December 31, 2010, we had federal tax benefits of $2.1 million relating to actual foreign tax credit carryforwards.  During 2010, our Pioneer Canada subsidiary realized a net operating loss, which was carried back under Canadian tax law to obtain a refund for Canadian taxes paid in 2007 and 2008.  With this carryback of the net operating losses, the foreign tax credits generated by those taxes paid were eliminated, thus removing the foreign tax credit carryforward and the associated valuation allowance.  Our tax benefits for the foreign tax credit carryforwards and the associated valuation allowance were as follows:

	Foreign Tax Benefit			Valuation Allowance
	($ in millions)
Balance at January 1, 2010	$	3.8		$	(3.8	)
Increases for prior year limitation		0.8			(0.8	)
Increases for current year limitation		2.4			-
Decreases for carryback of current year foreign losses		(4.9	)		4.6
Balance at December 31, 2010		2.1			-
Decreases for prior year utilization		(1.8	)		-
Increases for current year generation		3.0			-
Decreases for current year utilization		(3.3	)		-
Balance at December 31, 2011	$	-		$	-

In 2007, we acquired federal tax benefits of $4.8 million as part of the Pioneer acquisition associated with the expected future foreign tax credits that will be generated by the deferred tax liabilities of Pioneer's Canadian subsidiary.  At December 31, 2011, we had federal tax benefits of $0.9 million recorded associated with the expected future foreign tax credits.  Realization of the tax benefits associated with such foreign tax credits is dependent upon reversal of Canadian temporary differences, future U.S. taxable income and future foreign source taxable income.  We believe that it is more likely than not that the deferred tax benefits will be realized and no valuation allowance is necessary.

We acquired a U.S. net operating loss carryforward (NOL) of approximately $6.6 million (representing $2.3 million of deferred tax assets) as part of the Pioneer acquisition.  At December 31, 2011, we had approximately $4.1 million (representing $1.4 million of deferred tax assets) remaining, that will expire in years 2017 through 2020, if not utilized.  The utilization of this NOL is limited under Section 382 of the Internal Revenue Code to $0.5 million in each year through 2020.  We believe that it is more likely than not that the NOL will be realized and no valuation allowance is necessary.

At December 31, 2011, we had deferred state tax benefits of $2.0 million relating to state NOLs, which are available to offset future state taxable income through 2030.  Due to uncertainties regarding realization of the tax benefits, a valuation allowance of $0.7 million has been applied against the deferred state tax benefits at December 31, 2011.

At December 31, 2011, we had deferred state tax benefits of $9.3 million relating to state tax credits, which are available to offset future state tax liabilities through 2026.  Due to uncertainties regarding the realization of these state tax credits, a valuation allowance of $8.4 million has been applied against the deferred state tax credits at December 31, 2011.

At December 31, 2011, we had a capital loss carryforward of $38.7 million (representing $15.0 million of deferred tax assets) that is available to offset future consolidated capital gains that will expire in years 2012 through 2016 if not utilized.  Due to uncertainties regarding the realization of the capital loss carryforward, a valuation allowance of $15.0 million has been applied against the deferred tax benefit at December 31, 2011.

The total amount of undistributed earnings of foreign subsidiaries was approximately $12.9 million at December 31, 2011.  Deferred taxes are provided for earnings of non-U.S. affiliates when we plan to remit those earnings.  A portion of the undistributed earnings have been permanently reinvested and for those earnings no deferred taxes have been provided.  Deferred taxes have not been provided on the excess book basis in the shares of certain foreign subsidiaries because these basis differences are not expected to reverse in the foreseeable future.  The undistributed earnings and excess book basis differences could reverse through a sale, receipt of dividends from the subsidiaries, as well as various other events.  It is not practical to calculate the residual income tax that would result if these basis differences reversed due to the complexities of the tax law and the hypothetical nature of the calculations.

As of December 31, 2011, we had $37.9 million of gross unrecognized tax benefits, which would have a net $36.1 million impact on the effective tax rate, if recognized.  If these tax benefits are not recognized, the result would be cash tax payments of $28.5 million.  As of December 31, 2010, we had $41.5 million of gross unrecognized tax benefits, all of which would have a net $39.4 million impact on the effective tax rate, if recognized.  The change for 2011 primarily relates to additional gross unrecognized benefits for current year tax positions, as well as the expiration of the statute of limitations in domestic jurisdictions and settlement of ongoing audits.  The reduction included $2.1 million of tax positions associated with discontinued operations.  The amounts of unrecognized tax benefits were as follows:

	December 31,
	2011			2010
	($ in millions)
Beginning balance	$	41.5		$	50.8
Increase for prior year tax positions		0.1			0.2
Decrease for prior year tax positions		-			(0.9	)
Increase for current year tax positions		-			1.7
Decrease due to tax settlements		(0.1	)		(2.3	)
Reductions due to statute of limitations		(3.6	)		(8.0	)
Ending balance	$	37.9		$	41.5

We recognize interest and penalty expense related to unrecognized tax positions as a component of the income tax provision.  As of December 31, 2011 and 2010, interest and penalties accrued were $3.2 million and $3.5 million, respectively.  For 2011, 2010 and 2009, we expensed interest and penalties of $0.7 million, $0.8 million and $1.1 million, respectively.

As of December 31, 2011, we believe it is reasonably possible that our total amount of unrecognized tax benefits will decrease by approximately $2.4 million over the next twelve months.  The anticipated reduction primarily relates to settlements with tax authorities and the expiration of federal, state, and foreign statutes of limitation.

We operate primarily in North America and file income tax returns in numerous jurisdictions.  Our tax returns are subject to examination by various federal, state and local authorities.  For our primary tax jurisdictions, the tax years that remain subject to examination are as follows:

	Tax Years
U.S. federal income tax	2007-2010
U.S. state income tax	2005-2010
Canadian federal income tax	2007-2010
Canadian provincial income tax	2007-2010

During third quarter 2010, the IRS completed an audit of our U.S. income tax return for 2006.  During second quarter 2010, the Canada Revenue Agency completed an audit of a portion of our Canadian tax returns for the 2005 to 2007 tax years.  No issues arose under either the U.S. audit or the Canadian audit that required an additional tax liability to be recognized.  We believe we have adequately provided for all tax positions; however, amounts asserted by taxing authorities could be greater than our accrued position.