Income Taxes

6 Months Ended

Jun. 30, 2012

Income Taxes

Income Taxes

Note 5—Income Taxes

        The Company estimates its annual effective tax rate at the end of each interim reporting period which is used to record the provision for income taxes in the interim financial statements. The tax effect of unusual or infrequently occurring items, including effects of changes in tax laws or rates, are reported in the interim period in which they occur. The Company's interim period's income tax expense is comprised of two key elements: 1) estimated tax expense applying our annual effective tax rate to our year to date earnings, and 2) the tax effect of unusual or infrequent items that occur in the period.

        The Company's income tax provision for continuing operations, excluding discrete items, for the six months ended June 30, 2012 was $12.2 million, or an effective rate of 15.2% of pre-tax income, compared to a tax provision for the six months ended June 30, 2011 of $77.2 million, or an effective rate of 28.2% of pre-tax income. The lower effective tax rate during the first six months of 2012 compared to the same period in 2011 is the result of a larger favorable impact of percentage depletion and the change in the geographical mix of income and losses as a result of the acquisition of Western Coal Corp. The provision for income taxes for the six months ended June 30, 2012 includes a charge for discrete items of $1.0 million due primarily to recording a valuation allowance on U.S. capital losses expected to expire before utilization.

        The Company has not provided U.S. income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries as of June 30, 2012 because it intends to indefinitely reinvest such earnings outside the U.S. If this intent changes, additional income tax expense would likely be recorded due to the differential in tax rates between the U.S. and the international jurisdictions. If foreign earnings were to be repatriated in the future, the related U.S. tax liability on such repatriation may be partially reduced by any foreign income taxes previously paid on these earnings. Determination of the amount of taxes that might be paid on these undistributed earnings if eventually remitted is not practicable.