For the Years Ended December 31, 2011, 2010 and 2009
The components of income tax expense (benefit) are as follows:
| For the year ended December 31, | |||
| 2011 | 2010 | 2009 | |
| In thousands | |||
| Current: | |||
| Federal | $ 16,723 | $ 7,624 | $ 12,474 |
| State | 2,438 | 909 | 675 |
| Foreign | 1,569 | 1,122 | 2,205 |
| 20,730 | 9,655 | 15,354 | |
| Deferred: | |||
| Federal | 5,853 | 11,704 | (5,008) |
| State | 727 | (354) | (380) |
| Foreign | (964) | (619) | (296) |
| 5,616 | 10,731 | (5,684) | |
| Total | $ 26,346 | $ 20,386 | $ 9,670 |
The tax effects of temporary differences that give rise to deferred tax assets and liabilities are presented below:
| At December 31, | ||
| In thousands | 2011 | 2010 |
| Deferred tax assets: | ||
| Deferred employee benefits | $ 66,207 | $ 50,666 |
| Inventory | 14,137 | 13,577 |
| Environmental liabilities | 5,569 | 5,536 |
| Tax loss and credit carryforwards | 9,263 | 9,532 |
| Tax deductible bond hedge | 4,336 | 4,951 |
| Accrued liabilities and other items | 5,349 | 6,491 |
| Total deferred tax assets | 104,861 | 90,753 |
| Deferred tax liabilities: | ||
| Fixed assets | (12,677) | (8,737) |
| Intangibles | (26,270) | (19,906) |
| Unamortized discount on convertible notes | (4,362) | (5,000) |
| Other items | (1,141) | (352) |
| Total deferred tax liabilities | (44,450) | (33,995) |
| Net deferred tax assets before valuation allowance | 60,411 | 56,758 |
| Valuation allowance | (3,786 ) | (4,217 ) |
| Net deferred tax assets after valuation allowance | $ 56,625 | $ 52,541 |
Valuation allowances of $3.8 million and $4.2 million at December 31, 2011 and 2010, respectively, reduced the deferred tax asset attributable to foreign loss and state loss and credit carryforwards to an amount that, based upon all available information, is more likely than not to be realized. Reversal of the valuation allowance is contingent upon the recognition of future taxable income in the respective jurisdictions or changes in circumstances which cause the realization of the benefits of the loss carryforwards to become more likely than not. The net decrease in the valuation allowance of $0.4 million is due to the generation of $0.2 million in U.S. state and Canadian loss and tax credit carryforwards, offset by utilization of $0.3 million of state carryforwards, expiration of $0.2 million of state and Canadian carryforwards, and the reversal of $0.1 million of valuation allowances on state loss carryforwards.
U.S. foreign tax credit carryforwards of $4.0 million expire between 2014 and 2020. State carryforwards are in numerous jurisdictions with varying lives.
No valuation allowance has been recorded against the other deferred tax assets because the Company believes that these deferred tax assets will, more likely than not, be realized. This determination is based largely upon the Company's earnings history, anticipated future taxable income, foreign-source income, and its ability to carryback reversing items within two years to offset taxes paid. In addition, the Company has the ability to offset deferred tax assets against deferred tax liabilities created for such items as depreciation and amortization.
Pre-tax income (loss) from foreign operations amounted to $5.1 million, $(2.8) million and $6.3 million in 2011, 2010 and 2009, respectively. Income taxes have not been provided on undistributed earnings of $19.3 million from foreign subsidiaries since it is the Company's intention to permanently reinvest such earnings or to distribute them only when it is tax efficient to do so. It is impracticable to estimate the total tax liability, if any, that would be created by the future distribution of these earnings.
The provision for income taxes differs from that computed at the federal statutory corporate tax rate as follows:
| For the year ended December 31, | |||
| 2011 | 2010 | 2009 | |
| In thousands | |||
| Federal tax at 35% statutory rate | $ 27,121 | $ 19,599 | $ 12,133 |
| State income taxes, net of federal benefit | 2,057 | 361 | 191 |
| Tax effect of: | |||
| International recapitalization | — | — | (1,577) |
| Goodwill impairment | — | 2,229 | — |
| Other, net | (2,832) | (1,803) | (1,077) |
| Income taxes | $ 26,346 | $ 20,386 | $ 9,670 |
The Company records a benefit for uncertain tax positions in the financial statements only when it determines it is more likely than not that such a position will be sustained upon examination by taxing authorities. Unrecognized tax benefits represent the difference between the position taken and the benefit reflected in the financial statements. On December 31, 2011, 2010 and 2009 the total liability for unrecognized tax benefits was $4.4 million, $3.9 million and $2.7 million, respectively (including interest and penalties of $0.7 million, $0.5 million and $0.4 million, respectively). The change in the liability for 2011, 2010 and 2009 is explained as follows:
| For the year ended December 31, | |||
| 2011 | 2010 | 2009 | |
| In thousands | |||
| Balance at January 1 | $ 3,907 | $ 2,679 | $ 2,585 |
| Additions based on current year tax positions | 131 | 1,345 | 1,035 |
| Changes for tax positions of prior years | 452 | 139 | (8) |
| Settlements | — | — | (933) |
| Additions due to acquired business | 245 | — | — |
| Reductions due to lapses in statutes of limitation | (347) | (256) | — |
| Balance at December 31 | $ 4,388 | $ 3,907 | $ 2,679 |
Included in unrecognized tax benefits at December 31, 2011 were items approximating $2.5 million that, if recognized, would favorably affect the Company's effective tax rate in future periods. The Company files tax returns in numerous U.S. and foreign jurisdictions, with returns subject to examination for varying periods, but generally back to and including 2007. During 2011, 2010 and 2009, $0.1 million of interest and penalties was recognized each year as a component of income tax expense. It is the Company's policy to record interest and penalties on unrecognized tax benefits as income taxes.
Cash payments for income taxes, net of refunds, were $18.2 million, $14.5 million, and $6.9 million in 2011, 2010 and 2009, respectively.