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Income taxes | 12 Months Ended
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Dec. 31, 2011
Income taxes |
Income taxes |
11 · Income taxes The components of income taxes attributable to net income for common stock were as follows:
Years ended December 31 |  | 2011 |  | 2010 |  | 2009 |
(in thousands) |  |  |  |  |  |  |
Federal |  |  |  |  |  |  |
Current |  | $ (7,638 | ) | $(25,446 | ) | $25,691 |
Deferred |  | 73,494 |  | 85,268 |  | 14,161 |
Deferred tax credits, net |  | — |  | (901 | ) | (593 | )
|  | 65,856 |  | 58,921 |  | 39,259 |
State |  |  |  |  |  |  |
Current |  | 2,437 |  | (7,392 | ) | 6,930 |
Deferred |  | 5,949 |  | 13,425 |  | (783 | )
Deferred tax credits, net |  | 1,690 |  | 2,868 |  | (1,483 | )
|  | 10,076 |  | 8,901 |  | 4,664 |
Total |  | $ 75,932 |  | $ 67,822 |  | $43,923 |
A reconciliation of the amount of income taxes computed at the federal statutory rate of 35% to the amount provided in the Company’s consolidated statements of income was as follows:
Years ended December 31 |  | 2011 |  | 2010 |  | 2009 |
(in thousands) |  |  |  |  |  |  |
Amount at the federal statutory income tax rate |  | $75,618 |  | $64,136 |  | $45,088 |
Increase (decrease) resulting from: |  |  |  |  |  |  |
State income taxes, net of federal income tax benefit |  | 6,550 |  | 5,786 |  | 3,033 |
Other, net |  | (6,236 | ) | (2,100 | ) | (4,198 | )
Total |  | $75,932 |  | $67,822 |  | $43,923 |
Effective income tax rate |  | 35.1 | % | 37.0 | % | 34.1% |
The effective tax rate decreased from 2010 to 2011 due primarily to additional low income housing credits and tax-free income from municipal bonds and bank-owned life insurance at ASB, and a favorable Internal Revenue Service (IRS) appeals settlement related to foreign losses at HEI in 2011. The lower effective tax rate for 2009 was due primarily to the greater relative impact of tax credit amortization to net income, which was reduced by ASB’s losses from sales of mortgage-related securities and other-than-temporary impairments. The tax effects of book and tax basis differences that give rise to deferred tax assets and liabilities were as follows:
December 31 |  | 2011 |  | 2010 |
(in thousands) |  |  |  |  |
Deferred tax assets |  |  |  |  |
Allowance for loan losses |  | $ 14,076 |  | $ 16,461 |
Retirement benefits |  | 6,175 |  | – |
Other |  | 33,217 |  | 35,878 |
|  | 53,468 |  | 52,339 |
Deferred tax liabilities |  |  |  |  |
Property, plant and equipment related |  | 255,488 |  | 188,490 |
Retirement benefits |  | – |  | 2,479 |
Goodwill |  | 22,028 |  | 20,130 |
Regulatory assets, excluding amounts attributable to property, plant and equipment |  | 32,343 |  | 32,074 |
FHLB stock dividend |  | 20,552 |  | 20,552 |
Change in accounting method related to repairs |  | 48,566 |  | 46,702 |
Other |  | 28,542 |  | 20,870 |
|  | 407,519 |  | 331,297 |
Net deferred income tax liability |  | $354,051 |  | $278,958 |
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are deductible. Based upon historical taxable income and projections for future taxable income, management believes it is more likely than not the Company will realize substantially all of the benefits of the deferred tax assets. In 2011, the net deferred income tax liability continued to increase primarily as a result of accelerated tax deductions taken for bonus depreciation (resulting from the 2010 Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act). In 2010, interest income on income tax refunds was reflected in “Revenues—Electric utility” in the amount of $9.7 million, which resulted from the settlement with the IRS of appealed issues for the tax years 1996 to 2006 and was due in large part to a change in the method of allocating overhead costs to self-constructed assets. In 2011, 2010 and 2009, interest expense/(credit adjustments to interest expense) on income taxes was reflected in “Interest expense – other than on deposit liabilities and other bank borrowings” in the amount of $(1.2) million, $(0.9) million and $0.7 million, respectively. The credit adjustments to interest expense were primarily due to the resolution of tax issues with the IRS. As of December 31, 2011 and 2010, the total amount of accrued interest related to uncertain tax positions and recognized on the balance sheet in “Interest and dividends payable” was $1.5 million and $2.7 million, respectively. As of December 31, 2011, the total amount of liability for uncertain tax positions was $5.7 million and, of this amount, $0.9 million, if recognized, would affect the Company’s effective tax rate. The Company’s unrecognized tax benefits are primarily the result of temporary differences relating to the deductibility of costs incurred to repair generation property. The Company believes that it is reasonably possible that the IRS may issue guidance on the deductibility of these repair costs and this guidance will eliminate much of the uncertainty in 2012. Management has concluded that it is reasonably possible that the liability for uncertain tax positions may decrease by $5 million within the next 12 months. The changes in total unrecognized tax benefits were as follows:
(in millions) |  | 2011 |  | 2010 |  | 2009 |
Unrecognized tax benefits, January 1 |  | $ 15.4 |  | $ 26.5 |  | $ 27.9 |
Additions based on tax positions taken during the year |  | – |  | 11.0 |  | – |
Reductions based on tax positions taken during the year |  | (0.6 | ) | – |  | – |
Additions for tax positions of prior years |  | 0.1 |  | 2.2 |  | 0.4 |
Reductions for tax positions of prior years |  | (8.1 | ) | (18.2 | ) | (1.8 | )
Settlements |  | – |  | (6.1 | ) | – |
Lapses of statute of limitations |  | (1.1 | ) | – |  | – |
Unrecognized tax benefits, December 31 |  | $ 5.7 |  | $ 15.4 |  | $ 26.5 |
The 2011 reduction in unrecognized tax benefits was primarily due to the IRS’s issuance of guidance on the deductibility of costs of repairs to utility transmission and distribution (T&D) property (Revenue Procedure 2011-43, issued in August 2011), including a “safe harbor” method under which taxpayers could transition and minimize the uncertainty of the repairs expense deduction for T&D property. The Company intends to elect the “safe harbor” method in its 2011 tax return, which resulted in the reduction of associated unrecognized tax benefits for 2011. Tax years 2007 to 2010 currently remain subject to examination by the IRS. Tax years 2005 to 2010 remain subject to examination by the Department of Taxation of the State of Hawaii. HEI Investments, Inc., which owned leveraged lease investments in other states prior to its dissolution in 2008, is also subject to examination by those state tax authorities for tax years 2005 to 2007. As of December 31, 2011, the disclosures above present the Company’s accrual for potential tax liabilities and related interest. Based on information currently available, the Company believes this accrual has adequately provided for potential income tax issues with federal and state tax authorities and related interest, and that the ultimate resolution of tax issues for all open tax periods will not have a material adverse effect on its results of operations, financial condition or liquidity.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 + Details
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