Income Taxes

Income tax expense consists of:



	Years Ended December 31,
	2013		2012		2011
	(in thousands)
Current:
Federal	$	9,379	$	1,217	$	(3,556	)
State and local	3,134		3,551		803
Foreign	353		137		86
Total current	12,866		4,905		(2,667		)
Deferred
Federal	33,842		32,458		5,761
State and local	5,725		4,643		734
Foreign	7		16		38
Total deferred	39,574		37,117		6,533
Total income tax expense	$	52,440	$	42,022	$	3,866

The reconciliation of income taxes computed at the United States federal statutory tax rate to income tax expense is:



	Years Ended December 31,
	2013			2012			2011
	(in thousands)
Computed income tax expense	$	48,768		$	37,046		$	2,871
State and local tax expense	5,544			4,351			525
Expiration of stock options	—			—			756
Valuation allowance	—			—			(756		)
Excludable loss from foreign joint venture	—			366			354
Tax credits, federal and state	—			3			(228		)
Non-deductible items	(626		)	127			(43		)
Adjustments for uncertain tax positions	(166		)	(14		)	162
Other, net	(1,080		)	143			225
Total income tax expense	$	52,440		$	42,022		$	3,866

The tax effects of temporary differences that have given rise to deferred tax assets and liabilities are presented below:



	December 31,
	2013			2012
	(in thousands)
Current deferred tax assets
Provisions not currently deductible	$	8,962		$	4,002
Tax credits and deferred revenues	74			—
Net operating loss —state	24			112
Total current deferred tax asset	9,060			4,114
Non-current deferred tax assets
Provisions not currently deductible	308			4,046
Stock based compensation	270			2,739
Net operating loss carryforwards—federal and state	189			211
Net capital loss carryforwards—federal and state	1,988			—
Pensions and post retirement	1,603			4,229
Total gross non-current deferred tax asset	4,358			11,225
Valuation allowance	—			(1		)
Total non-current deferred tax asset	4,358			11,224
Total deferred tax asset	$	13,418		$	15,338
Non-current deferred tax liabilities
Investment in joint ventures/partnerships	$	(2,294	)	$	(3,256	)
Property, plant and equipment	(101,276		)	(60,775		)
Unrealized gain on financial instruments	—			(653		)
Other	—			(6		)
Total deferred tax liability	$	(103,570	)	$	(64,690	)

The net deferred tax asset (liability) is classified in the consolidated balance sheets as follows:



	December 31,
	2013			2012
	(in thousands)
Current deferred tax assets	$	9,060		$	4,114
Non-current deferred tax assets	4,358			11,224
Non-current deferred tax liability	(103,570		)	(64,690		)
Non-current deferred tax liability, net	(99,212		)	(53,466		)

Current deferred tax asset	9,060			4,114
Non-current deferred tax liability, net	(99,212		)	(53,466		)
Net deferred tax liability	$	(90,152	)	$	(49,352	)

In the consolidated balance sheets, these deferred tax assets and liabilities are classified as either current or non-current based on the classification of the related asset or liability for financial reporting. A deferred tax asset or liability that is not related to an asset or liability for financial reporting, including deferred taxes related to carryforwards, is classified according to the expected reversal date of the temporary differences as of the end of the year.

ARI considers its Canadian earnings to be permanently reinvested, and therefore has not recorded a provision for U.S. income tax or foreign withholding taxes on the cumulative undistributed earnings of its Canadian subsidiary. Such undistributed earnings from ARI’s Canadian subsidiary have been included in consolidated retained earnings in the amount of $3.4 million and $1.8 million as of December 31, 2013 and 2012, respectively. If ARI were to change its intentions and such earnings were remitted to the U.S., these earnings would be subject to U.S. income taxes. However, as of December 31, 2013 and 2012 foreign tax credits would be available to offset these taxes such that the U.S. tax impact would be insignificant.

As of December 31, 2013, the Company had state net operating loss carry-forwards in the amount of $3.6 million, which expire between 2014 and 2030. In 2012, ARI had state net operating loss carryforwards of $6.3 million.

In 2013, the Company also had federal capital losses of $6.7 million, of which $1.9 million was carried back to offset capital gains in prior year's taxable income. In 2012, the Company had federal net operating losses of $19.1 million, of which $15.6 million was carried back to a prior year’s taxable income with the remainder utilized in 2012. In 2012, the Company utilized all of its federal and state tax credits.

As of December 31, 2013, the Company’s gross unrecognized tax benefits were $1.1 million, of which $0.8 million, net of federal benefit on state matters, would impact the effective tax rate if reversed. As of December 31, 2012, the Company’s gross unrecognized tax benefits were $1.7 million, of which $1.1 million, net of federal benefit on state matters, would impact the effective tax rate if reversed.

The aggregate changes in the balance of unrecognized tax benefits were as follows:



	Years Ended December 31,
	2013			2012			2011
	(in thousands)
Beginning balance	$	1,744		$	1,813		$	1,607
Increases in tax positions for prior years	53			34			154
Increases in tax positions for current year	103			611			52
Settlements	(716		)	(704		)	—
Expirations of statutes	(42		)	(10		)	—
Ending balance	$	1,142		$	1,744		$	1,813

The total amount of interest and penalties included in the tax provision as an income tax expense (benefit) for the years ended December 31, 2013 and 2012 was ($0.2 million) and less than $0.1 million, respectively. The Company believes it is reasonably possible that within the next twelve months its unrecognized tax benefits could change up to $0.8 million as a result of the Company’s analysis of state tax filing requirements.

The statute of limitation on the Company’s 2008 federal income tax return expired on April 14, 2013. The Company’s federal income tax returns for tax years 2010 and beyond remain subject to examination, with the latest statute expiring in September 2017. The Company’s audit review for tax years 2009 and 2011 related to a federal loss carry back claim has been closed without any impact.

Certain of the Company's 2008 and 2009 state income tax returns and all of the Company's state income tax returns for 2010 and beyond remain open and subject to examination, with the latest statute of limitations expiring on November 15, 2019. The Company’s foreign subsidiary’s income tax returns for 2009 and beyond remain open to examination by foreign tax authorities.

The Company is continuing to evaluate the impact of the recent regulations concerning amounts paid to acquire, produce, or improve tangible property and recovery of basis upon disposition. Given that Revenue Procedures were issued in late January of 2014, the Company is determining whether or not any changes in an accounting method are required. Presently, the Company does not anticipate a material impact to its financial statements.