NOTE 17 – INCOME TAXES

The provision for income taxes consisted of the following:

	Year ended December 31,
	2012		2011		2010
	(Restated – see Note 3)		(Restated – see Note 2)
	(thousands of dollars)
Current federal provision	$	4,821	$	3,072	$	1,022
Current state provision		199		191		6

Deferred federal provision		882		3,237		663
Deferred state provision		2		5		12

Income tax expense	$	5,904	$	6,505	$	1,703

The difference between the effective tax rate in income tax expense and the Federal statutory rate of 35% for the year ended December 31, 2012, and 34% for the years ended December 31, 2011, and 2010, is as follows:

	2012			2011			2010
	(Restated – see Note 3)			(Restated – see Note 2)			(Restated – see Note 2)
	(thousands of dollars)
Income taxes at U.S. statutory rate	$	5,679		$	6,933		$	1,285
State taxes, net of federal benefit		132			127			96
Prior year overpayments		--			--			(15	)
Permanent and other items		(250	)		(567	)		10
Increase (decrease) in valuation allowance		343			12			327
Total tax expense	$	5,904		$	6,505		$	1,703

Permanent and other items primarily include non-deductible expenses offset by the manufacturers' deduction under §199 of the Internal Revenue Code and increase in the effective tax rate for the year ended December 31, 2012. The Company concluded that its current and future Federal effective tax rate to be 35% based on review of current period income and expectation for future periods.

Tax effects of temporary differences that give rise to significant portions of federal and state deferred tax assets and deferred tax liabilities were as follows:

	December 31,
	2012			2011
	(Restated – see Note 3)			(Restated – see Note 2)
	(thousands of dollars)
Deferred tax liabilities:
Plant, pipeline and equipment	$	(8,260	)	$	(7,655	)
Contractual based asset		(124	)		(206	)
Unrealized loss on swap agreements		-			(136	)
Investment in AMAK		( 1,712	)		(1,736	)
Total deferred tax liabilities	$	(10,096	)	$	(9,733	)

Deferred tax assets:
Accounts receivable		201			187
Inventory		95			92
Mineral interests		376			365
Unrealized loss on interest rate swap		313			386
Environmental		123			119
Post-retirement benefits		370			356

Stock-based compensation		716			569
Deferred revenue		332			561
Gross deferred tax assets		2,526			2,635
Valuation allowance		(1,470	)		(1,127	)
Total net deferred tax assets	$	1,056		$	1,508
Net deferred tax liabilities	$	(9,040	)	$	(8,225	)

The current and non-current classifications of the deferred tax balances are as follows:

	2012			2011
				(Restated – see Note 2)
	(thousands of dollars)
Current:
Deferred tax asset	$	1,054		$	1,169

Non-current:

Deferred tax assets		2,434			1,933
Deferred tax liability		(11,058	)		(10,200	)
Valuation allowance		(1,470	)		(1,127	)
Non-current deferred tax liability, net		(10,094	)		(9,394	)

Total deferred liabilities, net	$	(9,040	)	$	(8,225	)

The Company has provided a valuation allowance in 2012 and 2011 against certain deferred tax assets because of uncertainties regarding their realization. The 2012 increase in the valuation allowance of $343,000 is related to changes in our investment in AMAK.

The Company had no Saudi Arabian income tax liability in 2012, 2011, or 2010.

The Company files an income tax return in the U.S. federal jurisdiction and Texas. Tax returns for various jurisdictions remain open for examination for the years 2009 through 2011. In late 2010 the IRS opened an examination of the Company's 2009 tax return which was subsequently closed without change.