Note 16 — Income Taxes

The Company’s U.S. income (loss) before income taxes for fiscal years 2013, 2012 and 2011 was $5.0 million, $(4.9) million, and $(4.2) million, respectively. Foreign income (loss) before income taxes for fiscal years 2013, 2012, and 2011 was $0.5 million, $0.1 million, and (0.6) million, respectively. Foreign tax expense for all three years was zero.

U.S. Income tax expense (benefit) consists of the following:


	Year Ended August 31,
	2013			2012			2011
	(Dollars in thousands)
Current:
Federal	$	(422	)	$	(162	)	$	34
State		80			3			137

		(342	)		(159	)		171
Deferred:
Federal		1,829			4,582			9
State		(4	)		383			133

		1,825			4,965			142

Total		$1,483			$4,806			$313


	Year Ended August 31,
	2013		2012			2011
	(Dollars in thousands)
Comprehensive tax expense (benefit) allocable to:
Income before taxes	$	1,483	$	4,806		$	313
Comprehensive income (loss)		4,887		(4,924	)		3,856

	$	6,370	$	(118	)	$	4,169

A reconciliation of the statutory federal tax to the actual provision (benefit) for taxes is as follows:


	Year Ended August 31,
	2013			2012			2011
	(Dollars in thousands)
Statutory tax rate		35%			35%			35%
Statutory tax on income	$	1,921		$	(1,666	)	$	(1,682	)
State taxes, net of federal benefit		94			219			52
Non-deductible expenses related to preferred stock		-			4,547			2,687
Research credit		(189	)		(73	)		(195	)
Ethanol credit		-			-			(975	)
Foreign taxes		(183	)		(38	)		200
Stock option exercises/expirations		376			-			-
Prior year true up		(265	)		95			79
Unrecognized tax benefits		(359	)		(165	)		67
Valuation allowance		(104	)		1,787			-
Other		192			100			80

Total provision (benefit)	$	1,483		$	4,806		$	313

The significant components of deferred tax assets and liabilities are as follows:


	August 31,
	2013			2012
	(Dollars in thousands)
Deferred tax assets:
Alternative minimum tax credit	$	3,473		$	3,354
Postretirement benefits		11,920			18,060
Provisions for accrued expenses		2,791			2,908
Stock-based compensation		2,453			2,420
Net operating loss carryforward		4,575			7,469
Tax credit carryforwards		4,373			4,152
NOL carryforward-foreign		10,853			11,010
Hedging		525			-
Other		2,092			2,025

		43,055			51,398
Less - valuation allowance		(12,537	)		(12,797	)

Total deferred tax assets		30,518			38,601


Deferred tax liabilities:
Depreciation		22,296			21,762
Hedging		-			1,004
Other		1,756			2,560

Total deferred tax liabilities		24,052			25,326

Net deferred tax assets	$	6,466		$	13,275


Recognized as:
Other current assets	$	1,479		$	167
Deferred tax asset		4,987			13,108

Total net deferred tax assets	$	6,466		$	13,275

Carryforwards

At August 31, 2013, the Company had a U.S. federal alternative minimum tax credit carryforward of $3.5 million with no expiration, research and development credit carryforwards of $1.7 million expiring 2025 through 2032, a small ethanol producer credit of $2.6 million expiring 2014, and a net operating loss carryforward of $10.8 million expiring in 2030. The Company also has U.S. state net operating loss carryforwards of $19.8 million with expiration dates between 2014 and 2030.

Valuation Allowance

In fiscal 2012, the Company recorded a $1.8 million valuation allowance related to small ethanol producer tax credit carryforwards which expire in fiscal 2014. Tax laws require that any net operating loss carryforwards be utilized before the Company can utilize the small ethanol producer tax credit carryforwards. As a result of challenging market trends related to the cost of corn and ethanol pricing and the redemptions of the Company’s Series A Preferred Stock discussed in Note 6, estimates of future taxable income during the carryforward periods were revised. Due to the near-term expiration of the small ethanol producer tax credit carryforward period, the Company did not believe it had sufficient positive evidence to substantiate that the small ethanol tax credit carryforwards were realizable at a more-likely-than-not level of assurance and recorded a $1.8 million valuation allowance. During fiscal 2013, $0.1 million of the valuation allowance was reversed as the Company expects to utilize the credit. The remaining valuation allowance will be reversed in future periods if it is more likely than not that these tax credit carryforwards will be utilized.

In fiscal 2012, the Company recorded a $44,000 valuation allowance related to charitable contributions which expire in fiscal years 2013 through 2015. In fiscal 2013, the valuation allowance was reduced by $22,000 as a portion of the charitable contributions carryforward expired unused. Tax laws limit the deduction of charitable contributions to 10% of otherwise taxable income with the excess carried forward for five years. Utilization of net operating loss carryforwards are considered to reduce taxable income. Due to the near-term expiration of these deductions, the Company did not believe that it had sufficient positive evidence to substantiate that the charitable contributions carryforwards were realizable at a more-likely-than-not level of assurance and recorded a valuation allowance. The valuation allowance will be reversed in future periods if it is more likely than not that these deductions will be utilized.

At August 31, 2013, the Company had $6.5 million of U.S. net deferred tax assets. Other than for the ethanol tax credit and charitable contributions discussed above, a valuation allowance has not been provided on the net U.S. deferred tax assets as of August 31, 2013. The determination of the need for a valuation allowance requires significant judgment and estimates. The Company evaluates the requirement for a valuation allowance each quarter as the Company incurred book losses in fiscal 2012 and the two previous fiscal years. The Company believes that it is more likely than not that future operations will generate sufficient taxable income to realize its deferred tax assets. However, there can be no assurance that management’s current plans will be achieved or that a valuation allowance will not be required in the future.

The Company sold the assets of its Australia/New Zealand operations in fiscal 2010. The Company believes that it is more likely than not that the net deferred tax asset of $10.9 million recorded for the Australian operations will not be realized. The Company’s discontinued Australian operations recorded a valuation allowance as of August 31, 2013 of $10.9 million against the entire Australian net deferred tax asset.

Uncertain Tax Positions

The total amount of gross unrecognized tax benefits was $0.7 million at August 31, 2013, all of which, if recognized, would impact the Company’s effective tax rate. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (dollars in thousands):


	2013			2012
Unrecognized tax benefits at beginning of year	$	1,058		$	1,220
Additions for tax positions related to prior years		134			112
Additions for tax positions related to current year		90			62
Reductions due to lapse of applicable statute of limitations		(576	)		(336	)

Unrecognized tax benefits at end of year	$	706		$	1,058

The Company’s policy is to recognize interest and penalty expense associated with uncertain tax positions as a component of income tax expense (benefit) in the consolidated statements of operations. As of August 31, 2013 and 2012, the Company had $0.1 million and $0.2 million, respectively, of accrued interest and penalties included in the long-term tax liability. During fiscal 2013, the Company decreased the liability for unrecognized tax benefits by $44,000 for interest and $51,000 for penalties.

Other

The Company files tax returns in the U.S. federal jurisdiction and various U.S. state jurisdictions, and is subject to examination by taxing authorities in all of those jurisdictions. From time to time, the Company’s tax returns are reviewed or audited by U.S. federal and various U.S. state taxing authorities. The Company believes that adjustments, if any, resulting from these reviews or audits would not be material, individually or in the aggregate, to the Company’s financial position, results of operations or liquidity. It is reasonably possible that the amount of unrecognized tax benefits related to certain of the Company’s tax positions will increase or decrease in the next twelve months as audits or reviews are initiated and settled. At this time, an estimate of the range of a reasonably possible change cannot be made. The Company is not subject to income tax examinations by U.S. federal or state jurisdictions for fiscal years prior to 2009.

Deferred tax liabilities or assets are not recognized on temporary differences from undistributed earnings of foreign subsidiaries and from foreign exchange translation gains or losses on permanent advances to foreign subsidiaries as the Company does not expect that the divestiture of its foreign subsidiaries will result in any tax benefit or expense.