Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

Note 12.    Income Taxes

The income tax provision (benefit) for operations for the years ended December 31, 2011, 2010 and 2009 include the following components:

	2011		2010			2009
(Dollars in thousands)	(Restated)		(Restated)			(Restated)
Current income taxes (benefits):
Federal	$	346	$	(936	)	$	(1,144	)
State		98		(266	)		(325	)
Deferred income taxes (benefits):
Federal		3,132		5,428			2,583
State		1,466		139			(66	)
Total income tax provision	$	5,042	$	4,365		$	1,048

Deferred tax liabilities and assets are comprised of the following at December 31:

(Dollars in thousands)		2011			2010
Tax liabilities:
	Depreciation and fixed assets	$	30,142		$	25,699
	Intangible assets		8,800			8,238
	Other		201			-
Gross deferred tax liability		$	39,143		$	33,937
Tax Assets:
	Deferred compensation and post-retirement benefits	$	7,922		$	6,939
	Receivables and inventories		311			349
	Accrued liabilities		814			777
	Derivatives		983			430
	State net operating loss		1,759			1,764
	Other		19			542
Gross deferred tax asset			11,808			10,801
Valuation allowance			(1,733	)		(1,724	)
Net deferred tax liability			29,068			24,860
Current deferred tax asset			1,559			2,008
Net non-current deferred tax liability		$	30,627		$	26,868

We have Iowa net operating loss carry-forwards for tax purposes available to offset future income of approximately $26,700,000 at December 31, 2011. The Iowa net operating loss carry-forwards expire in varying amounts between 2018 and 2029. Due to the historical generation of net operating losses by our subsidiaries operating in Iowa and management's belief that the Iowa operations will not generate significant positive taxable income in the future, the utilization of these net operating loss carry-forwards is doubtful. A valuation allowance has been established to reduce the carrying value of the benefits associated with the Iowa net operating losses incurred by our subsidiaries in the state of Iowa. We also have a net operating loss carry-forward of approximately $3,500,000 incurred by the parent company in the state of Minnesota. Management believes that it is unlikely that we will realize all of the benefits associated with the Minnesota net operating loss prior to the expiration of the carry forward period. Therefore, a valuation allowance was established to reduce the carrying value of the benefits associated with the net operating losses incurred by the parent company in Minnesota. Future events and changes in circumstances could cause this valuation allowance to change.

The reconciliation of the U.S. income tax rate to the effective income tax rate for continuing operations is as follows:

	For Year Ended December 31
	2011			2010			2009
	(Restated)			(Restated)			(Restated)
Statutory tax rate		35.0	%		35.0	%		35.0	%
Effect of:
State income taxes net of federal tax benefit		6.1			6.1			6.1
Release of income tax reserve and prior year adjustments		(2.6	)		(16.3	)		(33.6	)
Medicare part D subsidy		0.0			1.6			(0.5	)
Uncertain tax positions		0.1			0.4			1.3
Acquisition costs		-			-			0.7
Other, net		(1.1	)		(1.0	)		(1.1	)
Effective tax rate		37.5	%		25.8	%		7.9	%

When addressing uncertainty in tax positions, we are required to apply a minimum recognition threshold that income tax positions must achieve before being recognized in the financial statements.

As of December 31, 2011, we had unrecognized tax benefits totaling $149,000 (net of tax) excluding interest. The amount of unrecognized tax benefits, if recognized, that would affect the effective income tax rate in future periods is $130,000. During 2011, we recognized approximately $357,000 of previously unrecognized tax benefits and approximately $49,000 of associated interest as a result of the expiration of statute of limitations. It is reasonably possible that the total amount of unrecognized tax benefits may decrease by approximately $11,000 during the next 12 months as a result of expirations of statute of limitations.

We recognize interest and penalties related to income tax matters as income tax expense.  As of December 31, 2011, we have accrued $5,000 (net of tax) for interest related to unrecognized tax benefits.

The following roll-forward of unrecognized tax benefits excludes interest accrued on unrecognized tax benefits and is presented gross of any expected federal tax benefits related to unrecognized state tax benefits.

(Dollars in thousands)	2011			2010
Unrecognized tax benefits opening balance (excluding interest)	$	697		$	3,215
Increases:
Tax positions taken in current period		8			17
Settlements		(15	)		-
Lapse of statute limitations		(409	)		(2,535	)
Ending balance (excluding interest)	$	281		$	697

Wefile consolidated income tax returns in the United States federal jurisdiction and combined or separate income tax returns in various state jurisdictions. In general, we are no longer subject to United States federal income tax examinations and examinations by state tax authorities for the years prior to 2008 except to the extent of losses utilized in subsequent years.

In June 2009, the Internal Revenue Service completed an examination of our 2006 federal consolidated income tax return. Also, in January 2011, the Minnesota Department of Revenue completed an examination of our 2006, 2007 and 2008 state unitary income tax returns. The result of these audits was not significant.