Note 11. Income Taxes

The income tax provision (benefit) for operations for the years ended December 31, 2012, 2011 and 2010 include the following components:

(Dollars in thousands)	2012			2011		2010
Current income taxes (benefits):
Federal	$	3,813		$	346	$	(936	)
State		1,383			98		(266	)
Deferred income taxes (benefits):
Federal		390			3,132		5,428
State		(203	)		1,466		139
Total income tax provision	$	5,383		$	5,042	$	4,365

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

(Dollars in thousands)	2012			2011
Tax liabilities:
Depreciation and fixed assets	$	31,307		$	30,142
Intangible assets		9,092			8,800
Other		15			201
Gross deferred tax liability	$	40,414		$	39,143

Tax assets:
Deferred compensation and post-retirement benefits	$	5,480		$	7,922
Receivables and inventories		242			311
Accrued liabilities		1,146			814
Derivatives		968			983
State net operating loss		1,754			1,759
Other		20			19
Gross deferred tax asset		9,610			11,808
Valuation allowance		(1,574	)		(1,733	)
Net deferred tax liability		32,378			29,068
Current deferred tax asset		1,887			1,559
Net non-current deferred tax liability	$	34,265		$	30,627

We have Iowa net operating loss carry-forwards for tax purposes available to offset future income of approximately $26,300,000 at December 31, 2012. 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 $3,400,000 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
	2012			2011			2010
Statutory tax rate		35.0	%		35.0	%		35.0	%
Effect of:
State income taxes net of federal tax benefit		6.4			6.1			6.1
Release of income tax reserve and prior
Year adjustments		(0.8	)		(2.6	)		(16.3	)
Medicare part D subsidy		(0.1	)		0.0			1.6
Uncertain tax positions		0.1			0.1			0.4
Other, net		(1.3	)		(1.1	)		(1.0	)
Effective tax rate		39.3	%		37.5	%		25.8	%

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, 2012, we had unrecognized tax benefits totaling $232,000 (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 $207,000. During 2012, we recognized approximately $13,000 of previously unrecognized tax benefits and approximately $1,000 of associated interest as a result of the expiration of statute of limitations and settlements. Due to expirations of statute of limitations it is reasonably possible that the total amount of unrecognized tax benefits will not decrease during the next 12 months.

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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)	2012			2011
Unrecognized tax benefits opening balance (excluding interest)	$	281		$	697
Increases:
Tax positions taken in current period		18			8
Tax position taken in prior periods		32			-
Decreases:
Settlements		(3	)		(15	)
Lapse of statute limitations		(14	)		(409	)
Ending balance (excluding interest)	$	314		$	281

We file 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 January 2011, the Minnesota Department of Revenue completed an examination of our 2006, 2007 and 2008 state unitary income tax returns. The results of these audits were not significant.