Income Taxes

Income (loss) from continuing operations before income taxes consisted of the following:



	(Dollars in thousands)
	Year Ended December 31,
	2012			2011			2010
United States	$	(34,690	)	$	(5,100	)	$	14,269
Canada	(9,290		)	(976		)	2,427
	$	(43,980	)	$	(6,076	)	$	16,696

Provision (benefit) for income taxes from continuing operations for the years ended December 31, consisted of the following:



	(Dollars in thousands)
	Year Ended December 31,
	2012		2011			2010
Current income tax expense (benefit):
U.S. Federal	$	62	$	464		$	3,681
U.S. state	215		295			987
Canada	1,016		(190		)	366
Total	$	1,293	$	569		$	5,034
Deferred income tax expense (benefit):
U.S. Federal	$	16,159	$	(2,187	)	$	1,648
U.S. state	1,160		(155		)	217
Canada	125		86			207
Total	$	17,444	$	(2,256	)	$	2,072
Total income tax expense (benefit):
U.S. Federal	$	16,221	$	(1,723	)	$	5,329
U.S. state	1,375		140			1,204
Canada	1,141		(104		)	573
Total	$	18,737	$	(1,687	)	$	7,106

The reconciliation between the effective income tax rate and the statutory federal rate for continuing operations was as follows:



	Year Ended December 31,
	2012		2011		2010
Statutory Federal rate	35.0	%	35.0	%	35.0	%
Increase (decrease) resulting from:
State and local taxes, net	2.6		(1.6	)	1.2
Executive life insurance	0.8		(1.0	)	(1.8	)
Fines and penalties	0.1		0.3		(0.2	)
Meals & entertainment	(0.3	)	(3.0	)	0.8
Capital loss carryforward	—		—		3.7
Deferred tax expense	—		1.0		1.2
Change in valuation allowance	(76.0	)	(1.0	)	4.1
Change in uncertain tax positions	(4.6	)	(1.6	)	(1.4	)
Provision to return differences	1.0		(0.3	)	1.4
Other items, net	(1.2	)	—		(1.4	)
Provision for income taxes	(42.6	)%	27.8	%	42.6	%

Income taxes paid for the years ended December 31, 2012, 2011, and 2010 amounted to $0.2 million, $2.6 million and $5.3 million, respectively. In 2012, 2011 and 2010, the Company received $3.4 million, $3.3 million and $5.8 million, respectively, in income tax refunds primarily related to carryback of net operating losses and recovery of income tax overpayments in prior years.

At December 31, 2012, the Company had $65.6 million of net operating losses and tax credit carryforwards. The U.S. Federal carryforwards consist of $31.7 million of net operating losses which are subject to expiration in 2030 and $0.5 million of foreign tax credit carryforwards which are subject to expiration in 2020. In addition, the Company had $33.4 million of state net operating loss carryforwards which expire at varying dates through 2030.

Primarily due to the cumulative losses that the Company recorded over the past several quarters, the Company determined that it was more likely than not that the Company will not be able to utilize its deferred tax assets to offset future taxable income. Therefore, in 2012, the Company increased its deferred tax valuation allowance by $33.3 million. Substantially all future taxable income will be subject to this tax valuation allowance until the Company can establish that the recoverability of its deferred tax assets is more certain.

Deferred income tax assets and liabilities contain the following temporary differences:



	(Dollars in thousands)
	December 31,
	2012			2011
Deferred tax assets:
Compensation and benefits	$	14,101		$	16,048
Net operating loss carryforward	12,710			4,286
Inventory reserve	3,654			2,472
Accounts receivable reserve	657			723
Property, plant and equipment	—			879
Other	4,694			1,147
Total deferred tax assets	35,816			25,555
Deferred tax liabilities:
Property, plant and equipment	738			—
Goodwill	—			6,557
Other	728			480
Total deferred liabilities	1,466			7,037
Net deferred assets before valuation allowance	34,350			18,518
Valuation allowance	(34,278		)	(938		)
Net deferred assets	$	72		$	17,580

Net deferred tax assets:
Net current deferred tax assets	$	17		$	5,716
Net noncurrent deferred tax assets	55			11,864
Net deferred assets	$	72		$	17,580

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	(Dollars in thousands)
	December 31,
	2012			2011
Balance at beginning of year	$	92		$	—
Additions for tax positions of current year	1,261			92
Additions for tax positions of prior years	835			—
Reductions for tax positions of prior years	(92		)	—
Settlements	—			—
Balance at end of year	$	2,096		$	92

The recognition of the unrecognized tax benefits would have a favorable effect on the effective tax rate. Due to the uncertainty of both timing and resolution of income tax examinations, the Company is unable to determine whether any amounts included in the December 31, 2012 balance of unrecognized tax benefits represent tax positions that could significantly change during the next twelve months.

The Company and its subsidiaries are subject to U.S. Federal income tax as well as income tax of multiple state and foreign jurisdictions. As of December 31, 2012, the Company was subject to income tax examinations in various jurisdictions for the tax years 2006 through 2011. During 2012, the Company completed U.S. Federal income tax examinations through tax year 2009. The Company is currently under examination by the Canada Revenue Authority for the years 2006 through 2010 and the Company is complying with the information requests and procedural requirements of the examination.