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Income Taxes | 12 Months Ended
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Dec. 31, 2013
Income Tax Disclosure [Abstract] |
Income Taxes | NOTE 7 Income Taxes Earnings (loss) before income taxes is comprised of the following amounts in each tax jurisdiction:
(In thousands) |  | 2013 |  | 2012 |  | 2011
United States |  | $ | 38,900 |  |  | $ | 111,278 |  |  | $ | 72,156 |
Canada |  | (666 | ) |  | 313 |  |  | (1,236 | )
Earnings before income taxes |  | $ | 38,234 |  |  | $ | 111,591 |  |  | $ | 70,920 |
The income tax (benefit) provision is comprised of the following:
(In thousands) |  | 2013 |  | 2012 |  | 2011
Current |  |  |  |  |  |
Federal |  | $ | (75,119 | ) |  | $ | 27,724 |  |  | $ | 9,619 |
State |  | 506 |  |  | 6,637 |  |  | 6,880 |
Foreign |  | 263 |  |  | 229 |  |  | (30 | )
|  | (74,350 | ) |  | 34,590 |  |  | 16,469 |
Deferred |  |  |  |  |  |
Federal |  | 10,177 |  |  | 16,243 |  |  | 12,865 |
State |  | (4,423 | ) |  | (3,180 | ) |  | 1,931 |
Foreign |  | (125 | ) |  | (193 | ) |  | (19 | )
|  | 5,629 |  |  | 12,870 |  |  | 14,777 |
Income tax (benefit) provision |  | $ | (68,721 | ) |  | $ | 47,460 |  |  | $ | 31,246 |
The income tax benefit or provisions differ from the amounts computed by applying the statutory federal income tax rate of 35.0% to earnings before income taxes due to the following:
(In thousands) |  | 2013 |  | 2012 |  | 2011
Computed expected tax provision |  | $ | 13,381 |  |  | $ | 39,063 |  |  | $ | 24,822 |
State and local taxes, net of federal income tax impact |  | 1,279 |  |  | 4,398 |  |  | 1,482 |
Adjustment for state deferred tax rate |  | (762 | ) |  | (742 | ) |  | 2,916 |
State investment tax credits |  | (2,263 | ) |  | (9,077 | ) |  | — |
Federal credits and net operating losses |  | (10,234 | ) |  | 4,121 |  |  | (412 | )
Federal manufacturing deduction |  | — |  |  | (3,288 | ) |  | (2,443 | )
Uncertain tax positions |  | (69,144 | ) |  | 4,801 |  |  | 2,610 |
Non-deductible acquisition costs |  | — |  |  | — |  |  | (1,215 | )
Change in valuation allowances |  | (1,334 | ) |  | 6,932 |  |  | 2,796 |
U.S. tax provision on foreign operations |  | 67 |  |  | (33 | ) |  | 365 |
Other |  | 289 |  |  | 1,285 |  |  | 325 |
Income tax provision |  | $ | (68,721 | ) |  | $ | 47,460 |  |  | $ | 31,246 |
Effective tax rate |  | (179.7 | )% |  | 42.5 | % |  | 44.1 | %
We have tax benefits relating to equity-based compensation that are being utilized to reduce our U.S. taxable income. Our Consolidated Balance Sheets reflect net operating losses and tax credit carryforwards excluding amounts resulting from equity-based compensation. We have made an accounting policy election to follow the “with-and-without” or “incremental” method for ordering tax benefits derived from employee equity-based compensation awards. As a result of this method, net operating loss carryforwards not generated from equity-based compensation and which were in excess of equity-based compensation expense are utilized before the current period's equity-based tax deduction (excess tax benefits from equity-based compensation awards are recognized last). Excess tax benefits from equity-based compensation awards that are determined to reduce U.S. taxable income following this method are recognized when realized as increases to additional paid-in capital as a component of stockholders' equity. As of December 31, 2012, we had a total amount of excess tax benefits that were not recognized on our Consolidated Balance Sheet of approximately $1.4 million. During the year ended December 31, 2013, we generated excess tax benefits relating to the payout or issuance of performance shares for the 2010-2012 performance period and certain restricted stock units for the 2009-2011 and 2011-2013 periods. Based on the incremental method, our excess tax benefits associated with equity-based compensation plans were not allocated to additional paid-in capital as a component of stockholders’ equity, as there was no cash tax benefit to be realized in the current year. The tax effect of this transaction was $2.3 million and it has been recorded as a reduction to our federal net operating loss deferred tax asset. Additionally, we had a tax affected $2.4 million reduction to additional paid-in capital relating to performance shares for the 2011-2013 performance period that will not be paid or issued because the requisite market condition performance measure was not met. Based on the incremental method, our excess tax benefits associated with equity-based compensation plans, which have been allocated directly to additional paid-in capital as a component of stockholders’ equity, reducing income taxes payable was in the amount of $15.8 million and $0.9 million, in the years ended December 31, 2012, and 2011, respectively, while no reduction was incurred in the current year. As of December 31, 2013, we have a total amount of excess tax benefits that are not allocated directly to additional paid-in capital on our Consolidated Balance Sheet until such time as they affect a cash tax benefit of approximately $2.3 million.
(In thousands) |  | 2013 |  | 2012
Deferred tax assets: |  |  |  |
Employee benefits |  | $ | 8,612 |  |  | $ | 8,630 |
Postretirement employee benefits |  | 41,515 |  |  | 52,751 |
Incentive compensation |  | 8,937 |  |  | 9,130 |
Inventories |  | 5,898 |  |  | — |
Pensions |  | 152 |  |  | 31,140 |
Federal and state credit carryforwards |  | 27,597 |  |  | 20,447 |
Net operating losses |  | 13,930 |  |  | 7,649 |
Federal benefit from state taxes resulting from uncertain tax positions |  | — |  |  | 5,595 |
Other |  | 7,390 |  |  | 5,757 |
Total deferred tax assets |  | $ | 114,031 |  |  | $ | 141,099 |
Valuation allowance |  | (13,622 | ) |  | (14,957 | )
Deferred tax assets, net of valuation allowance |  | $ | 100,409 |  |  | $ | 126,142 |
Deferred tax liabilities: |  |  |  |
Plant and equipment |  | $ | (178,227 | ) |  | $ | (157,973 | )
Intangible assets |  | (9,542 | ) |  | (10,843 | )
Inventories |  | — |  |  | (314 | )
Total deferred tax liabilities |  | (187,769 | ) |  | (169,130 | )
Net deferred tax liabilities |  | $ | (87,360 | ) |  | $ | (42,988 | )
Net deferred tax assets (liabilities) consist of:
(In thousands) |  | 2013 |  | 2012
Current deferred tax assets |  | $ | 37,538 |  |  | $ | 20,473 |
Current deferred tax liabilities |  | — |  |  | (3,337 | )
Net current deferred tax assets |  | 37,538 |  |  | 17,136 |
Non-current deferred tax assets |  | 62,871 |  |  | 110,762 |
Non-current deferred tax liabilities |  | (187,769 | ) |  | (170,886 | )
Net non-current deferred tax liabilities |  | (124,898 | ) |  | (60,124 | )
Net deferred tax liabilities |  | $ | (87,360 | ) |  | $ | (42,988 | )
In each of the years ended December 31, 2013 and 2012, we recorded a $0.7 million tax benefit reflecting a remeasurement of state deferred tax assets and liabilities using anticipated tax rates that will be in effect when the underlying assets and liabilities will reverse. As of December 31, 2013, we had deferred tax assets arising from deductible temporary differences, tax losses and tax credits of approximately $114 million before the offset of certain deferred tax liabilities. With the exception of certain deferred tax assets related to federal foreign tax credits, state tax losses and state tax credits totaling $13.6 million, management believes it is more likely than not that forecasted income, together with the tax effect of the deferred tax liabilities, will be sufficient to fully recover the remaining deferred tax assets. During 2013, the valuation allowance for deferred tax assets decreased by a net $1.3 million. We decreased the valuation allowances for state tax losses incurred by $1.2 million and decreased the valuation allowances for state tax credits by $0.4 million. Both of these items were recorded as current period deferred tax benefit. We also increased the valuation allowance relating to foreign tax credits by $0.3 million, which was recorded as a deferred tax expense to the income tax provision. During 2012, the valuation allowance for deferred tax assets increased by a net $6.9 million. We decreased the valuation allowances for state tax losses incurred by $0.5 million and increased the valuation allowance for state tax credits by $8.2 million. Both of these items were recorded as current period deferred tax benefit and expense, respectively. We also reduced the valuation allowance relating to foreign tax credits by $0.8 million, which was recorded as a deferred tax benefit to the income tax provision. During 2011, the valuation allowance for deferred tax assets increased by a net $2.8 million. We increased the valuation allowances for state tax losses incurred by certain subsidiaries and state tax credits by $2.5 million and $2.2 million, respectively. Both of these items were recorded as current period deferred tax expense. We also reduced the valuation allowance relating to foreign tax credits by $1.9 million, which was recorded as a deferred tax benefit to the income tax provision. The reduction is based upon tax planning strategies that we believe will more likely than not allow us to utilize a portion of the foreign tax credits before they expire. During the fourth quarter of 2012, the IRS commenced an audit of our tax returns for the tax years ending December 31, 2008 through December 31, 2011. During 2013, the IRS commenced an audit of our wholly owned subsidiary Cellu Tissue Holdings, Inc, and its subsidiaries for the year ended December 27, 2010; the period immediately before our acquisition of Cellu Tissue Holdings, Inc. These audits are in advanced stages as of the filing of this document. During the year, the company settled audits with the Canada Revenue Agency (CRA) for tax years 2009-2011, as well as numerous state income tax audits, including the State of Idaho. As part of the IRS audit, we identified additional gallons that qualify for the Cellulosic Biofuel Producer Credit that were previously unclaimed. During the third quarter of 2013, we recognized $3.5 million of additional benefit related to these gallons, resulting in a favorable adjustment. Tax years subject to examination by major taxing jurisdictions are as follows:
Jurisdiction |  | Years
United States |  | 2008 - 2013
Canada |  | 2011 - 2013
Arkansas |  | 2010 - 2013
California |  | 2009 - 2013
Georgia |  | 2010 - 2013
Idaho |  | 2011 - 2013
Illinois |  | 2008 - 2013
Wisconsin |  | 2009 - 2013
Tax credits and losses subject to expiration by major taxing jurisdictions are as follows (dollars in thousands):
Jurisdiction |  | Gross Values |  | Years
United States |  |  |  |
Net operating losses |  | $ | 27,428 |  |  | 2030 - 2033
Foreign tax credits |  | 3,832 |  |  | 2016 - 2019
Cellulosic biofuel credits |  | 3,495 |  |  | 2015
Other federal tax credits |  | 4,264 |  |  | 2026 - 2033
Connecticut tax losses |  | 20,385 |  |  | 2018 - 2033
Georgia tax losses |  | 7,267 |  |  | 2027 - 2033
Idaho tax credits |  | 4,851 |  |  | 2013 - 2027
North Carolina tax credits |  | 15,966 |  |  | 2015 - 2017
Oklahoma tax losses |  | 35,122 |  |  | 2030 - 2033
As of December 31, 2013, there were no undistributed earnings relating to our Canadian subsidiary, Interlake Acquisition Corporation, as all historical earnings were repatriated under Cellu Tissue ownership. Management’s intent is to reinvest future earnings indefinitely. A review of our uncertain income tax positions at December 31, 2013 and 2012 indicates that liabilities are required to be recorded for gross unrecognized tax benefits following authoritative accounting guidance. The following presents a roll forward of our unrecognized tax benefits and associated interest and penalties, as included in the Accrued Taxes line item in non-current liabilities in our Consolidated Balance Sheets.
(In thousands) |  | Gross Unrecognized Tax Benefits, Excluding Interest and Penalties |  | Interest and Penalties |  | Total Gross Unrecognized Tax Benefits
Balance at January 1, 2012 |  | $ | 69,651 |  |  | $ | 4,813 |  |  | $ | 74,464 |
Increase in prior year tax positions |  | 2,544 |  |  | 1,882 |  |  | 4,426 |
Increase in current year tax positions |  | 154 |  |  | — |  |  | 154 |
Reductions as a result of a lapse of the applicable statute of limitations |  | (345 | ) |  | — |  |  | (345 | )
Balance at December 31, 2012 |  | $ | 72,004 |  |  | $ | 6,695 |  |  | $ | 78,699 |
Decrease in prior year tax positions |  | (69,816 | ) |  | (5,397 | ) |  | (75,213 | )
Decrease due to settlements |  | (525 | ) |  | (777 | ) |  | (1,302 | )
Increase in current year tax positions |  | 469 |  |  | 5 |  |  | 474 |
Balance at December 31, 2013 |  | $ | 2,132 |  |  | $ | 526 |  |  | $ | 2,658 |
The company has operations in many states within the U.S., as well as in Ontario, Canada, and is subject, at times, to tax audits in these jurisdictions. These tax audits by their nature are complex and can require multiple years to resolve. The final resolution of any such tax audits could result in either a reduction in the company’s accruals or an increase in its income tax provision, both of which could have an impact on the results of operations in any given period. With a few exceptions, the company is no longer subject to U.S. federal, state and local, or foreign income tax examinations by tax authorities for years prior to 2009. The company regularly evaluates, assesses and adjusts these accruals in light of changing facts and circumstances, which could cause the effective tax rate to fluctuate from period to period. In November 2013, the Internal Revenue Service released a memorandum from the Office of Chief Counsel relating to the tax treatment of the Alternative Fuel Mixture Tax Credit, or AFMTC. The memorandum concluded that excise tax credits and the corresponding payments were not items of gross income under the Internal Revenue Code. Based upon this memorandum, there was sufficient evidence for the company to reassess the uncertain tax position relating to the taxability of the AFMTC as more likely than not that the income from the 2009 year is not taxable and therefore a reduction to the reserve for uncertain tax positions in the amount of $62.6 million was recorded during the fourth quarter, net of the associated deferred tax asset. A total reduction to the reserve for uncertain tax positions, net of deferred tax assets associated with such positions, during the year totaled $69.1 million and was recorded as a benefit to income tax expense. Unrecognized tax benefits net of related deferred tax assets at December 31, 2013, if recognized, would favorably impact our effective tax rate by decreasing our tax provision by $2.7 million. We reflect accrued interest related to tax obligations, as well as penalties, in our provision for income taxes. For the years ended December 31, 2013, 2012 and 2011, we accrued interest and no penalties of $2.0 million, $1.9 million and $2.4 million, respectively, in our income tax provision.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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