NOTE 14: INCOME TAXES

On March 12, 2013, the Audit Committee of our Board of Directors, in consultation with management, determined that the consolidated balance sheets as of December 31, 2010 and 2011 contained in our annual report on Form 10-K for the year ended December 31, 2011 and our quarterly reports on Form 10-Q for the first, second and third quarters of 2011 and the first, second and third quarter of 2012 should be restated due to an error in calculation of deferred taxes related to the timing difference of the depreciation of fixed assets.

Correction of our deferred taxes resulted in a restatement of our financial statements for the periods including and prior to the nine months ended September 30, 2012 as contained in this annual report on Form 10-K. The total adjustment through December 31, 2012 relating to the correction of the deferred income taxes was a reduction in deferred tax assets and retained earnings of $1.3 million.

The federal and state components of the provision for (benefit from) income taxes are presented in the following table:


		For the Years Ended
		December 31,
		2012			2011		2010
				($ in thousands)
Provision (benefit) for income tax
Current:
Federal	$	(530	)	$	(1,150	) $	3,208
State and local		(2	)		51		-
		(532	)		(1,099	)	3,208
Deferred:
Federal		(3,891	)		(269	)	(1,548	)
State and local		(58	)		483		(311	)
		(3,949	)		214		(1,859	)
Provision for income taxes	$	(4,481	)	$	(885	) $	1,349

Deferred income tax liabilities are taxes the Company expects to pay in future periods. Similarly, deferred income tax assets are recorded for expected reductions in taxes payable in future periods. Deferred income taxes arise because of differences in the book and tax basis of certain assets and liabilities.

Deferred income tax assets and liabilities consist of the following:


		At December 31,
($ in thousands)		2012			2011
					(restated)
Deferred income tax assets:
Employee pensions and other benefits	$	3,285		$	3,823
State net operating loss carryforwards		1,231			687
Accrued liabilities		-			322
Other		405			564
Total deferred income tax assets		4,921			5,396

Valuation allowance		(1,271	)		(693	)

Deferred income tax liabilities:
Property, plant and equipment		2,536			6,020
Other		(28	)		913
Total deferred income tax liabilities		2,508			6,933
Net deferred income tax assets (liabilities)	$	1,142		$	(2,230	)

The Company established a valuation allowance of $1.3 million at December 31, 2012 and $0.7 million at December 31, 2011 against certain state net operating loss (principally New Jersey) carryforwards. The Company was unable to conclude that it was more likely than not that it would realize these losses prior to their expiration. The Company will continue to refine and monitor all available evidence during future periods to evaluate the recoverability of its deferred tax assets.

The difference between tax expense (benefit) and the amount computed by applying the statutory federal income tax rate (34%) to income (loss) before income taxes is as follows:


		Years Ended December 31,
($ in thousands)		2012			2011			2010

Statutory rate applied to pre-tax income (loss)	$	(4,737	)	$	(1,294	)	$	1,428
Add (deduct):
State income taxes, net		(617	)		(215	)		(330	)
Valuation allowance - state net operating loss carryforwards		578			568			125
Other		295			56			126
Income taxes (benefit)	$	(4,481	)	$	(885	)	$	1,349

Accounting for uncertainty in income taxes requires uncertain tax positions to be classified as non-current income tax liabilities unless they are expected to be paid within one year. The Company has adopted the accounting guidance for uncertain tax positions and has concluded that there are no uncertain tax positions requiring recognition in its consolidated financial statements as of December 31, 2012 and 2011.

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense. For the years ended December 31, 2012, 2011 and 2010, there was no interest expense relating to unrecognized tax benefits.

The Company has state net operating loss carry-forwards in the amount of approximately $37.3 million as of December 31, 2012. These losses expire through 2017.

The Company and its subsidiaries file a U.S. federal consolidated income tax return. The U.S. federal statute of limitations remains open for the years 2009 and thereafter. In 2010, the IRS completed its examination of the Company's 2006 and 2007 federal income tax returns. As a result of such examination, the Company received a net refund of approximately $0.5 million from the IRS.

State income tax returns are generally subject to examination for a period of 3 to 5 years after filing the respective return. The impact of any federal changes on state returns remains subject to examination by the relevant states for a period of up to one year after formal notification to the states.