NOTE 12: INCOME TAXES

On March 14, 2014, the Audit Committee of the Board of Directors (the "Audit Committee") of the Company, in consultation with management, determined that, due to an error in the application of U.S. generally accepted accounting principles ("GAAP") for income taxes related to the determination of the valuation allowance needed to reflect its deferred tax assets at the amount that is more than likely than not realizable, the Company's previously filed consolidated financial statements and related financial statement schedules as of and for the year ended December 31, 2012, contained in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2012, should be restated. This conclusion was reached because the Company determined that it overstated its prepaid income taxes and deferred income taxes in the consolidated balance sheet at December 31, 2012 by $0.3 million and $1.1 million, respectively due to the need to increase its valuation allowance, which resulted in an understatement of the net loss reported for the year ended December 31, 2012 by $1.4 million.

In addition, the Audit Committee concluded that, due to similar errors in income tax accounting, the condensed interim financial statements as of March 31, 2013, June 30, 2013 and September 30, 2013 included in the Company's Quarterly Reports on Forms 10-Q for the respective fiscal quarters then ended should be restated.

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,
		2013		2012		2011
		(as restated)
		($ in thousands)
Provision for (benefit from) for income tax
Current:
Federal	$	876	$	(232	) $	(1,150	)
State and local		22		(2	)	51
		898		(234	)	(1,099	)
Deferred:
Federal		463		(2,824	)	(269	)
State and local		81		14		483
		544		(2,810	)	214
Provision for (benefit from) income taxes	$	1,442	$	(3,044	) $	(885	)

Deferred income taxes arise because of differences in the book and tax basis of certain assets and liabilities and tax credit and operating loss carry forwards. Deferred income tax assets and liabilities consist of the following:


		As of December 31,
($ in thousands)		2013			2012
					(as restated)
Deferred income tax assets:
Employee pensions and other benefits	$	2,226		$	3,285
State net operating loss carryforwards		1,040			1,181
Equity compensation expense		563			244
Intangible assets		785			615
Other		756			473
Total deferred income tax assets		5,370			5,798

Valuation allowance		(3,163	)		(3,198	)

Deferred income tax liabilities:
Property, plant and equipment		2,001			2,161
Tax amortizable goodwill		541			331
Other		206			105
Total deferred income tax liabilities		2,748			2,597
Net deferred income tax assets (liabilities)	$	(541	)	$	3

Based on a current evaluation of expected future taxable income, the Company determined it is not more-likely-than-not that all deferred tax assets will be realized. Therefore, the Company maintained a valuation allowance against its deferred tax assets as of December 31, 2013 and 2012.

In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the appropriate character during the periods in which those temporary differences become deductible and the tax credits and loss carryforwards are available to reduce taxable income. In making its assessment, the Company considered all sources of taxable income including carryback potential, future reversals of existing deferred tax liabilities, prudent and feasible tax planning strategies, and lastly, objectively verifiable projections of future taxable income exclusive of reversing temporary differences and carryforwards. At December 31, 2013 and 2012, the Company concluded that its existing deferred tax liabilities represented a source of taxable income to realize its deferred tax assets, exclusive of the deferred tax liability associated with tax amortizable goodwill. At December 31, 2012, the Company concluded that projections of future taxable income (exclusive of reversing temporary differences and carryforwards) provided support for the realization of additional deferred tax assets of approximately $0.3 million. At December 31, 2013, projections of future taxable income did not provide an additional source of income in the evaluation of the realization of deferred tax assets. Carryback potential and prudent and feasible tax planning strategies did not provide a source of taxable income in either 2013 or 2012. The Company will continue to assess all available evidence during future periods to evaluate the realization of its deferred tax assets.

The following summarizes the changes in the Company's valuation allowance on deferred tax assets for the period indicated:


		2013			2012		2011
					(as restated)

Balance at the beginning of the period	$	3,198		$	693	$	125
Amounts charged to expense		874			2,505		568
Other increases (decreases)		(909	)		-		-
Balance at the end of the period	$	3,163		$	3,198	$	693

For the year ended December 31, 2012, the Company's valuation allowance increased by $2.5 million in order to establish a valuation allowance on substantially all of its net deferred tax assets.

For the year ended December 31, 2013, the net decrease in the Company's deferred tax assets related principally to its unfunded postretirement liability and the corresponding decrease to the valuation allowance has been recorded within other comprehensive income/(loss). The Company recorded a charge to income of $0.9 million to increase the valuation allowance on the remaining net deferred tax assets at December 31, 2013.

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)		2013		2012			2011
				(as restated)

Statutory rate applied to pre-tax income (loss)	$	271	$	(4,737	)	$	(1,294	)
Add (deduct):
State income taxes, net		192		(981	)		(215	)
Valuation allowance		874		2,505			568
Other		105		169			56
Income taxes (benefit)	$	1,442	$	(3,044	)	$	(885	)

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 concluded that there are no uncertain tax positions requiring recognition in its consolidated financial statements as of December 31, 2013 and 2012.

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense. For the years ended December 31, 2013, 2012 and 2011, there was no interest expense relating to unrecognized tax benefits.

The Company has state net operating loss carry-forwards in the amount of approximately $18.8 million as of December 31, 2013. These losses expire through 2033.

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.