Note 7 Income Taxes

The provision (benefit) for income taxes consists of:


(dollars in thousands)		2012		2011		2010
Current:
Federal	$	30,258	$	24,518	$	1,578
State		2,534		781		(679	)
Deferred:
Federal		12,107		12,731		33,612
State		3,504		3,992		4,583
	$	48,403	$	42,022	$	39,094

The reconciliation of income taxes computed at the federal statutory rate (35% in 2012, 2011 and 2010) to the provision for income taxes is:


(dollars in thousands)		2012			2011			2010
Income taxes at federal statutory rate	$	45,820		$	41,151		$	37,585
State income taxes, net of federal income tax benefit		3,925			2,558			2,538
Other		(1,342	)		(1,687	)		(1,029	)
Provision for income taxes (effective tax rate 37.0%, 35.7% and 36.4%, respectively)	$	48,403		$	42,022		$	39,094

Cash paid for income taxes was $27,500,000, $21,000,000 and $4,123,000 in 2012, 2011 and 2010, respectively.

The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at December 29, 2012 and December 31, 2011, are:


(dollars in thousands)		2012			2011
Deferred tax assets:
Accounts receivable	$	426		$	403
Compensated absences		510			495
Long term employment incentives		2,891			1,554
Employee benefit plans		3,784			3,496
General liability insurance		1,113			1,074
Postretirement benefit obligations		6,255			5,931
Net operating loss carryforwards		6,535			6,825
Total deferred tax assets		21,514			19,778
Deferred tax liabilities:
Inventories		(6,241	)		(5,511	)
Unrealized gains on marketable securities		(3,506	)		(3,799	)
Nondeductible accruals and other		(1,995	)		(1,021	)
Depreciation		(102,301	)		(86,658	)
Total deferred tax liabilities		(114,043	)		(96,989	)
Net deferred tax liability	$	(92,529	)	$	(77,211	)
Current deferred liability - net	$	(3,420	)	$	(4,130	)
Noncurrent deferred liability - net		(89,109	)		(73,081	)
Net deferred tax liability	$	(92,529	)	$	(77,211	)

The following table summarizes the activity related to the Company's unrecognized tax benefits:


(dollars in thousands)		2012	2011
Unrecognized tax benefits at beginning of year	$	161	925
Increases based on tax positions related to the current year		---	---
Additions for tax positions of prior year		64	---
Reductions for tax positions of prior years		---	---
Settlements		---	(764	)
Expiration of the statute of limitations for assessment of taxes		---	---
Unrecognized tax benefits at end of year	$	225	161

During 2012 the Company completed a final settlement with a state taxing authority resulting in a $64,000 state tax benefit net of Federal income taxes. The end of year unrecognized tax benefit of $225,000 for 2012 would impact the effective tax rate over time and if recognized would reduce the effective tax rate. Management anticipates settlement for the majority of unrecognized tax benefits within the next twelve months.

The Company's U.S. Federal income tax filings have been examined by the Internal Revenue Service through 2008. The Company or one of its subsidiaries files tax returns in various states. The tax years subject to examination in Pennsylvania, where the majority of the Company's revenues are generated, are 2009 to 2012.

The Company has net operating loss carryforwards of $96 million available for state income tax purposes. The net operating losses will begin to expire starting in 2027. The Company expects to fully utilize these net operating loss carryforwards.