Note 12 - Income Taxes

The provision (benefit) for income taxes for the periods indicated includes current and deferred components as follows:


	Year Ended December 31,
	2012	2011	2010

Current taxes
Federal	$ 653	$ 6	$ (643)
State	2,371	754	(910)

	3,024	760	(1,553)

Deferred taxes
Federal	8,755	1,870	(6,705)
State	1,665	(2,552)	(1,033)

	10,420	(682)	(7,738)

Interest expense, gross of related tax effects	327	276	(220)

Total	$ 13,771	$ 354	$ (9,511)

The provision (benefit) for income taxes for the periods indicated differs from the amounts computed by applying the federal statutory rate as follows:


	Year Ended December 31,
	2012	2011	2010

Statutory U.S. federal income tax rate	35.0 %	35.0 %	35.0 %
State income taxes, net of federal tax benefit	5.4 %	3.4 %	6.3 %
Valuation allowance	(2.0)%	3.8 %	10.0 %
Goodwill amortization	(1.8)%	(11.5)%	2.7 %
Manufacturing deduction	—	—	(1.4)%
Nondeductible expenses	0.6 %	2.9 %	(0.2)%
State rate and other changes on deferred taxes	4.9 %	(31.1)%	(11.0)%
Uncertain tax positions	0.1 %	2.8 %	(1.8)%
Other	(0.3)%	1.4 %	2.9 %

Effective income tax rate	41.9 %	6.7%	42.5%

Deferred income taxes result from temporary differences in the financial and tax basis of assets and liabilities. Components of deferred tax assets (liabilities) consisted of the following:


	December 31, 2012		December 31, 2011
Description	Assets	Liabilities	Assets	Liabilities

Accrued postretirement and pension benefits-long-term	$ 31,656	$ —	$ 31,966	$ —
Intangible assets	—	(2,263)	—	(1,617)
Accrued workers' compensation costs	1,059	—	465	—
Accrued warranty costs	3,515	—	3,501	—
IRC Section 481(a)	—	—	—	(396)
Accrued bonuses	1,273	—	1,109	—
Accrued vacation	657	—	667	—
Accrued contingencies	2,981	—	3,033	—
Accrued severance	294	—	285	—
Inventory valuation	1,784	—	1,392	—
Property, plant and equipment and railcars on operating leases	—	(17,810)	—	(19,317)
Net operating loss carryforwards	9,804	—	22,392	—
Credit carryforward	722	—	—	—
Stock-based compensation expense	2,084	—	1,731	—
Other	—	(155)	—	(8)

	55,829	(20,228)	66,541	(21,338)
Valuation allowance	(4,582)	—	(6,071)	—

Deferred tax assets (liabilities)	$ 51,247	$ (20,228)	$ 60,470	$ (21,338)

Increase (decrease) in valuation allowance	$ (1,489)		$ 448

In the consolidated balance sheets, these deferred tax assets and liabilities are classified as current or noncurrent, based on the classification of the related asset or liability for financial reporting. A deferred tax asset or liability that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, is classified according to the expected reversal date of the temporary differences as of the end of the year. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The railcar market has an established history of cyclicality based on significant swings in customer demand. Industry projections forecast this trend to continue, with a decrease in demand in 2013, followed by a recovery in demand continuing for several years. Although realization of our net deferred assets is not certain, management has concluded that, based on the positive and negative evidence considered and the expected improvement in railcar demand and, therefore, operating results, we will more likely than not realize the full benefit of the deferred tax assets except for our deferred tax assets in certain states. The Company has certain pretax state net operating loss carryforwards of $112,185, which will expire between 2015 and 2032, of which $56,001 have a full valuation allowance recorded. In addition to the state valuation allowances, the Company has also provided a valuation allowance against net operating losses associated with the foreign jurisdictions in which it operates. The losses associated with these jurisdictions will begin to expire in 2014. The Company has federal net operating loss carryforwards of $9,009 which will expire in 2030.

A reconciliation of the beginning and ending gross amounts of unrecognized tax benefits for the years ended December 31, 2012, 2011 and 2010, were as follows:

	2012	2011	2010

Beginning of year balance	$ 2,225	$ 2,144	$ 4,008
Increases in prior period tax positions	—	92	27
Decreases in prior period tax positions	—	(11)	(1,117)
Decreases relating to expiring statutes of limitations	(53)	—	(774)

End of year balance	$ 2,172	$ 2,225	$ 2,144

The total estimated unrecognized tax benefit that, if recognized, would affect the Company's effective tax rate was approximately $1,924, $1,978 and $1,897 as of December 31, 2012, 2011 and 2010, respectively. It is expected that the amount of unrecognized tax benefits will change in the next twelve months. Due to the nature of the Company's unrecognized tax benefits, the Company does not expect changes in its unrecognized tax benefit reserve in the next twelve months to have a material impact on its financial statements. The Company's income tax provision included $82 of expense (net of a federal tax benefit of $69), $95 of expense (net of a federal tax benefit of $74) and $168 of benefit (net of a federal tax expense of $52) related to interest and penalties for the years ended December 31, 2012, 2011 and 2010, respectively. The Company records interest and penalties with tax expense. Such expenses brought the balance of accrued interest and penalties to $1,575, $1,424 and $1,255 at December 31, 2012, 2011 and 2010, respectively.

The Company and/or its subsidiaries file income tax returns with the U.S. Federal government and in various state and foreign jurisdictions. A summary of tax years that remain subject to examination is as follows:

Jurisdiction	Earliest Year Open To Examination

U.S. Federal	2007
States:
Pennsylvania	2000
Virginia	2007
Illinois	2009
Colorado	2010
Indiana	2010
Nebraska	2010
Foreign:
India	2008
Mauritius	2009