Income Taxes

Income before income taxes was attributable to the following sources:



	Year Ended December 31,
	2012		2011		2010
United States	$	35,414	$	18,261	$	18,549
Canada	5,244		5,039		5,785
Total	$	40,658	$	23,300	$	24,334

The provision for income taxes follows:



	Year Ended December 31,
	2012			2011		2010
Currently payable:
Federal	$	15,853		$	3,065	$	4,051
State	2,239			2,277		1,057
Canadian	1,578			1,565		1,789
Total current	19,670			6,907		6,897
Deferred taxes	(3,607		)	2,328		3,384
Total taxes on income	$	16,063		$	9,235	$	10,281


Q.	Income Taxes (continued)

A reconciliation of the expected statutory U.S. federal rate to our actual effective income tax rate follows:



	Year Ended December 31,
	2012		2011		2010
Statutory U.S. federal tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	3.9		5.1		3.2
Effect of Canadian income taxes	(1.0	)	(1.2	)	(1.0	)
Nondeductible expenses	1.4		2.5		2.0
ESOP dividend deduction	(.7	)	(1.2	)	(1.1	)
U.S. tax benefit of foreign source income	—		(.1	)	(.7	)
Valuation allowance on foreign tax credits	—		(1.1	)	4.2
All other, net	.9		.6		.6
Effective income tax rate	39.5	%	39.6	%	42.2	%

Deferred income taxes reflect the tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is recorded when it is more-likely-than-not that an income tax benefit will not be realized.

Significant components of our current net deferred tax assets and liabilities at December 31, were as follows:



	December 31,
	2012			2011
Deferred tax assets:
Accrued compensation obligations	$	2,424		$	2,182
Self-insurance accruals	7,083			9,303
Other, net	(498		)	893
	9,009			12,378
Less deferred tax asset valuation allowance	194			307
Net deferred income tax assets--current	$	8,815		$	12,071


Q.	Income Taxes (continued)

Significant components of our noncurrent net deferred tax assets and liabilities at December 31, were as follows:



	December 31,
	2012			2011
Deferred tax assets:
Self-insurance accruals	$	14,497		$	10,491
Intangibles	(341		)	424
Accrued expenses and other liabilities	895			700
Accrued stock compensation	1,476			1,395
Defined benefit pension plans	4,698			3,702
Foreign tax credit carryforward	768			768
Other future deductible amounts, net	1,470			1,392
	23,463			18,872
Less deferred tax asset valuation allowance	574			461
	22,889			18,411
Deferred tax liabilities:
Property and equipment	21,830			24,044
	21,830			24,044
Net deferred tax assets--noncurrent	$	1,059
Net deferred tax liabilities--noncurrent				$	5,633

We treat all of our Canadian subsidiary earnings through December 31, 2012 as permanently reinvested and have not provided any U.S. federal or state tax thereon. As of December 31, 2012, approximately $24,800 of retained earnings attributable to our Canadian operations was considered to be indefinitely invested. Our intention is to reinvest the earnings permanently or to repatriate the earnings when it is tax efficient to do so.

If, in the future, these earnings are distributed to the U.S. in the form of dividends or otherwise, or if the Company determines such earnings will be remitted in the foreseeable future, the Company would be subject to U.S. income taxes and Canadian withholding taxes. It is not practicable to estimate the amount of taxes that would be payable upon remittance of these earnings given the various tax planning alternatives that we could employ should we decide to repatriate those earnings.

During the fourth quarter 2010, we repatriated earnings of our Canadian operations due to capital in Canada in excess of current and future projected needs. As a result, we recognized and recorded additional U.S. federal and state taxes that were payable as a result of the repatriation of the previously undistributed earnings. A deferred tax asset has been recorded for the portion of the foreign tax credit that is unavailable in the current year--the foreign tax credit carryforward of 2010. A valuation allowance is required when it is more-likely-than-not that all or a portion of a deferred tax asset will not be realized. Because of the uncertainty regarding realization, a valuation allowance equal to the U.S. tax benefit of the foreign tax credit carryforward is recorded--$768 at December 31, 2012--which is subject to expiration in 2020, if not utilized.


Q.	Income Taxes (continued)

The amount of income taxes we pay is subject to audit by U.S. federal, state, local and Canadian tax authorities, which may result in proposed assessments. Our estimate for the potential outcome for any uncertain tax issue is highly judgmental. Uncertain tax positions are recognized only if they are more-likely-than-not to be upheld during examination based on their technical merits. The measurement of the uncertain tax position is based on the largest benefit amount that is more-likely-than-not (determined on a cumulative probability basis) to be realized upon settlement of the matter. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. If the estimate of tax liabilities proves to be less than the ultimate settlement, a further charge to expense may result.

The balance of unrecognized benefits and the amount of related interest and penalties at December 31, were as follows:



	December 31,
	2012		2011
Unrecognized tax benefits	$	2,638	$	1,825
Portion, if recognized, would reduce tax expense and effective tax rate	1,933		1,260
Accrued interest on unrecognized tax benefits	142		99
Accrued penalties on unrecognized benefits	—		—

We recognize interest accrued related to unrecognized tax benefits in income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense.

The Company is routinely under audit by federal, state, local and Canadian authorities in the area of income tax. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. During 2010, the U.S. Internal Revenue Service completed its audit of the Company's U.S. income tax returns for 2007 and 2008 and Canada Revenue Agency completed its audit of the Company's Canadian operations for 2006, 2007 and 2008. With the exception of U.S. state jurisdictions, the Company is no longer subject to examination by tax authorities for the years through 2008.

The Company's U.S. income tax return for the year ended December 31, 2010 is currently under audit by the U.S. Internal Revenue Service. As of December 31, 2012, if certain pending tax matters settle, we believe it is reasonably possible that additional tax payments will be made during the next twelve months within a range of $500 to $800.

The changes in our unrecognized tax benefits are summarized in the table below:



	Year Ended December 31,
	2012			2011			2010
Balance, beginning of year	$	1,825		$	1,524		$	2,165
Additions based on tax positions related to the current year	667			279			372
Additions for tax positions of prior years	149			101			1,185
Reductions for tax positions of prior years	(3		)	(61		)	(232		)
Reductions related to settlements with taxing authorities	—			—			(900		)
Lapses in statutes of limitations	—			(18		)	(1,066		)
Balance, end of year	$	2,638		$	1,825		$	1,524