INCOME TAXES

Income tax expense (benefit) consists of the following:



(Thousands of Dollars)	2013		2012		2011

Current:
Federal	(7,915	)	(8,244	)	4,604
State	(693	)	(2,210	)	(55	)
Deferred	(54,806	)	(466	)	(25,630	)
	(63,414	)	(10,920	)	(21,081	)

Continuing operations	(62,745	)	(9,161	)	(20,166	)
Discontinued operations	(669	)	(1,759	)	(915	)
	(63,414	)	(10,920	)	(21,081	)

Income tax expense (benefit) related to continuing operations differs from the amounts computed by applying the U.S. federal income tax rate to income (loss) before income taxes. The reasons for these differences are as follows:



(Percent of Income (Loss) Before Income Taxes)	2013		2012		2011

Computed “expected” income tax benefit	(35.0	)	(35.0	)	(35.0	)
State income tax benefit, net of federal tax benefit	(2.6	)	(1.9	)	(2.3	)
Net income of associated companies taxed at dividend rates	(0.8	)	(6.4	)	(0.5	)
Domestic production deduction	0.4		2.1		(0.5	)
Resolution of tax matters	0.1		(3.9	)	0.5
Impairment of goodwill and other assets	—		—		23.9
Valuation allowance	(2.1	)	1.8		1.0
Non deductible costs of Chapter 11 Proceedings	—		9.5		—
Changes in tax basis	(4.8	)	(5.7	)	—
Other	(0.3	)	(1.1	)	0.7
	(45.1	)	(40.6	)	(12.2	)

Net deferred income tax liabilities consist of the following components:



(Thousands of Dollars)	September 29 2013		September 30 2012

Deferred income tax liabilities:
Property and equipment	(46,242	)	(40,684	)
Investments	—		(11,651	)
Identified intangible assets	(53,461	)	(50,472	)
Other	—		(1,155	)
	(99,703	)	(103,962	)
Deferred income tax assets:
Investments	21,558		—
Long-term debt	45,945		33,682
Accrued compensation	5,056		5,540
Allowance for doubtful accounts and losses on loans	1,224		817
Pension and postretirement benefits	2,106		5,569
State operating loss carryforwards	28,660		24,613
Accrued expenses	1,903		2,508
Other	468		—
	106,920		72,729
Valuation allowance	(26,424	)	(28,118	)
Net deferred income tax liabilities	(19,207	)	(59,351	)

Net deferred income tax liabilities are classified as follows:



(Thousands of Dollars)	September 29 2013		September 30 2012

Current assets	2,017		789
Non-current liabilities	(21,224	)	(60,140	)
Net deferred income tax liabilities	(19,207	)	(59,351	)

A reconciliation of 2013 changes in gross unrecognized tax benefits is as follows:



(Thousands of Dollars)	2013

Balance, beginning of year	4,917
Decreases in tax positions for prior years	(258	)
Increases in tax positions for the current year	450
Lapse in statute of limitations	(714	)
Balance, end of year	4,395

The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $2,869,000 at September 29, 2013. We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. The amount of accrued interest related to unrecognized tax benefits was, net of tax, $534,000 at September 29, 2013 and $710,000 at September 30, 2012. There were no amounts provided for penalties at September 29, 2013 or September 30, 2012.

At September 29, 2013, we had approximately $880,777,000 of net operating loss ("NOL") carryforwards for state tax purposes that expire between 2014 and 2032. Such NOL carryforwards result in a deferred income tax asset of $28,660,000 at September 29, 2013, substantially all of which is offset by a valuation allowance. The valuation allowance not related to NOL carryforwards is $ 2,131,000 at September 29, 2013 and $3,613,000 at September 30, 2012.

2012 operations resulted in a Federal NOL, which was carried back to 2010, resulting in a cash refund of $9,500,000, which was received in 2013. A Federal NOL based on 2013 results will be carried back to 2011, which we expect will result in a refund of approximately $7,000,000.

In connection with the refinancing of debt under the Chapter 11 Proceedings, we realized substantial cancellation of debt income (“CODI”) for income tax purposes. However, this income was not immediately taxable for U.S. income tax purposes because the CODI resulted from our reorganization under the U.S. Bankruptcy Code. For U.S. income tax reporting purposes, we are required to reduce certain tax attributes, including any net operating loss carryforwards, capital losses, certain tax credit carryforwards, and the tax basis in certain assets and liabilities, including debt, in a total amount equal to the tax gain on the extinguishment of debt. As a result, in February 2012 we began recognizing additional interest expense deductions for income tax purposes. The reduction in the basis of certain assets resulted in reduced depreciation and amortization expense for income tax purposes beginning in 2013.