Income Taxes

The effective tax rate was 36.7% in 2012, 27.3% in 2011 and 16.0% in 2010. A reconciliation of the Federal statutory income tax rate to the Company’s effective tax rate is as follows:



	Percent of Income before Income Taxes
	2012		2011		2010
Statutory Federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes — net of Federal tax benefit	4.2		0.7		(1.4	)
Foreign tax rate differential	0.5		0.4		(5.1	)
Domestic production deduction	(2.9	)	(3.5	)	0.8
Non-deductible expenses	1.5		2.0		(0.9	)
Changes in unrecognized tax benefits	(1.6	)	(14.4	)	—
Non-deductible goodwill	—		3.1		(16.2	)
Non-taxable claims settlement gain	—		—		2.6
Valuation allowances	1.2		3.0		—
Other	(1.2	)	1.0		1.2
Effective tax rate for the year	36.7	%	27.3	%	16.0	%

Income (loss) before income taxes was attributable to the following sources:



	2012			2011			2010
United States	$	50,143		$	39,740		$	(18,807	)
Foreign	(2,802		)	(6,053		)	(32,214		)
Totals	$	47,341		$	33,687		$	(51,021	)

Income tax expense (benefit) consisted of the following:



	2012					2011					2010
	Current		Deferred			Current		Deferred			Current			Deferred
Federal	$	13,093	$	2,124		$	6,509	$	2,057		$	5,712		$	(12,933	)
Foreign	297		(1,168		)	612		(371		)	(1,519		)	(544		)
State and local	2,937		96			1,906		(1,531		)	983			115
	$	16,327	$	1,052		$	9,027	$	155		$	5,176		$	(13,362	)

Significant components of the Company’s deferred taxes as of December 31, 2012 and 2011 are as follows:



	2012			2011
Deferred income tax liabilities
Property, plant and equipment	$	24,748		$	23,974
Tax-deductible goodwill	5,206			2,884
Non-deductible intangibles	5,069			1,564
State deferred taxes	1,487			1,286
Other	392			423
	36,902			30,131
Deferred income tax assets
Compensation	6,243			5,175
Inventory valuation	806			630
Allowance for uncollectible accounts	967			1,343
Non-deductible accruals	3,820			4,199
Other	78			80
Capital loss carryforwards	—			26,138
Net operating loss carryforwards	4,975			2,037
	16,889			39,602
Valuation Allowance	(6,060		)	(28,175		)
	10,829			11,427
Net deferred income tax liability	$	26,073		$	18,704

ASC 740 Income Taxes requires that deferred tax assets be reduced by a valuation allowance, if based on all available evidence, it is more likely than not that the deferred tax asset will not be realized. Available evidence includes the reversal of existing taxable temporary differences, future taxable income exclusive of temporary differences, taxable income in carryback years and tax planning strategies. The decrease in the valuation allowance of $22.1 million resulted from the expiration of $26.1 million valuation allowance associated with 2007 capital loss carryforward and an increase of $4.0 million in the valuation allowance from additional federal non-deductible expenses as well as foreign and state net operating losses from jurisdictions with uncertainty of future profitability. The Company has deferred tax assets of $5.0 million resulting from state and foreign net operating tax loss carryforwards of approximately $25.2 million, with carryforward periods that expire starting in 2019.

No provision has been recorded for unremitted earnings of foreign subsidiaries as it is the Company’s intention to indefinitely reinvest these earnings of these subsidiaries. Accordingly, at December 31, 2012, the Company had not recorded a deferred tax liability for temporary differences related to investments in its foreign subsidiaries that are essentially permanent in duration. The amount of such temporary differences was estimated to be approximately $11.8 million and may become taxable in the U.S. upon a repatriation of assets or a sale or liquidation of the subsidiaries. It is not practical to estimate the related amount of unrecognized tax liability.

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



	2012			2011			2010
Balance at January 1	1,217			5,767			6,117
Increases related to current year tax positions	—			—			198
Increases related to acquired businesses	236			—			—
Increases related to previous year tax positions	580			395			79
Reductions due to lapse of applicable statute of limitations	(256		)	(4,945		)	(627		)
Reduction due to settlements	(699		)	—			—
Balance at December 31	$	1,078		$	1,217		$	5,767

The total amount of gross unrecognized tax benefits that would reduce the Company’s effective tax rate was $1.1 million, $1.1 million and $5.5 million at December 31, 2012, 2011 and 2010, respectively. The amount of accrued interest expense included as a liability within the Company’s Consolidated Statements of Financial Position as of December 31, 2012, 2011 and 2010 was $0.1 million, $0.1 million and $0.4 million, respectively.

As of December 31, 2012, the Company and its significant subsidiaries are subject to examination for the years after 2006 in Brazil and after 2007 in Canada. The Company and its subsidiaries are subject to examination in certain states within the United States either after 2007 or after 2008.

During 2012, the Company closed its 2009 and 2010 examination of Federal income tax returns in the United States. In February 2013, the Company closed its examination of its Canadian income tax returns for 2008. Ongoing examinations continue in a few states. The Company does not expect any significant changes to its unrecognized tax benefits in the next 12 months.