Note 9 – Income Taxes

The components of earnings from continuing operations before income taxes, categorized based on the location of the taxing authorities, were as follows:

	Successor								Predecessor
	Years Ended December 31,				Period from February 26 to December 31,				Period from January 1 to February 26,				Years Ended December 31,
	2011				2010				2010				2009
United States		$	(16,214	)		$	(140,719	)		$	49,214			$	(145,192	)
Foreign			9,625				5,028				(1,062	)			9,267
Total		$	(6,589	)		$	(135,691	)		$	48,152			$	(135,925	)

The income tax provisions (benefits) are as follows:

	Successor						Predecessor
	Years Ended December 31,			Period from February 26 to December 31,			Period from January 1 to February 26,			Years Ended December 31,
	2011			2010			2010			2009
Current:
Federal	$	215		$	(600	)	$	-		$	(801	)
State		(9	)		292			-			(82	)
Foreign		2,907			626			-			951
		3,113			318			-			68
Deferred:
Federal		(5,035	)		(5,701	)		(12,233	)		(43,736	)
State		(5,878	)		(2,700	)		(2,084	)		(8,650	)
Foreign		(195	)		430			-			601
Valuation allowance		15,756			5,446			12,386			54,093
		4,648			(2,525	)		(1,931	)		2,308
Total provision (benefit)	$	7,761		$	(2,207	)	$	(1,931	)	$	2,376

A reconciliation of the U.S. statutory tax rate to our effective tax rate (benefit) is as follows:

	Successor					Predecessor
	Years Ended December 31,			Period from February 26 to December 31,		Period from January 1 to February 26,		Years Ended December 31,
	2011			2010		2010		2009
Statutory tax rate		(35.0	)%	(35.0	)%	35.0	%	(35.0	)%
State and local income taxes		(89.3	)	(2.0	)	(4.3	)	(6.3	)
Incremental foreign tax (benefit)		(10.6	)	(0.6	)	0.8		(1.2	)
Change in valuation allowance		239.1		4.1		25.3		38.8
Foreign subsidiary dividend and undistributed earnings		-		-		-		1.4
Change in liability for unrecognized tax benefits		14.3		(0.4	)	-		-
Reorganization costs		-		28.3		(61.9	)	3.1
Inducement expense		-		21.1		-		-
Mark to market valuation of convertible debt		-		(19.5	)	-		-
Other items-net		(0.7	)	2.4		1.1		0.9
Effective tax rate		117.8	%	(1.6	)%	(4.0	)%	1.7	%

Deferred income tax assets and liabilities comprised the following at December 31:

	2011			2010
Deferred tax assets:
Postretirement and postemployment benefits	$	27,138		$	27,961
Accrued liabilities, reserves and other		3,241			5,872
Debt transaction and refinancing costs		1,985			2,631
Inventories		1,531			1,956
Accrued compensation and benefits		4,854			4,929
Worker's compensation		1,923			2,715
Pension benefit		21,361			14,878
State income taxes		1,442			1,440
Tax credits		1,335			-
Indirect effect of unrecognized tax benefits		1,333			2,058
Loss carryforwards		63,364			49,753
Unrealized foreign exchange gain		-			-
Valuation allowance		(55,355	)		(33,125	)
Total deferred tax assets		74,152			81,068
Deferred tax liabilities:
Asset basis and depreciation		(21,041	)		(20,472	)
Unrealized foreign exchange gain		-			-
Intangible assets		(66,437	)		(80,472	)
Total deferred tax liabilities		(87,478	)		(100,944	)
Net deferred tax liability		(13,326	)		(19,876	)
Current deferred tax asset		7,675			13,061
Long-term deferred income tax asset (liability)-net	$	(21,001	)	$	(32,937	)

The Company has recorded a deferred tax asset reflecting a benefit of $137.1 million of federal loss carryforwards and $301.1 million of state loss carryforwards as of December 31, 2011. As a result of the reorganization transaction the company underwent an ownership change that subjects these losses to limitations pursuant to IRS Code Section 382. As a result of this limitation, a portion of the carryforwards may expire before being applied to reduce future income tax liabilities. These deferred tax assets will expire beginning 2012 through 2031. In the current year, we have recorded deferred tax assets for additional state tax credits incurred through 2011, which will expire beginning 2016 through 2024. We have also recorded deferred tax assets for federal tax credits incurred through 2011, which will expire beginning 2030. At December 31, 2010 the Company made the decision to amend prior years' federal income tax returns to deduct foreign taxes in lieu of utilizing our foreign tax credit thus resulting in an increase in our net operating loss carryforward. Realization of deferred tax assets is dependent upon taxable income within the carryforward periods available under the applicable tax laws. Although realization of deferred tax assets in excess of deferred tax liabilities is not certain, management has concluded that it is more likely than not the Company will realize the full benefit of deferred tax assets in foreign jurisdictions. However, during 2010 and 2011, management has concluded that it is more likely than not that we will not realize the full benefit of our U.S. federal and state deferred tax assets due to three cumulative years of net losses and changes of management's estimate of future earnings, and recorded a valuation allowance against the amounts that are not likely to be recognized as of 2010 and 2011. For the period ended December 31, 2011, the valuation allowance increased by $22.2 million, of which $15.8 million is attributable to continuing operations and $6.4 million is attributable to OCI. For the period ended December 31, 2010, the valuation allowance increased by $6.2 million, of which $5.4 million was attributable to continuing operations and $0.8 million was attributable to OCI.

No provision has been made for U.S. income taxes related to undistributed earnings of our Canadian foreign subsidiary that we intend to permanently reinvest in order to finance capital improvements and/or expand operations either through the expansion of the current operations or the purchase of new operations. At December 31, 2011, Accuride Canada had $9.4 million of cumulative retained earnings. The Company distributes earnings for the Mexican foreign subsidiary and expects to distribute earnings annually. Therefore, deferred tax liabilities in the amounts of $1.0 million and $1.9 million for 2010 and 2011, respectively, have been established for the undistributed earnings of our Mexican foreign subsidiary.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits are as follows:

	Successor						Predecessor
	Years Ended December 31,			Period from February 26 to December 31,			Period from January 1 to February 26,		Years Ended December 31,
	2011			2010			2010		2009
Balance at beginning of the period	$	6,184		$	7,060		$	7,060	$	5,782
Additions based on tax positions related to the current year		161			489			-		-
Additions for tax positions of prior years		818			93			-		2,126
Reductions for tax positions of prior years		-			-			-		(338	)
Removal of penalties and interest		-			-			-		-
Reductions due to lapse of statute of limitations		(130	)		(1,458	)		-		(510	)
Settlements with taxing authorities		-			-			-		-
Balance at end of period	$	7,033		$	6,184		$	7,060	$	7,060

The total amount of unrecognized tax benefits that would, if recognized, impact the effective income tax rate was approximately $5.8 million as of December 31, 2011. Also included in the balance of unrecognized tax benefits is $0.2 million of tax benefits that, if recognized, would affect other tax accounts.

We also recognize accrued interest expense and penalties related to the unrecognized tax benefits as additional tax expense, which is consistent with prior periods. The total amount of accrued interest and penalties was $3.1 million and $1.4 million respectively, as of December 31, 2011. An increase in interest of $0.3 million was recognized in 2011. The total amount of accrued interest and penalties was approximately $2.8 million and $1.5 million, respectively, as of December 31, 2010.

As of December 31, 2011, we were open to examination in the U.S. federal tax jurisdiction for the 2008-2010 tax years, in Canada for the years of 2003-2010, and in Mexico for the years of 2005-2010. We were also open to examination in various state and local jurisdictions for the 2007-2010 tax years, none of which were individually material. We believe that our accrual for tax liabilities is adequate for all open audit years. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events.

It is reasonably possible that U.S. federal, state, local, and non-U.S. tax examinations will be settled during the next twelve months. If any of these tax audit settlements do occur within the next twelve months, we would make any necessary adjustments to the accrual for uncertain tax benefits. Until formal resolutions are reached with the tax authorities, the determination of a possible audit settlement range for the impact on uncertain tax benefits is not practicable. On the basis of present information, it is our opinion that any assessments resulting from the current audits will not have a material effect on our consolidated financial statements. The Company does not anticipate significant increases or decreases in its remaining unrecognized tax benefits within the next twelve months.