Income Taxes

The provision for income taxes for the years ended August 31, 2012, 2011 and 2010 is as follows:



	2012			2011		2010
	(Dollars in thousands)
Current
Federal	$	9,565		$	10,564	$	3,409
State	7,851			8,922		4,081
Foreign	4,812			53		1,441
	22,228			19,539		8,931
Deferred
Federal	66,707			54,435		43,361
State	1,617			9,454		1,823
Foreign	(9,700		)	3,200		(5,677		)
	58,624			67,089		39,507
Total	$	80,852		$	86,628	$	48,438

Deferred taxes are comprised of basis differences related to investments, accrued liabilities and certain federal and state tax credits. NCRA files separate tax returns and, as such, these items must be assessed independent of the Company’s deferred tax assets when determining recoverability.

Deferred tax assets and liabilities as of August 31, 2012 and 2011 are as follows:



	2012			2011
	(Dollars in thousands)
Deferred tax assets:
Accrued expenses	$	89,844		$	91,458
Postretirement health care and deferred compensation	107,817			100,256
Tax credit carryforwards	118,752			102,120
Loss carryforwards	30,272			71,470
Other	57,429			55,414
Deferred tax assets valuation	(56,659		)	(47,599		)
Total deferred tax assets	347,455			373,119
Deferred tax liabilities:
Pension	35,516			56,702
Investments	120,879			91,290
Major maintenance	9,141			4,591
Property, plant and equipment	453,863			453,805
Other	175			—
Total deferred tax liabilities	619,574			606,388
Net deferred tax liabilities	$	272,119		$	233,269

During the year ended August 31, 2012, the valuation allowance for NCRA increased by $12.4 million due to a change in the amount of state tax credits that are estimated to be utilized. NCRA’s valuation allowance is necessary due to the limited amount of taxable income it generates on an annual basis.

The Company’s foreign tax credit of $7.0 million will expire on August 31, 2019. The Company’s general business credit carryforward of $55.4 million is comprised primarily of low sulfur diesel credits that will begin to expire on August 31, 2027.

As of August 31, 2012, net deferred taxes of $37.6 million and $309.7 million are included in current assets and other liabilities, respectively ($59.9 million and $293.1 million in current assets and other liabilities, respectively, as of August 31, 2011).

The reconciliation of the statutory federal income tax rates to the effective tax rates for the years ended August 31, 2012, 2011 and 2010 is as follows:



	2012		2011		2010
Statutory federal income tax rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal income tax benefit	0.5		1.3		0.8
Patronage earnings	(24.2	)	(20.5	)	(23.8	)
Domestic production activities deduction	(3.5	)	(3.2	)	(1.5	)
Export activities at rates other than the U.S. statutory rate	0.4		0.5		1.0
Valuation allowance	0.6		0.9		0.8
Tax credits	(1.3	)	(3.1	)	(0.2	)
Non-controlling interests	(1.9	)	(3.0	)	(2.0	)
Other	0.1		(0.4	)	(1.8	)
Effective tax rate	5.7	%	7.5	%	8.3	%

The Company files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Company's uncertain tax positions are affected by the tax years that are under audit or remain subject to examination by the relevant taxing authorities. In addition to the current year, fiscal 2006 through 2011 remain subject to examination, at least for certain issues.

The Company accounts for its income tax provisions of ASC Topic 740, Income Taxes, which prescribes a minimum threshold that a tax provision is required to meet before being recognized in the consolidated financial statements. This interpretation requires the Company to recognize in the consolidated financial statements tax positions determined more likely than not to be sustained upon examination, based on the technical merits of the position. A reconciliation of the gross beginning and ending amounts of unrecognized tax benefits for the periods presented is as follows:



	2012		2011			2010
	(Dollars in thousands)
Beginning balances	$	67,271	$	69,357		$	72,519
Reductions attributable to statute expiration			(2,086		)	(3,162		)
Balances at August 31	$	67,271	$	67,271		$	69,357

If the Company were to prevail on all tax positions taken relating to uncertain tax positions, substantially all of the unrecognized tax benefits would benefit the effective tax rate. The Company does not believe it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease during the next 12 months.

The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. During the years ended August 31, 2012, 2011 and 2010, the Company recognized approximately $0.2 million, $0.1 million and $0.3 million in interest, respectively. The Company had approximately $0.2 million and $0.1 million for the payment of interest accrued on August 31, 2012 and 2011, respectively.