Note J. Income Taxes

For financial reporting purposes, income before taxes includes the following components:

	2012		2011		2010

United States	$	1,558	$	28,489	$	26,079
Foreign		222		1,024		1,784

Total	$	1,780	$	29,513	$	27,863

The components of income tax expense (benefit) for the years ended December 31, 2012, 2011 and 2010 were as follows:

	2012			2011		2010

Current provision:
U.S. federal	$	748		$	6,202	$	5,958
Foreign		233			292		682
State		(11,830	)		1,678		1,238

Total current		(10,849	)		8,172		7,878
Deferred provision:
U.S. federal		7,128			3,015		2,497
Foreign		(11	)		5		(96	)
State		1,358			43		476

Total deferred		8,475			3,063		2,877

Income tax expense	$	(2,374	)	$	11,235	$	10,755

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31, 2012 and 2011 are as follows:

	2012			2011

Deferred tax assets:
Net operating loss carry forwards	$	28,054		$	4,017
Accrued expenses		27,501			9,651
Accrued compensation		10,551			6,081
Book over tax cost unfavorable lease contracts		22,748			—
Other		169			274

Gross deferred tax assets		89,023			20,023
Less: valuation allowance		(25,299	)		(318	)

Total deferred tax asset		63,724			19,705

Deferred tax liabilities:
Prepaid expenses		(516	)		(244	)
Undistributed foreign earnings		(1,144	)		(1,176	)
Tax over book depreciation and amortization		(2,165	)		(3,012	)
Tax over book goodwill amortization		(27,496	)		(25,426	)
Tax over book cost favorable contracts		(31,411	)		—
Other		(13,688	)		(83	)

Total deferred tax liabilities		(76,420	)		(29,941	)

Net deferred tax liability	$	(12,696	)	$	(10,236	)

Amounts recognized on the balance sheet consist of:

	2012			2011

Deferred tax asset, current	$	14,824		$	2,745
Deferred tax (liability), long term		(27,520	)		(12,981	)

Net deferred tax liability	$	(12,696	)	$	(10,236	)

The accounting guidance for accounting for income taxes requires that we assess the realizability of deferred tax assets at each reporting period. These assessments generally consider several factors including the reversal of existing temporary differences, projected future taxable income, and potential tax planning strategies. We have valuation allowances totaling $25,299 and $318, respectively, at December 31, 2012 and 2011 primarily related to our state Net Operating Loss carryforwards ("NOLs") that we believe are not likely to be realized based upon our estimates of future state taxable income, limitations of the use of our state NOLs, and the carryforward life over which the state tax benefit will be realized. $24,981 of the valuation allowance recorded as of December 31, 2012 is attributable to state net operating loss carryforwards and other state deferred tax assets of Central that were recognized as a component of purchase accounting.

At December 31, 2012, the Company had $5,677 of gross federal NOLs, which will expire in the years 2023 through 2024. As a result of the initial public offering completed in June of 2004, an ownership change occurred under Internal Revenue Code Section 382, which limits our ability to use pre-change NOLs to reduce future taxable income. Additionally, a second ownership change occurred in May 2009, however, since the fair market value of the Company's shares were significantly higher than at the time of the initial public offering, there was no change in the applicable Section 382 limitation that limits our ability to utilize pre-change NOLs.

The Company has $21,919 of tax effected state net operating loss carryforwards as of December 31, 2012, which will expire in the years 2013 through 2028. As noted above, the utilization of the state net operating loss carryforwards of the Company are limited due to the ownership change in June 2004. The state net operating loss carryforwards of Central are also limited due to the Central Merger. The Company does not have any foreign net operating loss carryforwards.

Since 2005, the Company has treated its investment in its Canadian subsidiary as non-permanent in duration and provided taxes on the undistributed Canadian earnings under APB23. As of December 31, 2012, the Company treats approximately $1,600 of Canadian earnings as permanently reinvested to meet the Canadian subsidiary's working capital requirements. Generally, such amounts will become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. The Company has provided taxes for the remaining undistributed earnings of its Canadian subsidiary in excess of the permanently reinvested amount. The Company is treating it cumulative earnings of $3,641 in its Puerto Rico subsidiary as permanent in duration to satisfy working capital requirements. The amount of tax that may be payable on a distribution of such earnings is $1,274.

A reconciliation of the Company's reported income tax provision (benefit) to the amount computed by multiplying book income / (loss) before income taxes by the statutory United States federal income tax rate for the years ended December 31, 2012, 2011 and 2010 is as follows:

	2012			2011			2010

Tax at statutory rate	$	623		$	10,330		$	9,752
Permanent differences		4,534			572			464
State taxes, net of federal benefit		1,273			1,134			1,314
Effect of foreign tax rates		8			(71	)		(24	)
Uncertain tax positions		(8,104	)		—			—
Recognition of tax credits		(432	)		(903	)		(526	)
Other		(276	)		173			(174	)

		(2,374	)		11,235			10,806
Change in valuation allowance		—			—			(51	)

Income tax (benefit) expense	$	(2,374	)	$	11,235		$	10,755

Taxes paid, which are for United States federal income tax, certain state income taxes, and foreign income taxes were $3,651, $7,507 and $7,270 in 2012, 2011 and 2010, respectively.

As of December 31, 2012, the Company has not identified any uncertain tax positions that would have a material impact on the Company's financial position. However, as a result of the Central Merger, the Company recorded $6,780, plus accrued interest of $5,328 and penalties of $678, for a state uncertain tax position as part of the opening balance sheet. Due to the lapsing of the statute of limitations for this position in the fourth quarter 2012, the Company decreased its uncertain tax position for the full amount of the liability previously established and reversed the previously accrued interest. As a result, the Company does not have any uncertain tax positions recorded as of December 31, 2012.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:



Unrecognized tax benefits—January 1^st	—		—	—
Gross adjustments—Central Merger	6,780		—	—
Gross increases—tax positions in prior period	—		—	—
Gross decreases—tax positions in prior period	—		—	—
Gross increases—tax positions in current period	—		—	—
Settlement	—		—	—
Lapse of statute of limitations	(6,780	)	—	—

Unrecognized tax benefits—December 31^st	—		—	—

The Company recognizes potential interest and penalties related to uncertain tax positions, if any, in income tax expense.

The tax years that remain subject to examination for the Company's major tax jurisdictions at December 31, 2012 are shown below:


2007 - 2012		United States—federal income tax
2007 - 2012		United States—state and local income tax
2009 - 2012		Canada