Note K. Income Taxes

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

	2013		2012			2011

United States	$	21,365	$	(1,468	)	$	27,152
Foreign		2,221		222			1,024


Total	$	23,586	$	(1,246	)	$	28,176

The components of income tax expense (benefit) for the years ended December 31, 2013, 2012 and 2011 were as follows:

	2013			2012			2011

Current provision:
U.S. federal	$	3,183		$	748		$	6,202
Foreign		734			233			292
State		2,162			(11,830	)		1,678


Total current		6,079			(10,849	)		8,172
Deferred provision:
U.S. federal		2,301			6,069			2,547
Foreign		(91	)		(11	)		5
State		532			1,171			(24	)


Total deferred		2,742			7,229			2,528


Income tax expense (benefit)	$	8,821		$	(3,620	)	$	10,700

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, 2013 and 2012 are as follows:

	2013			2012

Deferred tax assets:
Net operating loss carry forwards	$	21,621		$	28,054
Accrued expenses		32,665			33,276
Accrued compensation		10,033			10,551
Book over tax cost unfavorable lease contracts		37,758			36,339
Other		129			169


Gross deferred tax assets		102,206			108,389
Less: valuation allowance		(21,340	)		(25,299	)


Total deferred tax asset		80,866			83,090


Deferred tax liabilities:
Prepaid expenses		(450	)		(516	)
Undistributed foreign earnings		(1,065	)		(1,144	)
Tax over book depreciation and amortization		(20,586	)		(3,047	)
Tax over book goodwill amortization		(28,713	)		(27,496	)
Tax over book cost favorable contracts		(31,824	)		(43,417	)
Other		(5,259	)		(11,284	)


Total deferred tax liabilities		(87,897	)		(86,904	)


Net deferred tax liability	$	(7,031	)	$	(3,814	)

Amounts recognized on the balance sheet consist of:

	2013			2012

Deferred tax asset, current	$	10,317		$	15,265
Deferred tax (liability), long term		(17,348	)		(19,079	)


Net deferred tax liability	$	(7,031	)	$	(3,814	)

The accounting guidance for accounting for income taxes requires that the Company 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. The Company has valuation allowances totaling $21,340 and $25,299, respectively, at December 31, 2013 and 2012 primarily related to our state Net Operating Loss carryforwards ("NOLs") and state tax credit that the Company believes are not likely to be realized based on upon its estimates of future taxable income, limitations on the use of its state NOLs, and the carryforward life over which the state tax benefit is realized.

At December 31, 2013, the Company had $2,486 of gross federal NOLs, which will expire in 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 its 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 its ability to utilize pre-change NOLs.

The Company has $19,999 of tax-effected state net operating loss carryforwards as of December 31, 2013, which will expire in the years 2014 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 and are also limited due to the Central Merger. The Company has $113 of tax-effected foreign net operating loss carryforwards related to its Canadian subsidiary.

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. As of December 31, 2013, the Company treats approximately $1,600 of Canadian earnings as permanently reinvested to meet the Canadian subsidiary's working capital requirements. The amount of tax that may be payable on the distribution of such earnings to the United States is approximately $612. 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 its cumulative earnings of $3,852 in its Puerto Rico subsidiary as permanent in duration to satisfy current working capital requirements. The amount of tax that may be payable on a distribution of such earnings to the United States is $1,599.

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 is as follows:

	2013			2012			2011

Tax at statutory rate	$	8,255		$	(436	)	$	9,861
Permanent differences		844			4,534			572
State taxes, net of federal benefit		1,397			1,086			1,067
Effect of foreign tax rates		49			8			(71	)
Uncertain tax positions		—			(8,104	)		—
Current year adjustment to deferred taxes		3,960			—			—
Recognition of tax credits		(1,699	)		(432	)		(903	)
Other		(25	)		(276	)		174


		12,781			(3,620	)		10,700
Change in valuation allowance		(3,960	)		—			—


Income tax (benefit) expense	$	8,821		$	(3,620	)	$	10,700

Taxes paid, which are for United States federal income tax, certain state income taxes, and foreign income taxes were $1,331, $3,651 and $7,507 in 2013, 2012 and 2011, respectively.

As of December 31, 2013, the Company has not identified any uncertain tax positions that would have a material impact on the Company's financial position. 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, 2013.

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



Unrecognized tax benefits—January 1,	—	—		—
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,	—	—		—

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, 2013 are shown below:


2009 - 2013		United States—federal income tax
2007 - 2013		United States—state and local income tax
2010 - 2013		Foreign—Canada and Puerto Rico