Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

7.  Income Taxes

The components of the income tax benefit for the years ended December 31, consist of the following:

	(in thousands)
Current:	2011			2010			2009
Federal	$	-		$	158		$	(4,494	)
State		204			247			106
Deferred:
Federal		(1,249	)		(5,545	)		(3,130	)
State		(1,073	)		(431	)		(962	)
Total expense	$	(2,118	)	$	(5,571	)	$	(8,480	)

State income tax is presented net of the related federal tax benefit or provision.

A reconciliation between the statutory tax rate and the effective tax rate for the years ended December 31, is as follows:

	(in thousands)
	2011			2010			2009
Income tax (benefit) expense at statutory federal rate	$	(13,576	)	$	(6,125	)	$	(8,713	)
Federal income tax effects of:
Non-deductible driver per-diem payments		438			752			916
Non-taxable life insurance transactions		(75	)		(10	)		195
State income taxes and other		(907	)		(188	)		(878	)
Valuation allowance		12,002			-			-
Total benefit expense	$	(2,118	)	$	(5,571	)	$	(8,480	)
Effective tax rate benefit		(5.5	)%		(31.8	)%		(34.1	)%

For 2011, our effective tax benefit was 5.5%, as compared to 31.8% in 2010, and 34.1% in 2009.  Our effective tax rate differs from federal and state statutory rates because of taxable and non-taxable components of our pre-tax income.  Non-deductible items consist primarily of certain expenses incurred by our employee-drivers in the course of their duties. We believe that our assumptions and estimates are reasonable, although actual results may have a positive or negative material impact on the balances of deferred tax assets and liabilities, valuation allowances or net income. We will apply judgment to determine the amount of valuation allowance, if any, that would be required in any given period.  We will continue to assess whether we will realize all, part, or none of the deferred tax assets.   Due to cumulative losses and our operating results for the year ended December 31, 2011, a valuation allowance was determined to be necessary. At December 31, 2011, the Company has a valuation allowance of $12.0 million relating to federal deferred tax assets.  The remaining net deferred tax assets relate to indefinite lived credits and credits that are being utilized on an annual basis.  As of December 31, 2011 and 2010, our deferred tax assets and liabilities consisted of the following:

	(in thousands)
Deferred tax assets:	2011			2010
Insurance claims accruals	$	6,096		$	5,546
Allowance for bad debts		1,016			860
Capital lease obligations		1,033			-
Deferred compensation		388			564
Federal and state net operating loss carryforwards		15,399			6,590
Other		1,350			1,452
Gross deferred tax assets		25,282			15,012
Valuation allowance		(12,002	)		-
Total deferred tax assets		13,280			15,012
Deferred tax liabilities:
Capital lease obligations		(1,034	)		-
Depreciation		(8,687	)		(13,899	)
Prepaid expenses		(3,240	)		(3,116	)
Total deferred tax liabilities		(12,961	)		(17,015	)
Net deferred tax assets (liabilities)	$	319		$	(2,003	)

41

Frozen Food Express Industries, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Tax refunds were $79 thousand, $4.8 million and $0.8 million for 2011, 2010 and 2009, respectively.  Taxes paid were $236,000, $397,000, and $296,000 in 2011, 2010, and 2009, respectively.  Federal gross operating loss carryforwards of $35.6 million will begin to expire in 2028.

We generated significant taxable income and paid significant federal income taxes during 2004 and 2005.  The U.S. Worker, Homeownership, and Business Assistance Act of 2009 allowed us to “carryback” our 2009 net operating loss to offset the taxes we incurred and paid for these years.

The Company recognizes tax benefits associated with the exercise of stock options directly to stockholders’ equity only when realized. Accordingly, deferred tax assets are not recognized for net operating loss carry-forwards resulting from windfall tax benefits. A windfall tax benefit occurs when the actual tax benefit realized upon an employee’s disposition of a share-based award exceeds the cumulative book compensation charge associated with the award. At December 31, 2011, windfall tax benefits included in net operating loss carry-forwards but not reflected in deferred tax assets are $12,000.

Under US GAAP for accounting for uncertainty in income taxes, the Company has analyzed filing positions in its federal tax returns for all open years.  The open periods subject to examination for its federal returns are 2008, 2009 and 2010. The Company also files tax returns in numerous state jurisdictions with varying statutes of limitations.  The Company’s policy is to recognize interest related to unrecognized tax benefits and penalties as other miscellaneous expenses.