Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

INCOME TAXES

10. INCOME TAXES

The provision (benefit) for income taxes of continuing operations is composed of the following components:

	Year Ended December 31,
	2011		2010			2009
Current provision :
Federal	$	73,000	$	(139,000	)	$	1,543,000
State		225,000		(44,000	)		150,000
		298,000		(183,000	)		1,693,000
Deferred provision (benefit):
Federal		199,000		1,851,000			(544,000	)
State		12,000		190,000			16,000
		211,000		2,041,000			(528,000	)
Provision for income taxes of continuing operations	$	509,000	$	1,858,000		$	1,165,000

A reconciliation of taxes computed at statutory income tax rates on income from continuing operations is as follows:

	Year Ended December 31,
	2011			2010			2009
Provision for federal income taxes at statutory rates	$	644,000		$	1,979,000		$	1,035,000
Provision for state income taxes, net of federal benefit		149,000			97,000			221,000
Resolution with tax authorities		(79,000	)		—			—
Valuation allowance changes affecting the provision for income taxes		(8,000	)		(2,000	)		(76,000	)
Employment tax credits		(1,000,000	)		(580,000	)		(600,000	)
Nondeductible expenses		437,000			357,000			516,000
Stock based compensation expense		410,000			—			—
Other		(44,000	)		7,000			69,000
Provision for income taxes of continuing operations	$	509,000		$	1,858,000		$	1,165,000

The net deferred tax assets and liabilities, at the respective income tax rates, are as follows:

		$10,352,000			$10,352,000
	December 31,
	2011			2010
Current deferred assets:
Credit carryforwards	$	1,288,000		$	580,000
Allowance for doubtful accounts		1,066,000			953,000
Accrued liabilities		4,961,000			3,813,000
		7,315,000			5,346,000
Less valuation allowance		(298,000	)		(196,000	)
		7,017,000			5,150,000
Current deferred liabilities:
Prepaid expenses		(976,000	)		(943,000	)
	$	6,041,000		$	4,207,000

		$10,352,000			$10,352,000
	December 31,
	2011			2010
Noncurrent deferred assets:
Net operating loss and other carryforwards	$	1,720,000		$	2,050,000
Deferred lease costs		416,000			471,000
Depreciation		(2,589,000	)		(872,000	)
Tax goodwill and intangibles		(469,000	)		(158,000	)
Stock-based compensation		1,242,000			1,847,000
Accrued rent		4,582,000			4,394,000
Impairment of long-lived assets		656,000			513,000
Interest rate swap		579,000			—
Noncurrent self-insurance liabilities		4,785,000			4,843,000
		10,922,000			13,088,000
Less valuation allowance		(570,000	)		(680,000	)
	$	10,352,000		$	12,408,000

In 2011, 2010, and 2009, the Company recorded a deferred tax benefit to reverse approximately $8,000, $2,000 and $76,000, respectively, of the valuation allowance on deferred tax assets. The decreases in valuation allowance were based on the Company’s assessment of the realization of certain individual tax assets. The Company continues to maintain a valuation allowance of approximately $868,000 to reduce the deferred tax assets by the amount management believes is more likely than not to not be utilized through the turnaround of existing temporary differences, future earnings, or a combination thereof. In future periods, the Company will continue to assess the need for and adequacy of the remaining valuation allowance.

At December 31, 2011, the Company had $9,194,000 of net operating losses, which expire at various dates beginning in 2019 and continue through 2021. The use of these loss carryforwards is limited by change in ownership provisions of the Federal tax code to a maximum of approximately $4,328,000. In 2005, the Company reduced the deferred tax asset and the corresponding valuation allowances for net operating loss deductions permanently lost as a result of the change in ownership provisions.

Stock-based compensation increases the Company’s effective tax rate to the extent that stock-based compensation expense recorded in the Company’s financial statements is non-deductible for tax purposes. This primarily occurs for equity grants that have a higher grant date fair value than the income tax deduction the Company receives upon exercise.

During 2011, the Company recorded an estimated $400,000 in employment tax credits under the Hiring Incentives to Restore

Employment (HIRE) Act which provided a one-time tax credit. In addition, under the Work Opportunity Tax Credit program the Company recorded $600,000, $580,000 and $600,000 in Work Opportunity Tax Credits during 2011, 2010 and 2009, respectively.

The Company follows the FASB’s guidance on financial statement recognition and measurement of tax positions taken, or expected to be taken, in tax returns evaluating the need to recognize or unrecognize uncertain tax positions. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2011		2010		2009
Balance at the beginning of the period	$	84,000	$	76,000	$	70,000
Changes in tax positions for prior years		2,000		8,000		6,000
Balance at the end of the period	$	86,000	$	84,000	$	76,000

The unrecognized tax benefits are accrued in “other current liabilities.” The net change in the amount of unrecognized tax benefits during the years ended December 31, 2011, 2010 and 2009 was related primarily to the adjustment of the estimated liability. None of the current unrecognized tax benefits are expected to impact the Company’s effective tax rates.

The Company has chosen to classify interest and penalties as a component separate from income tax expense in its consolidated statements of income. The tax years 2008 through 2010 remain open to examination by major taxing jurisdictions in which the Company operates. During 2010, the Internal Revenue Service (“IRS”) commenced an examination of the Company’s U.S. income tax returns for the years 2008 and 2009. The examination for both years was completed during 2011 and the Company recognized a combined income tax benefit of $79,000 as a result of the examination.