Note 9 - Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Text Block]

9.           INCOME TAXES

Income tax expense (benefit) for the years ended December 31, 2012, 2011, and 2010 is comprised of:

(in thousands)	2012			2011			2010
Federal, current	$	(707	)	$	(198	)	$	(11,377	)
Federal, deferred		6,897			(1,688	)		16,739
State, current		307			184			130
State, deferred		(162	)		(470	)		683
	$	6,335		$	(2,172	)	$	6,175

Income tax expense varies from the amount computed by applying the federal corporate income tax rate of 35% to income before income taxes for the years ended December 31, 2012, 2011, and 2010 as follows:

(in thousands)	2012			2011			2010
Computed "expected" income tax expense	$	4,340		$	(5,754	)	$	3,312
State income taxes, net of federal income tax effect		409			(559	)		322
Per diem allowances		2,550			3,015			3,350
Tax contingency accruals		(444	)		(70	)		145
Nondeductible foreign operating income		-			-			(133	)
Nondeductible goodwill impairment		-			2,275			-
Valuation allowance (release), net		(251	)		(708	)		(638	)
Disallowed interest release		-			-			(48	)
Tax credits		(407	)		(61	)		(182	)
Other, net		138			(310	)		47
Actual income tax expense	$	6,335		$	(2,172	)	$	6,175

Income tax expense varies from the amount computed by applying the federal corporate income tax rate of 35% to income (loss) before income taxes primarily due to state income taxes, net of federal income tax effect, adjusted for permanent differences, the most significant of which is the effect of the per diem pay structure for drivers.  Drivers who meet the requirements to receive per diem receive non-taxable per diem pay in lieu of a portion of their taxable wages.  This per diem program increases our drivers' net pay per mile, after taxes, while decreasing gross pay, before taxes.  As a result, salaries, wages, and employee benefits are slightly lower and our effective income tax rate is higher than the statutory rate.  Generally, as pre-tax income increases, the impact of the driver per diem program on our effective tax rate decreases, because aggregate per diem pay becomes smaller in relation to pre-tax income, while in periods where earnings are at or near breakeven the impact of the per diem program on our effective tax rate is significant.  Due to the partially nondeductible effect of per diem pay, our tax rate will fluctuate in future periods based on fluctuations in earnings. Our effective tax rate is also significantly impacted in the 2011 period by the $11.5 million goodwill impairment recorded in the third quarter of 2011, of which $2.1 million of the goodwill impairment was tax deductible and the remaining $9.4 million was nondeductible.

The temporary differences and the approximate tax effects that give rise to our net deferred tax liability at December 31, 2012 and 2011 are as follows:

(in thousands)	2012			2011
Deferred tax assets:
Allowance for doubtful accounts	$	662		$	657
Insurance and claims		11,950			10,766
Net operating loss carryovers		16,978			31,031
Capital loss carryover related to Transplace		-			251
Other		5,607			6,085
Valuation allowance		(299	)		(550	)
Total deferred tax assets		34,898			48,240
Deferred tax liabilities:
Property and equipment		(76,748	)		(83,651	)
Other		(291	)		(34	)
Prepaid expenses		(3,054	)		(2,842	)
Total deferred tax liabilities		(80,093	)		(86,527	)
Net deferred tax liability	$	(45,195	)	$	(38,287	)

Deferred taxes are classified in the accompanying consolidated balance sheet based on the nature of the related asset or liability as current or long-term, such that current deferred tax assets and liabilities provide a net asset of $4.6 million, while long-term deferred tax assets and liabilities provide a net liability of $49.8 million.  The net deferred tax liability of $45.2 million primarily relates to differences in cumulative book versus tax depreciation of property and equipment, partially off-set by net operating loss carryovers and insurance claims that have been reserved but not paid. The carrying value of our deferred tax assets assumes that we will be able to generate, based on certain estimates and assumptions, sufficient future taxable income in certain tax jurisdictions to utilize these deferred tax benefits.  If these estimates and related assumptions change in the future, we may be required to establish a valuation allowance against the carrying value of the deferred tax assets, which would result in additional income tax expense.  On a periodic basis, we assess the need for adjustment of the valuation allowance.  Based on forecasted taxable income resulting from the reversal of deferred tax liabilities, primarily generated by accelerated depreciation for tax purposes in prior periods, and tax planning strategies available to us, no valuation allowance has been established at December 31, 2012 or 2011, except for $0.3 million and $0.6 million, respectively, related to certain state net operating loss and capital loss carry-forwards.  If these estimates and related assumptions change in the future, we may be required to modify our valuation allowance against the carrying value of the deferred tax assets.

The activity in the valuation allowance on deferred tax assets (in thousands) is as follows:

Years ended December 31:	Beginning balance January 1,		Additional provisions to allowance		Write-offs and other deductions			Ending balance December 31,
2012	$	550	$	-	$	(251	)	$	299
2011	$	1,258	$	32	$	(740	)	$	550

As of December 31, 2012, we had a $2.6 million liability recorded for unrecognized tax benefits, which includes interest and penalties of $1.0 million. We recognize interest and penalties accrued related to unrecognized tax benefits in tax expense. As of December 31, 2011, we had a $3.3 million liability recorded for unrecognized tax benefits, which included interest and penalties of $1.3 million.  Interest and penalties recognized for uncertain tax positions provided for a $0.3 million benefit in 2012, compared to, $0.1 million and $0.2 million of expense in 2011 and 2010, respectively.

The following tables summarize the annual activity related to our gross unrecognized tax benefits (in thousands) for the years ended December 31, 2012, 2011, and 2010:

	2012			2011			2010
Balance as of January 1,	$	1,979		$	2,133		$	2,137
Increases related to prior year tax positions		-			3			75
Decreases related to prior year positions		-			-			(30	)
Increases related to current year tax positions		2			58			110
Decreases related to settlements with taxing authorities		-			-			-
Decreases related to lapsing of statute of limitations		(418	)		(215	)		(159	)
Balance as of December 31,	$	1,563		$	1,979		$	2,133

If recognized, $1.7 million and $2.0 million of unrecognized tax benefits would impact our effective tax rate as of December 31, 2012 and 2011 respectively. Any prospective adjustments to our reserves for income taxes will be recorded as an increase or decrease to our provision for income taxes and would impact our effective tax rate.

Our 2009 through 2012 tax years remain subject to examination by the IRS for U.S. federal tax purposes, our major taxing jurisdiction.  In the normal course of business, we are also subject to audits by state and local tax authorities. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe that our reserves reflect the more likely than not outcome of known tax contingencies. We adjust these reserves, as well as the related interest, in light of changing facts and circumstances. Settlement of any particular issue would usually require the use of cash.  Favorable resolution would be recognized as a reduction to our annual tax rate in the year of resolution.  We do not expect any significant increases or decreases for uncertain income tax positions during the next year.

Our federal net operating loss carryforwards are available to offset future federal taxable income, if any, through 2030, while our state net operating loss carryforwards and state tax credits expire over various periods between 2013 and 2030 based on jurisdiction.