10. Income Taxes

The provision for income taxes was comprised of the following for the years ended December 31:


	Year ended December 31,
	2011			2010			2009
Current:
Federal	$	(2,711	)	$	4,076		$	5,861
Foreign		286			256			310
State		1,019			1,140			1,423

		(1,406	)		5,472			7,594

Deferred (prepaid):
Federal		5,379			399			4,205
State		(139	)		(86	)		817

		5,240			313			5,022

Valuation allowance		354			(14	)		(12	)

	$	4,188		$	5,771		$	12,604

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. The components of deferred income tax assets and liabilities at December 31, 2011 and 2010 were as follows:


	December 31,
	2011			2010
Current deferred income tax assets (liabilities):
Inventory and other reserves	$	(44	)	$	29
Accrued vacation benefits		2,788			2,587
Other accruals		740			1,993

Current deferred income tax assets		3,484			4,609

Long term deferred income tax assets (liabilities):
Deferred income on sale-leaseback of certain real estate		13,977			15,153
Lease financing obligations		1,095			1,016
Postretirement benefit expenses		1,533			1,695
Accumulated other comprehensive income—postretirement benefits		(736	)		(979	)
Stock-based compensation expense		1,566			917
Property and equipment depreciation		(4,562	)		1,205
State net operating loss carryforwards		921			728
Amortization of other intangibles, net		(87	)		(30	)
Amortization of franchise rights		(24,630	)		(24,421	)
Occupancy costs		5,705			5,200
Tax credit carryforwards		1,693			549
Other		2,194			1,465

Long-term net deferred income tax assets (liabilities)		(1,331	)		2,498
Less: Valuation allowance		(903	)		(549	)

Total long-term deferred income tax assets (liabilities)		(2,234	)		1,949

Carrying value of net deferred income tax assets	$	1,250		$	6,558

The Company's state net operating loss carryforwards expire in varying amounts through 2031.

The Company establishes a valuation allowance to reduce the carrying amount of deferred tax assets when it is more likely than not that it will not realize some portion or all of the tax benefit of its deferred tax assets. The Company evaluates whether its deferred tax assets are probable of realization on a quarterly basis. In performing this analysis, the Company considers all available evidence including historical operating results, the estimated timing of future reversals of existing taxable temporary differences and estimated future taxable income exclusive of reversing temporary differences and carryforwards. At December 31, 2011 and 2010, the Company had a valuation allowance of $903 and $549, respectively, against net deferred tax assets due primarily to foreign income tax credit carryforwards where realization of the related deferred tax asset amounts was not likely. The estimation of future taxable income for federal and state purposes and the Company's ability to realize deferred tax assets pertaining to state net operating loss carryforwards and foreign tax credit carryforwards can significantly change based on future events and operating results. Thus, recorded valuation allowances may be subject to future changes that could be material.

The Company's effective tax rate was 27.2%, 32.6% and 36.6% for the years ended December 31, 2011, 2010, and 2009, respectively. A reconciliation of the statutory federal income tax provision to the effective tax provision for the years ended December 31, 2011, 2010 and 2009 was as follows:


	2011			2010			2009
Statutory federal income tax provision	$	5,393		$	6,193		$	12,056
State income taxes, net of federal benefit		572			685			1,456
Stock-based compensation expense		336			356			294
Change in valuation allowance		354			(14	)		(12	)
Non-deductible expenses		309			82			60
Foreign taxes		286			256			310
Employment tax credits		(2,470	)		(1,570	)		(1,024	)
Foreign tax credits		(286	)		(256	)		(310	)
Miscellaneous		(306	)		39			(226	)

	$	4,188		$	5,771		$	12,604

The Company's policy is to recognize interest and/or penalties related to uncertain tax positions in income tax expense. At December 31, 2011 and 2010, the Company had no unrecognized tax benefits and no accrued interest related to uncertain tax positions. The tax years 2008 – 2011 remain open to examination by the major taxing jurisdictions to which the Company is subject. Although it is not reasonably possible to estimate the amount by which unrecognized tax benefits may increase within the next twelve months due to uncertainties regarding the timing of examinations, the Company does not expect unrecognized tax benefits to significantly change in the next twelve months.