10. INCOME TAXES

Income tax expense on continuing operations for the periods presented differs from the "expected" federal income tax expense computed by applying the U.S. federal statutory rate of 34% to earnings before income taxes for the three and nine months ended June 30, as a result of the following:

	For the Three Months				For the Nine Months
	Ended June 30,				Ended June 30,
	2013		2012		2013		2012
Computed expected tax expense	$	1,286	$	993	$	4,248	$	3,333
State income taxes		73		70		110		105
Permanent differences		50		(41)		250		(72)
Income tax expense	$	1,409	$	1,022	$	4,608	$	3,366

Included in the Company's deferred tax liabilities at June 30, 2013 is approximately $17.1 million representing the tax effect of indefinite lived intangible assets from club acquisitions which are not deductible for tax purposes. These deferred tax liabilities will remain in the Company's balance sheet until the related clubs are sold.

The Company recognizes interest accrued in interest expense and penalties in operating expenses. During the nine months ended June 30, 2013 and 2012, the Company recognized approximately $48,000 and $16,000, respectively, in penalties. The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states. The last three years remain open to tax examination.