Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes

Income Taxes

7. Income Taxes

• Income Tax Expense

        The components of income tax (benefit) expense for the following years ended December 31 were as follows (in thousands):

	2009			2010			2011
Income taxes currently payable:
Federal	$	17,003		$	34,235		$	51,195
State		4,443			6,722			5,534
		21,446			40,957			56,729
Deferred income taxes:
Federal		40,348			44,310			8,644
State		(4,457	)		(1,523	)		(336	)
		35,891			42,787			8,308
Total income tax expense	$	57,337		$	83,744		$	65,037

        Total income tax expense for the years ended December 31 was different from the amount computed using the statutory federal income tax rate of 35% for the following reasons (in thousands):

	2009			2010			2011
Income tax expense at federal statutory rate	$	57,403		$	77,841		$	68,458
State income taxes, net of federal income tax benefit		6,805			7,491			7,013
Tax contingencies reversed due to statute closings		(5,763	)		(3,002	)		(12,521	)
Net change in valuation allowances		(4,342	)		(2,554	)		(1,163	)
Other—net		3,234			3,968			3,250
Total income tax expense	$	57,337		$	83,744		$	65,037

• Deferred Income Taxes

        The significant components of deferred tax assets and liabilities at December 31 were as follows (in thousands):

	2010			2011
Deferred tax assets:
Intangible assets	$	2,966		$	—
Accrued compensation		3,404			3,258
Operating loss carryforwards		12,936			10,969
Stock compensation		15,094			13,431
Community reinvestment reserves		5,420			8,065
Other non-deductible book accruals		4,480			5,543
Claims reserves		5,703			5,438
Self-insured medical reserves		2,448			4,167
Refundable tax credits		4,855			—
Indirect tax benefits		8,506			6,947
Other		5,287			7,344
Total deferred tax assets		71,099			65,162
Valuation allowance		(5,319	)		(3,424	)
Deferred tax assets after valuation allowance		65,780			61,738
Deferred tax liabilities:
Property and depreciation		(33,356	)		(37,712	)
Intangible assets		—			(7,358	)
Other liabilities		(3,160	)		(39	)
Total deferred tax liabilities		(36,516	)		(45,109	)
Net deferred tax assets	$	29,264		$	16,629

        The Company's valuation allowances against deferred tax assets were $5.3 million and $3.4 million as of December 31, 2010 and 2011, respectively, mostly relating to uncertainties regarding the eventual realization of certain state net operating loss carryforwards ("NOLs"). Determination of the amount of deferred tax assets considered realizable requires significant judgment and estimation regarding the forecasts of future taxable income which are consistent with the plans and estimates the Company uses to manage the underlying businesses. The Company believes taxable income expected to be generated in the future will be sufficient to support realization of the Company's deferred tax assets, as reduced by valuation allowances. This determination is based upon its consistent overall earnings history and future earnings expectations. Other than deferred tax benefits attributable to operating loss carryforwards, there are no time constraints within which the Company's deferred tax assets must be realized. Changes in these estimates in the future could materially affect the Company's financial condition and results of operations. Reversals of valuation allowances are recorded as reductions to income tax expense in the period they occur.

        The Company has federal NOLs as of December 31, 2011 of $4.8 million available to reduce future federal taxable income. These NOLs, if not used, will expire in 2017 through 2019 and are subject to examination and adjustment by the Internal Revenue Service ("IRS"). In addition, the Company's utilization of such NOLs is subject to limitation under Internal Revenue Code Section 382 ("Section 382") which affects the timing of the use of these NOLs. At this time, the Company does not believe these limitations will limit the Company's ability to use any federal NOLs before they expire.

Uncertain Tax Positions

        A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):

	2009			2010			2011
Balance as of beginning of period	$	129,157		$	113,100		$	111,594
Additions based on tax positions related to the current year		4,023			3,317			3,240
Additions for tax positions of prior years		4,759			422			948
Reductions for tax positions of prior years		(17,866	)		(1,916	)		(1,492	)
Reductions due to lapses of applicable statutes of limitations		(6,822	)		(3,329	)		(15,011	)
Settlements		(151	)		—			(49	)
Balance as of end of period	$	113,100		$	111,594		$	99,230

        If these unrecognized tax benefits had been realized as of December 31, 2010 and 2011, $88.2 million and $80.3 million, respectively, would have impacted the effective tax rate.

        The Company periodically performs a comprehensive review of its tax positions and accrues amounts for tax contingencies related to uncertain tax positions. Based upon these reviews, the status of ongoing tax audits, and the expiration of applicable statutes of limitations, accruals are adjusted as necessary. The tax benefit from an uncertain tax position is recognized when it is more likely than not that, based on technical merit, the position will be sustained upon examination, including resolution of any related appeals or litigation processes. The resolution of tax audits is unpredictable and could result in tax liabilities that are significantly different than those which have been estimated and accrued by the Company. Such amounts are included within the accompanying consolidated balance sheets in tax contingencies, and the remainder reducing deferred tax assets.

        The Company adjusts these liabilities for unrecognized tax benefits when its judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company's current estimate of the tax liabilities. Reversals of unrecognized tax benefits are recorded in the period they occur, typically as reductions to income tax expense. However, reversals of unrecognized tax benefits related to deductions for stock compensation in excess of the related book expense are recorded as increases in additional paid-in capital. To the extent reversals of unrecognized tax benefits cannot be specifically traced to these excess deductions due to complexities in the tax law, the Company records the tax benefit for such reversals to additional paid-in capital on a pro-rata basis.

        The statutes of limitation regarding the assessment of federal and certain state and local income taxes for the year ended December 31, 2007 expired during 2011. With few exceptions, the Company is no longer subject to income tax assessments by tax authorities for years ended prior to December 31, 2008. As a result, $15.0 million of unrecognized tax benefits (excluding interest costs) recorded as of December 31, 2010 were reversed in the current year as a result of statute expirations, of which $10.4 million is reflected as a reduction to income tax expense, $2.5 million as an increase to additional paid-in capital, and the remainder as a decrease to deferred tax assets. Further, the statute of limitations regarding the assessment of federal and most state and local income taxes for the year ended December 31, 2008 will expire during 2012. The Company anticipates that up to $43.2 million of unrecognized tax benefits (excluding interest costs) recorded as of December 31, 2011 could be reversed during 2012 as a result of statute expirations, of which $35.6 million would be reflected as a reduction to income tax expense, $6.2 million as an increase to additional paid-in capital, and the remainder as a decrease to deferred tax assets. All such reversals (net of the related indirect tax benefits) would be reflected as discrete adjustments during the quarter in which the respective statute expiration occurs, primarily in the 3^rd quarter.

        As of December 31, 2010 and 2011, the Company had accrued approximately $3.7 million and $2.8 million, respectively, for the potential payment of interest and penalties (net of indirect benefits). The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. During the years ended December 31, 2009, 2010 and 2011, the Company recorded approximately $(0.7) million, $0.2 million and $(0.9) million in interest and penalties.