Income Taxes

Deferred income taxes are determined based upon the differences between the financial reporting and tax basis of the Company’s assets and liabilities. Deferred taxes are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Deferred tax assets and liabilities as of December 31 are as follows:



	2011			2010
	(in thousands)
Deferred income tax assets:
Allowance for doubtful accounts	$	288		$	282
Accrued expenses	6,513			6,456
Insurance accruals	27,677			27,514
Unrealized loss on available-for-sale investments	1,078			1,078
Indirect tax benefits of unrecognized tax benefits	5,767			6,413
Other	1,276			561
Total gross deferred tax assets	42,599			42,304
Less valuation allowance	(1,078		)	(1,078		)
Net deferred tax assets	41,521			41,226
Deferred income tax liabilities:
Property and equipment	(82,897		)	(68,109		)
Goodwill	(1,195		)	(984		)
Prepaid expenses	(689		)	(650		)
	(84,781		)	(69,743		)
Net deferred tax liability	$	(43,260	)	$	(28,517	)

The deferred tax amounts above have been classified in the accompanying consolidated balance sheets at December 31, 2011 and 2010 as follows:



	2011			2010
	(in thousands)
Current assets, net	$	14,401		$	12,400
Noncurrent liabilities, net	(57,661		)	(40,917		)
	$	(43,260	)	$	(28,517	)

The Company had recorded a valuation allowance of $1.1 million at December 31, 2011 and December 31, 2010 related to the Company’s deferred tax asset associated specifically with unrealized losses on auction rate securities. This valuation allowance was recorded as the Company does not have historical capital gains nor does it expect to generate capital gains sufficient to utilize the entire deferred tax asset generated by the fair value adjustment. As the fair value adjustment was recorded through accumulated other comprehensive loss, the associated valuation allowance was also recorded through accumulated other comprehensive loss. The above mentioned allowance did not impact the consolidated statement of income for the years December 31, 2011, 2010 and 2009. The Company has not recorded a valuation allowance against any other deferred tax assets. In management’s opinion, it is more likely than not that the Company will be able to utilize these deferred tax assets in future periods as a result of the Company’s history of profitability, taxable income, and reversal of deferred tax liabilities.

Income tax expense consists of the following:



	2011			2010			2009
	(in thousands)
Current income taxes:
Federal	$	20,460		$	40,165		$	14,369
State	2,195			(1,068		)	(4,653		)
	22,655			39,097			9,716
Deferred income taxes:
Federal	16,587			(7,804		)	14,321
State	(1,844		)	(636		)	316
	14,743			(8,440		)	14,637
Total	$	37,398		$	30,657		$	24,353

The income tax provision differs from the amount determined by applying the U.S. federal tax rate as follows:



	2011			2010			2009
	(in thousands)
Federal tax at statutory rate (35%)	$	37,565		$	32,506		$	28,456
State taxes, net of federal benefit	981			(213		)	(1,665		)
Non-taxable interest income	(104		)	(243		)	(571		)
Uncertain income tax penalties and interest, net	(1,159		)	(1,377		)	(1,776		)
Other	115			(16		)	(91		)
	$	37,398		$	30,657		$	24,353

At December 31, 2011 and December 31, 2010, the Company had a total of $16.1 million and $18.1 million in gross unrecognized tax benefits, respectively. Of this amount, $10.3 million and $11.7 million represents the amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate as of December 31, 2011 and December 31, 2010. Unrecognized tax benefits were a net decrease of $2.1 million and $2.6 million during the years ended December 31, 2011 and 2010, due mainly to the expiration of certain statutes of limitation net of additions. This had the effect of reducing the effective state tax rate during these respective periods. The total net amount of accrued interest and penalties for such unrecognized tax benefits was $8.0 million and $9.2 million at December 31, 2011 and December 31, 2010 and is included in income taxes payable per the consolidated balance sheet. Net interest and penalties included in income tax expense for the years ended December 31, 2011, 2010 and 2009 was a benefit of approximately $1.2 million, $1.4 million, and $1.7 million respectively. Income tax expense is increased each period for the accrual of interest on outstanding positions and penalties when the uncertain tax position is initially recorded. Income tax expense is reduced in periods by the amount of accrued interest and penalties associated with reversed uncertain tax positions due to lapse of applicable statute of limitations, when applicable. Income tax expense was reduced during the years ended December 31, 2011, 2010 and 2009 due to reversals of interest and penalties due to lapse of applicable statute of limitations net of additions for interest and penalty accruals during the same period. These unrecognized tax benefits relate to risks associated with state income tax filing positions for the Company’s corporate subsidiaries.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	(in thousands)
Balance at December 31, 2010	$	18,140
Additions based on tax positions related to current year	1,200
Additions for tax positions of prior years	—
Reductions for tax positions of prior years	—
Reductions due to lapse of applicable statute of limitations	(3,278		)
Settlements	—
Balance at December 31, 2011	$	16,062

A number of years may elapse before an uncertain tax position is audited and ultimately settled. It is difficult to predict the ultimate outcome or the timing of resolution for uncertain tax positions. It is reasonably possible that the amount of unrecognized tax benefits could significantly increase or decrease within the next twelve months. These changes could result from the expiration of the statute of limitations, examinations or other unforeseen circumstances. As of December 31, 2011, the Company is under examinations by two state agencies and has received a notice of intent of an audit from a third state agency. The Company is also currently under an examination with the IRS regarding the Company's federal tax return for 2009. The Company does not have any outstanding litigation related to tax matters. At this time, management’s best estimate of the reasonably possible change in the amount of gross unrecognized tax benefits to be a decrease of approximately $0.2 million to $1.2 million during the next twelve months mainly due to the expiration of certain statute of limitations. The federal statute of limitations remains open for the years 2008 and forward. Tax years 2001 and forward are subject to audit by state tax authorities depending on the tax code and administrative practice of each state.