12. Income Taxes

Deferred tax assets and liabilities are provided for the effects of temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated balance sheets. These temporary differences result in taxable or deductible amounts in future years.

The components of the Company's deferred tax assets and liabilities are as follows:

Year ended December 31,	2012			2011

	(in thousands)
Deferred tax assets:
Stock-based compensation expense	$	48,098		$	37,752
Accrued expenses		64,047			53,050
Deferred tax assets resulting from unrecognized tax benefits		10,839			12,231
Net operating losses		6,935			6,165
Accumulated other comprehensive loss		2,709			59

Gross deferred tax assets		132,628			109,257
Less valuation allowance		(3,221	)		(3,160	)

Net deferred tax assets		129,407			106,097

Deferred tax liabilities:
Property, plant and equipment		(174,285	)		(123,525	)
Intangibles		(131,686	)		(117,842	)

Net deferred tax liabilities		(305,971	)		(241,367	)

Net:	$	(176,564	)	$	(135,270	)

Reflected on consolidated balance sheets:
Current deferred tax assets, net	$	39,793		$	32,306
Noncurrent deferred tax liabilities, net		(216,357	)		(167,576	)

Net deferred taxes	$	(176,564	)	$	(135,270	)

For income tax reporting, the Company has gross state net operating loss carryforwards aggregating approximately $138 million available to reduce future state income taxes, primarily for the Commonwealth of Pennsylvania and the States of Mississippi, Colorado and Maryland as of December 31, 2012. The tax benefit associated with these net operating loss carryforwards is approximately $5.7 million. Due to state tax statutes on annual net operating loss utilization limits, the availability of gaming tax credits and income and loss projections in the applicable jurisdictions, a $3.2 million valuation allowance has been recorded to reflect the net operating losses which are not presently expected to be realized. If not used, substantially all the carryforwards will expire at various dates from December 31, 2013 to December 31, 2031.

In addition, certain subsidiaries have accumulated gross state net operating loss carryforwards aggregating approximately $953.4 million for which no benefit has been recorded as they are attributable to uncertain tax positions. The unrecognized tax benefits as of December 31, 2012 attributable to these net operating losses was approximately $59.5 million. Due to the uncertain tax position, these net operating losses are not included as components of deferred tax assets as of December 31, 2012. In the event of any benefit from realization of these net operating losses, $9.4 million would be treated as an increase to equity, and the remainder would be treated as a reduction of tax expense. If not used, substantially all the carryforwards will expire at various dates from December 31, 2013 to December 31, 2031.

The provision for income taxes charged to operations for the years ended December 31, 2012, 2011 and 2010 was as follows:

Year ended December 31,	2012			2011			2010

	(in thousands)
Current tax expense
Federal	$	96,490		$	106,982		$	55,008
State		14,448			23,392			11,630
Foreign		(3,366	)		(5,053	)		1,744

Total current		107,572			125,321			68,382

Deferred tax (benefit) expense
Federal		44,874			24,893			(4,996	)
State		109			(3,333	)		2,792

Total deferred		44,983			21,560			(2,204	)

Total provision	$	152,555		$	146,881		$	66,178

The following table reconciles the statutory federal income tax rate to the actual effective income tax rate for 2012, 2011 and 2010:

Year ended December 31,

Percent of pretax income
Federal taxes	35.0	%	35.0	%	35.0	%
State and local income taxes	1.4	%	3.4	%	197.1	%
Permanent differences	5.3	%	2.2	%	1263.1	%
Foreign	0.2	%	(1.6	)%	16.1	%
Other miscellaneous items	(0.1	)%	(1.3	)%	(46.5	)%

	41.8	%	37.7	%	1464.8	%

Year ended December 31,	2012			2011			2010

	(in thousands)
Amount based upon pretax income
Federal taxes	$	127,584		$	136,205		$	1,581
State and local income taxes		5,044			13,398			8,905
Permanent differences		19,223			8,405			57,058
Foreign		886			(6,223	)		729
Other miscellaneous items		(182	)		(4,904	)		(2,095	)

	$	152,555		$	146,881		$	66,178

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

	Noncurrent tax liabilities

	(in thousands)
Balance at December 31, 2010	$	36,846
Additions based on current year positions		4,309
Additions based on prior year positions		3,178
Decreases due to settlements and/or reduction in liabilities		(10,422	)
Currency translation adjustments		(39	)

Balance at December 31, 2011		33,872
Additions based on current year positions		2,465
Additions based on prior year positions		5,919
Payments made on account		(13,123	)
Decreases due to settlements and/or reduction in reserves		(9,639	)
Currency translation adjustments		899

Balance at December 31, 2012	$	20,393

During the year ended December 31, 2012, the Company recorded $2.5 million of tax reserves and accrued interest related to current year uncertain tax positions. In regards to prior year tax positions, the Company recorded $5.9 million of tax reserves and accrued interest and reversed $7.7 million and $1.9 million of previously recorded tax reserves and accrued interest, respectively, for uncertain tax positions that have settled and/or closed. The Company recorded a federal deferred tax benefit of $0.4 million in the current year associated with its uncertain tax positions. Overall, the Company recorded a net tax benefit of $1.6 million in connection with its uncertain tax positions for the year ended December 31, 2012.

Included in the liability for unrecognized tax benefits at December 31, 2012 and 2011 were $19.9 million and $21.5 million, respectively, of tax positions that, if reversed, would affect the effective tax rate.

Included in the liability for unrecognized tax benefits at December 31, 2012 and 2011 were $0.9 million and ($39) thousand, respectively, of currency translation adjustments for foreign currency tax positions.

The Company is required under ASC 740 to disclose its accounting policy for classifying interest and penalties, the amount of interest and penalties charged to expense each period, as well as the cumulative amounts recorded in the consolidated balance sheets. The Company will continue to classify any income tax-related penalties and interest accrued related to unrecognized tax benefits in taxes on income within the consolidated statements of operations.

During the years ended December 31, 2012 and 2011, the Company recognized approximately $88 thousand and $0.3 million, respectively, of interest and penalties, net of deferred taxes. In addition, due to settlements and/or reductions in previously recorded liabilities, the Company had reductions in previously accrued interest and penalties of $1.3 million, net of deferred taxes. These accruals are included in noncurrent tax liabilities and prepaid expenses within the consolidated balance sheets at December 31, 2012 and 2011, respectively.

The Company is currently in various stages of the examination process in connection with its open audits. Generally, it is difficult to determine when these examinations will be closed, but the Company reasonably expects that its ASC 740 liabilities will not significantly change over the next twelve months.

As of December 31, 2012, the Company is subject to U.S. federal income tax examinations for the tax years 2009, 2010, and 2011. In addition, the Company is subject to state and local income tax examinations for various tax years in the taxing jurisdictions in which the Company operates.

At December 31, 2012, prepaid expenses within the consolidated balance sheet included prepaid income taxes of $68.4 million.