Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 12 Months Ended
Dec. 31, 2012
Income Tax [Abstract]  
Income Taxes
Income Taxes

The consolidated income tax expense consists of the following for the years ended December 31:
 
2012
 
2011
 
2010
Current provision:
 
 
 
 
 
Federal
$
15,852

 
$
59,641

 
$
46,259

State and local
(5,604
)
 
5,186

 
6,868

Total current provision
10,248

 
64,827

 
53,127

Deferred provision
(10,577
)
 
1,695

 
6,773

Total provision for income taxes
$
(329
)
 
$
66,522

 
$
59,900



The reconciliation of the tax provision at the U.S. Federal Statutory Rate to the provision for income taxes is as follows:
 
2012
 
2011
 
2010
Earnings from continuing operations, before income tax expense
$
(11,624
)
 
$
174,885

 
$
154,282

Less flow through noncontrolling interest
(2,540
)
 
(2,855
)
 
3,435

Earnings from continuing operations, less noncontrolling interest, before income tax expense
(9,084
)
 
177,740

 
150,847

 
 
 


 
 
Tax provision at the U.S. federal statutory rate
(3,179
)
 
62,209

 
52,797

State income taxes, net of federal income tax benefit
(3,812
)
 
3,411

 
6,231

Nondeductible goodwill impairment
8,487

 
—

 
—

Other, net
(1,825
)
 
902

 
872

Income tax expense
$
(329
)
 
$
66,522

 
$
59,900



The tax effects of temporary differences which give rise to deferred tax assets and liabilities are presented below for the years ended December 31:
 
2012
 
2011
Deferred tax assets:
 
 
 
Medical claims liability and other accruals
$
52,838

  
$
46,222

State net operating loss carry forward
9,055

 
8,761

Stock compensation
12,615

 
13,234

Other
20,573

 
8,723

Deferred tax assets
95,081

 
76,940

Valuation allowance
(8,325
)
 
(8,521
)
Net deferred tax assets
$
86,756

 
$
68,419

 
 
 
 
Deferred tax liabilities:
 
 
 
Intangible assets
$
12,441

 
$
10,756

Prepaid assets
4,767

 
4,508

Depreciation and amortization
31,742

 
31,398

Other
5,855

 
6,777

Deferred tax liabilities
$
54,805

  
$
53,439

 
 
 
 
Net deferred tax assets
$
31,951

  
$
14,980



The Company's deferred tax assets include federal and state net operating losses, or NOLs, of which $3,012 were acquired in business combinations. Accordingly, the total and annual deduction for those NOLs is limited by tax law. The Company's federal NOLs expire between the years 2013 and 2032 and the state NOLs expire between the years 2013 and 2033. Valuation allowances are recorded for those NOLs the Company believes are more likely than not to expire unused. During 2012 and 2011, the Company recorded valuation allowance additions in the tax provision of $2,093 and $1,671, respectively. In 2012 and 2011, the Company recorded valuation allowance reductions of $2,289 and $528, respectively.

The Company maintains a reserve for uncertain tax positions that may be challenged by a tax authority. A roll-forward of the reserve is as follows:
 
2012
 
2011
Gross unrecognized tax benefits, beginning of period
$
13,552

 
$
3,036

Gross increases:
 
 
 
Current year tax positions
4,107

 
10,863

Prior year tax positions
451

 
—

Gross decreases:
 
 
 
Prior year tax positions
(9,925
)
 
(347
)
Settlements
(53
)
 
—

Statute of limitation lapses
(262
)
 
—

Gross unrecognized tax benefits, end of period
$
7,870

 
$
13,552


                                
Included in the balance of unrecognized tax benefits at December 31, 2012 are potential benefits of $4,095 that, if recognized, would affect the effective tax rate on income from continuing operations. Also included in the reserve balance are liabilities of $3,775 that, if recognized, would be recorded as an adjustment to deferred taxes. The December 31, 2011 reserve balance of $13,552 would have decreased tax expense, if recognized.

The Company recognizes interest accrued related to unrecognized tax benefits in the provision for income taxes. During the year ended December 31, 2012, the Company recognized a tax benefit of $170 generated from the net reduction in interest accrued. During the year ended December 31, 2011, the Company recognized $451 of interest expense. Interest accrued, net of federal benefit, was $933, $1,157 and $707 as of December 31, 2012, 2011 and 2010, respectively. No penalties have been accrued.

The Internal Revenue Service is currently performing an examination of the Company's 2010 and 2011 tax returns. The Company files in numerous state jurisdictions with varying statutes of limitation. The unrecognized state tax benefits are related to returns from 2006 to 2012.