NOTE 12

Income Taxes

Income taxes have been provided as follows (in thousands):


	Year Ended December 31,
	2011			2010		2009
Current tax expense (benefit)
Federal	$	21,376		$	613	$	(11,382	)
State		564			13		27

Continuing operations		21,940			626		(11,355	)
Deferred tax expense (benefit)
Federal		(2,255	)		5,165		6,820
State		(1,178	)		2		42

Continuing operations		(3,433	)		5,167		6,862

Total	$	18,507		$	5,793	$	(4,493	)

Reconciliation of income taxes computed at federal statutory rates to the reported provisions for income taxes on continuing operations is as follows (in thousands):


	Year Ended December 31,
	2011			2010			2009
Normal expense (benefit) computed at 35% of pretax income (loss)	$	19,031		$	5,389		$	(4,803	)
State taxes, net of federal tax benefit		677			68			34
Change in valuation allowance		(1,817	)		(54	)		11
Increases in cash surrender values of life insurance contracts		(140	)		(150	)		(139	)
Non-deductible expenses		260			293			229
Uncertain tax positions		410			—			—
Other		86			247			175

	$	18,507		$	5,793		$	(4,493	)

Deferred tax assets and liabilities are summarized as follows (in thousands):


	December 31,
	2011			2010
Assets
Accrued employee benefits	$	8,002		$	6,654
Goodwill and intangible assets		2,087			6,065
Allowance for doubtful accounts		476			405
Net operating loss carryforwards		987			1,567
Contract termination charge		714			1,250
Stock-based compensation		1,298			1,014
Deferred income		4,273			2,431
Other		629			607

		18,466			19,993


Liabilities
Appreciation on annuity contracts		(1,933	)		(2,546	)
Extinguishment of senior notes		(1,047	)		(1,087	)
Property, plant and equipment		(9,408	)		(12,313	)
Prepaid insurance		(344	)		(477	)
Other		(62	)		(169	)

		(12,794	)		(16,592	)


Valuation allowance		(480	)		(2,169	)

Deferred tax asset, net	$	5,192		$	1,232


Current asset, net		1,825			1,649
Noncurrent asset (liability), net		3,367			(417	)

	$	5,192		$	1,232

A reconciliation of the change in the amount of gross unrecognized income tax benefits for the year ended December 31, is as follows (in thousands):


	2011
Balance at beginning of year	$	—
Increase of unrecognized tax benefits related to prior years		632

Balance at end of year	$	632

As of December 31, 2011, the Company had $632,000 of unrecognized tax benefits and no penalties or interest was accrued. If the unrecognized tax benefits were recognized $410,000 would impact the effective tax rate. No reserves for uncertain income tax positions were recorded for the years ended December 31, 2010 and 2009.

Although the timing and outcome of income tax audits is uncertain, it is possible that unrecognized tax benefits may be reduced as a result of the lapse of the applicable statues of limitations in federal and state jurisdictions within the next 12 months. Currently, the Company cannot reasonably estimate the amount of reductions, if any, during the next 12 months. Any such reduction could be impacted by other changes in unrecognized tax benefits and could result in changes to in the Company's tax obligations.

The determination of the Company's provision for income taxes and valuation allowance requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. In assessing whether and to what extent deferred tax assets can be realized, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.

The Company assesses the likelihood of the realizability of its deferred tax assets on a quarterly basis. Due to the uncertainty of the Company's ability to generate state taxable income, a full valuation allowance had been established on the Company's deferred state tax assets in prior years. Based on the analysis of available evidence, $1.8 million of the Company's valuation allowance was released in 2011. As of December 31, 2011, the Company has a valuation allowance on certain of its deferred tax assets. The amount of net deferred tax assets considered realizable, however, could be reduced in the future if the Company's projections of future taxable income are reduced or if the Company does not perform at the levels that it is projecting. This could result in an increase in the Company's valuation allowance for deferred tax assets. The valuation allowance was $480,000 and $2.2 million at December 31, 2011 and 2010, respectively. The Company has state net operating losses expiring in 2011 through 2030.

The U.S. federal statute of limitations remains open for the year 2008 and onward. The IRS recently completed a field examination of the Company's 2008 and 2009 U.S. tax returns, and the Company agreed upon and paid $168,000 in a final settlement, as well as $5,000 in interest. The IRS completed its field examination of the Company's 2006 and 2007 U.S. tax returns in June 2009 and the Company paid $856,000 associated with the acceleration of certain deferred tax liabilities, as well as $31,000 in interest.

The State of California and the State of Oregon are currently conducting an examination of the Company's 2007 and 2008 state tax returns. In connection with the State of Oregon audit, in November 2011 the Company received a Proposed Auditor's Report seeking approximately $800,000 in unpaid taxes, interest and penalties in connection with the Company's treatment of the proceeds from its 2007 and 2008 sales of Safeco Corporation stock and dividends received. The Company intends to oppose the State of Oregon's position. The final disposition of the proposed audit adjustments could require the Company to make additional tax payments, which could materially affect its effective tax rate.