Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

Income Taxes

NOTE 12

Income Taxes

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

	Year Ended December 31,
	2012		2011			2010
Current tax expense (benefit)
Federal	$	3,554	$	21,376		$	613
State		45		564			13
Continuing operations		3,599		21,940			626
Deferred tax expense (benefit)
Federal		3,887		(2,255	)		5,165
State		320		(1,178	)		2
Continuing operations		4,207		(3,433	)		5,167
Total	$	7,806	$	18,507		$	5,793

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,
	2012			2011			2010
Normal expense (benefit) computed at 35% of pretax income (loss)	$	7,350		$	19,031		$	5,389
State taxes, net of federal tax benefit		440			677			68
Change in valuation allowance		(69	)		(1,817	)		(54	)
Increases in cash surrender values of life insurance contracts		(146	)		(140	)		(150	)
Non-deductible expenses		314			260			293
Uncertain tax positions		—			410			—
Other		(83	)		86			247
	$	7,806		$	18,507		$	5,793

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

	2012			2011
Assets
Accrued employee benefits	$	8,860		$	8,002
Goodwill and intangible assets		—			2,196
Allowance for doubtful accounts		170			476
Net operating loss carryforwards		758			987
Contract termination charge		180			714
Stock-based compensation		1,631			1,298
Deferred income		3,944			4,273
Deferred rent		372			196
Helicopter sale-leaseback		134			204
Acquisition costs		93			—
Other		119			120
		16,261			18,466
Liabilities
Goodwill and intangible assets		(1,649	)		—
Appreciation on annuity contracts		(2,081	)		(1,933	)
Extinguishment of senior notes		(1,047	)		(1,047	)
Property, plant and equipment		(8,771	)		(9,408	)
Prepaid insurance		(452	)		(344	)
Other		(77	)		(62	)
		(14,077	)		(12,794	)
Valuation allowance		(411	)		(480	)
Deferred income tax asset, net	$	1,773		$	5,192
Current asset, net		1,062			1,825
Noncurrent asset, net		711			3,367
	$	1,773		$	5,192

A reconciliation of the change in the amount of gross unrecognized income tax benefits is as follows (in thousands):

	Year Ended December 31,
	2012		2011
Balance at beginning of year	$	632	$	—
Increase of unrecognized tax benefits related to prior years		—		632
Balance at end of year	$	632	$	632

As of December 31, 2012 and 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 year ended December 31, 2010.

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 income 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. As of December 31, 2012 and December 31, 2011, the Company had a valuation allowance of $411,000 and $480,000, respectively, on certain of its deferred income tax assets. 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 income tax assets in prior years; however, $1.8 million of the Company’s valuation allowance was released in 2011. 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 Company has state net operating losses of $16.5 million expiring in 2014 through 2031 and federal net operating losses of $434,000 expiring in 2030 through 2031.

The State of California and the State of Oregon conducted an examination of the Company’s 2007 and 2008 state income tax returns. In October 2012, the Company received letters from the State of California, including a Closing Letter agreeing with the Company’s non-business income position subject to additional review, and an additional letter closing the 2007 examination. In connection with the State of Oregon audit, in November 2011, the Company received a Proposed Auditor’s Report from the State of Oregon 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 continues to oppose the State of Oregon’s position. The final disposition of the proposed audit adjustments could require the Company to make additional payments of taxes, interest and penalties, which could materially affect its effective tax rate.