Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

13. Income Taxes

The provision (benefit) for income taxes from continuing operations consists of the following (amounts in thousands):

	Years Ended December 31,
	2011		2010			2009
CURRENT:
Federal	$	612	$	(39,210	)	$	(28,797	)
State		1,409		1,061			1,268
Total current provision (benefit)		2,021		(38,149	)		(27,529	)
DEFERRED:
Federal		4,162		(1,460	)		34,878
State		1,237		(1,858	)		2,394
Effect of tax law change		—		749			—
Total deferred provision (benefit)		5,399		(2,569	)		37,272
Total provision (benefit) for income taxes	$	7,420	$	(40,718	)	$	9,743

Under the Patient Protection and Affordable Care Act, which became law on March 23, 2010, as amended by the Health Care and Education Reconciliation Act of 2010, which became law on March 30, 2010, the Company and other companies that receive a subsidy under Medicare Part D to provide retiree prescription drug coverage will no longer receive a Federal income tax deduction for the expenses incurred in connection with providing the subsidized coverage to the extent of the subsidy received. Because future anticipated retiree health care liabilities and related subsidies were already reflected in the Company’s financial statements, this change required the Company to reduce the value of the related tax benefits recognized in its financial statements during the period the law was enacted. As a result, the Company recorded a one-time, non-cash tax charge of $0.7 million during 2010 to reflect the impact of this change.

The tax provision (benefit) associated with the exercise or cancellation of stock options and vesting or cancellation of restricted stock during the years 2011, 2010, and 2009 was $(0.7) million, $(2.3) million, and $3.1 million, respectively, and is reflected as an adjustment to either additional paid-in capital in the accompanying consolidated statements of stockholders’ equity, or deferred tax asset.

In addition to the income tax provision (benefit) discussed above, the Company recognized additional income tax provision (benefit) related to discontinued operations as discussed in Note 3 in the amounts of $0.1 million, $(2.9) million, and $(0.5) million in 2011, 2010, and 2009, respectively.

The effective tax rate as applied to pre-tax income or loss from continuing operations differed from the statutory federal rate due to the following:

	2011			2010			2009
U.S. federal statutory rate		35	%		35	%		35	%
State taxes (net of federal tax benefit and change in valuation allowance)		15	%		1	%		22	%
Permanent items		0	%		-1	%		0	%
Federal tax credits		-8	%		1	%		-7	%
Federal valuation allowance		-2	%		-4	%		0	%
Effect of tax law change		0	%		-1	%		0	%
Unrecognized Tax Benefits		2	%		0	%		8	%
		42	%		31	%		58	%

The increase in the Company’s effective tax rate for 2011, as compared to 2010, resulted primarily from increases in state valuation allowances, increases in unrecognized tax benefits, and state taxes payable in relation to pre-tax income, partially offset by the impact of federal tax credits.

Increases in the Company’s valuation allowances and the impact of permanent items in relation to pre-tax income (loss), resulted in the decrease in the Company’s effective tax rate for 2010, as compared to 2009.

Provision is made for deferred federal and state income taxes in recognition of certain temporary differences in reporting items of income and expense for financial statement purposes and income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31 are as follows (amounts in thousands):

	2011			2010
DEFERRED TAX ASSETS:
Accounting reserves and accruals	$	32,521		$	33,615
Defined benefit plan		10,898			4,872
Investments in stock and derivatives		1,081			5,002
Rent escalation		24,574			22,443
Federal and State net operating loss carryforwards		113,015			74,606
Tax credits and other carryforwards		6,263			4,293
Investments in partnerships		3,323			3,796
Other assets		16,568			14,113
Total deferred tax assets		208,243			162,740
Valuation allowance		(19,222	)		(18,097	)
Total deferred tax assets, net of valuation allowance		189,021			144,643
DEFERRED TAX LIABILITIES:
Property and equipment, net		272,925			222,659
Goodwill and other intangibles		2,922			1,685
Other liabilities		12,752			14,944
Total deferred tax liabilities		288,599			239,288
Net deferred tax liabilities	$	99,578		$	94,645

Federal net operating loss carryforwards at December 31, 2011 totaled $247.2 million, resulting in a deferred tax benefit of $86.4 million, which will begin to expire in 2030. Federal credit carryforwards at December 31, 2011 totaled $4.1 million and expire beginning in 2029. Charitable contribution carryforwards at December 31, 2011 totaled $3.6 million, resulting in a deferred tax benefit of $1.2 million, which will begin to expire in 2013. The use of certain federal net operating losses, credits and other deferred tax assets are limited to the future taxable earnings of the consolidated group. As a result, a valuation allowance has been provided for certain federal deferred tax assets, including charitable contribution carryforwards. The change in valuation allowance related to federal deferred tax assets was $(0.3) million in 2011. State net operating loss carryforwards at December 31, 2011 totaled $628.6 million resulting in a deferred tax benefit of $26.6 million, which will expire between 2012 and 2031. State credit carryforwards at December 31, 2011 totaled $1.1 million and will begin to expire in 2013. The use of certain state net operating losses, credits and other state deferred tax assets are limited to the future taxable earnings of separate legal entities. As a result, a valuation allowance has been provided for certain state deferred tax assets, including loss carryforwards. The change in valuation allowance related to state deferred tax assets was $1.5 million, $2.9 million, and $1.9 million in 2011, 2010 and 2009, respectively. Based on the expectation of future taxable income and scheduled reversal of deferred tax liabilities, management believes that it is more likely than not that the results of operations will generate sufficient taxable income to realize the deferred tax assets after giving consideration to the valuation allowance.

The Company and its subsidiaries file a consolidated federal income tax return and either separate or combined state income tax returns based on the jurisdiction. The Company has concluded Internal Revenue Service examinations through the 2001 tax year. For federal income tax purposes and substantially all the states with which the Company has nexus, the statute of limitations has expired through 2007. However, the Company had net operating loss carryforwards from closed years, which could be adjusted upon audit. The Company is currently under a federal income tax examination for the 2008 and 2009 tax years, but has not been notified of any other federal or state income tax examinations.

As of December 31, 2011, the Company had $14.1 million of unrecognized tax benefits, of which $7.4 million would affect the Company’s effective tax rate if recognized. The liability for unrecognized tax benefits is recorded in other long-term liabilities in the accompanying consolidated balance sheet. A reconciliation of the beginning and ending gross amount of unrecognized tax benefits (exclusive of interest and penalties) is as follows:

	2011			2010			2009
Unrecognized tax benefits at beginning of year	$	18,952		$	16,123		$	12,417
Additions (reductions) based on tax positions related to the current year		(286	)		3,084			1,818
Additions for tax positions of prior years		147			10,293			3,937
Reductions for tax positions of prior years		(4,672	)		(10,548	)		(2,049	)
Unrecognized tax benefits at end of year	$	14,141		$	18,952		$	16,123

Included in the balance at December 31, 2011 and 2010, are $6.7 million and $10.0 million, respectively, of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than future interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. The Company expects the amount of unrecognized tax benefits to decrease during the next twelve months, mainly due to the expiration of various statutes of limitations. The Company estimates the overall decrease in unrecognized tax benefits in the next twelve months will be approximately $13.3 million.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The Company recognized $0.2 million, $0.8 million and $0.5 million of interest and $0, $0 and $0.1 million of penalties related to uncertain tax positions in the accompanying consolidated statements of operations for 2011, 2010 and 2009, respectively. As of December 31, 2011 and 2010, the Company has accrued $2.1 million and $1.9 million of interest, respectively and $0.1 million of penalties related to uncertain tax positions.