Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes

Income Taxes

9.     Income Taxes

        The provision for income taxes for the years ended December 31, 2011, 2010 and 2009 consists of the following:

	2011		2010		2009
	(in thousands)
Currently payable:
Federal	$	95,224		87,350		48,249
State		9,651		7,381		4,312
		104,875		94,731		52,561
Deferred taxes		2,394		(5,206)		4,090
Provision for income taxes	$	107,269		89,525		56,651

        The following table reconciles the statutory federal income tax rate with our effective income tax rate for the years ended December 31, 2011, 2010 and 2009:

	2011		2010		2009
Statutory federal income tax rate		35.0%		35.0%		35.0%
State income taxes, net of federal tax benefits		2.5		2.1		1.9
State tax incentives		(0.2)		(0.2)		(0.7)
Sale of ACF		-		-		(6.0)
Valuation allowance on losses capital in nature		(0.1)		(1.1)		4.1
Other items		0.7		0.5		0.6
Effective income tax rate		37.9%		36.3%		34.9%

        The tax effect of temporary differences that give rise to significant portions of deferred tax liabilities and deferred tax assets at December 31, 2011 and 2010 are as follows:

	2011		2010
	(in thousands)
Deferred tax liabilities:
Deferred sales commissions	$	(7,861)		(7,880)
Property and equipment		(13,240)		(10,489)
Benefit plans		(9,617)		(5,651)
Identifiable intangible assets		(8,523)		(8,449)
Unrealized gains on investment securities		-		(2,002)
Purchase of fund assets		(6,631)		(5,793)
Prepaid expenses		(2,596)		(1,600)
Other		-		(22)
Total gross deferred liabilities		(48,468)		(41,886)
Deferred tax assets:
Acquisition lease liability		1,135		1,308
Additional pension and postretirement liability		26,403		13,171
Accrued expenses		13,438		12,120
Unrealized losses on investment securities		2,329		1,375
Capital loss carryforwards		3,022		3,631
Nonvested stock		19,051		14,974
Unused state tax credits		1,123		1,131
State net operating loss carryforwards		6,055		5,464
Other		4,012		2,838
Total gross deferred assets		76,568		56,012
Valuation allowance		(11,374)		(8,233)
Net deferred tax asset	$	16,726		5,893

        In 2009, the Company sold ACF, which generated a capital loss available to offset potential future capital gains. Due to the character of the loss and the limited carryforward period permitted by law, the Company may not realize the full tax benefit of the capital loss. The capital loss carryforward, if not utilized, will expire in 2014. As of December 31, 2011, the Company had a deferred tax asset, net of federal tax effect, for a capital loss carryforward of $3.0 million and other net deferred tax assets that were capital in nature of $2.6 million. As of December 31, 2010, the Company had a deferred tax asset, net of federal tax effect, for a capital loss carryforward of $3.6 million and other net deferred tax liabilities which were capital in nature of approximately $0.6 million. Management believes it is not more likely than not that the Company will generate sufficient future capital gains to realize the full benefit of these capital losses and accordingly, a valuation allowance in the amount of $5.6 million and $3.0 million has been recorded at December 31, 2011 and 2010, respectively. During 2011, declines in the Company's investment portfolios resulted in an increase of $2.6 million in the valuation allowance against deferred tax assets that are capital in nature. The decline in the investment portfolios was partially offset by realized capital gains in 2011, which allowed for the release of $0.4 million of the valuation allowance as a reduction to tax expense. The remaining $3.0 million increase in the valuation allowance was recorded as an increase to accumulated other comprehensive loss. Certain subsidiaries of the Company have net operating loss carryforwards in certain states in which these companies file on a separate company basis. The deferred tax asset, net of federal tax effect, relating to the carryforwards as of December 31, 2011 and 2010 is approximately $6.1 million and $5.5 million, respectively. The carryforwards, if not utilized, will expire between 2012 and 2031. Management believes it is not more likely than not that these subsidiaries will generate sufficient future taxable income in these states to realize the benefit of the net operating loss carryforwards and, accordingly, a valuation allowance in the amount of $5.8 million and $5.2 million has been recorded at December 31, 2011 and 2010, respectively. The Company has state tax credit carryforwards of $1.1 million as of both December 31, 2011 and 2010. Of these state tax credit carryforwards, $0.8 million will expire between 2019 and 2021 if not utilized and $0.3 million will expire in 2027 if not utilized. The Company anticipates these credits will be fully utilized prior to their expiration date.

        As of January 1, 2011, the Company had unrecognized tax benefits, including penalties and interest, of $6.6 million ($4.6 million net of federal benefit) that, if recognized, would impact the Company's effective tax rate. As of December 31, 2011, the Company had unrecognized tax benefits, including penalties and interest, of $9.8 million ($6.9 million net of federal benefit) that, if recognized, would impact the Company's effective tax rate. The unrecognized tax benefits that are not expected to be settled within the next 12 months are included in other liabilities in the accompanying consolidated balance sheets; unrecognized tax benefits that are expected to be settled within the next 12 months are included in income taxes payable.

        The Company's accounting policy with respect to interest and penalties related to income tax uncertainties is to classify these amounts as income taxes. As of January 1, 2011, the total amount of accrued interest and penalties related to uncertain tax positions recognized in the consolidated balance sheet was $1.9 million ($1.5 million net of federal benefit). The total amount of penalties and interest, net of federal benefit, related to tax uncertainties recognized in the statement of income for the period ended December 31, 2011 was $0.3 million. The total amount of accrued penalties and interest related to uncertain tax positions at December 31, 2011 of $2.3 million ($1.8 million net of federal benefit) is included in the total unrecognized tax benefits described above.

        The following table summarizes the Company's reconciliation of unrecognized tax benefits, excluding penalties and interest, for the years ended December 31, 2011, 2010 and 2009:

	2011		2010		2009
	(in thousands)
Balance at January 1	$	4,759		4,857		3,332
Increases during the year:
Gross increases - tax positions in prior period		1,684		189		1,071
Gross increases - current-period tax positions		1,844		981		636
Decreases during the year:
Gross decreases - tax positions in prior period		(183)		(490)		(7)
Decreases due to settlements with taxing authorities		-		(629)		(1)
Decreases due to lapse of statute of limitations		(637)		(149)		(174)
Balance at December 31	$	7,467		4,759		4,857

        In the ordinary course of business, many transactions occur for which the ultimate tax outcome is uncertain. In addition, respective tax authorities periodically audit our income tax returns. These audits examine our significant tax filing positions, including the timing and amounts of deductions and the allocation of income among tax jurisdictions. During 2011, the Company received notification of a favorable outcome on a tax position that the Company had previously considered partially uncertain, and therefore, had not previously recognized the full tax benefit. The Company did not settle any open tax years undergoing audits by state jurisdictions in which the Company operates. During 2010, the Company settled nine open tax years that were undergoing audits by state jurisdictions in which the Company operates. The Company also received notification of a favorable outcome on a tax position that the Company had previously considered partially uncertain, and therefore, had not previously recognized the full tax benefit. During 2009, the Company settled three open tax years that were undergoing audit by a state jurisdiction in which the Company operates. The 2008, 2009 and 2010 federal income tax returns are open tax years that remain subject to potential future audit. The 2005, 2006 and 2007 federal tax years also remain open to a limited extent due to capital loss carryback claims. State income tax returns for all years after 2007 and, in certain states, income tax returns prior to 2008, are subject to potential future audit by tax authorities in the Company's major state tax jurisdictions.

        The Company is currently being audited in various state jurisdictions. It is reasonably possible that the Company will settle the audits in these jurisdictions within the next 12-month period. It is estimated that the Company's liability for unrecognized tax benefits, including penalties and interest, could decrease by approximately $0.5 million to $2.8 million ($0.3 million to $1.9 million net of federal benefit) upon settlement of these audits. Such settlements are not anticipated to have a significant impact on the results of operations.