Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
12 Months Ended
Dec. 31, 2011
Income Taxes [Abstract]  
Income Taxes

5. Income Taxes

The Company accounts for income taxes using the liability method. Under the liability method, deferred taxes are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax laws that will be in effect when the differences are expected to reverse.

Significant components of the Company's deferred tax assets and liabilities as of December 31, 2011 and 2010 were as follows:

 

     2011     2010  
     (In thousands)  

Deferred tax assets:

    

Allowance for uncollectible accounts

   $ 3,582      $ 3,125   

Accrued employee benefits

     2,665        2,633   

Stock compensation

     1,362        1,176   

Accrued self-insurance

     2,161        1,855   

Acquisition costs

     650        526   

Net operating loss carry forward

     542        583   

Valuation allowance

     (44     (477

Dividend received deduction

     (78     30   

Intangible asset impairment

     66        71   

Litigation Reserve

     41        —     

Uncertain Tax Position—State Tax Portion

     215        —     

Charitable contribution carryforward

     17        —     
  

 

 

   

 

 

 

Deferred tax assets

   $ 11,179      $ 9,522   
  

 

 

   

 

 

 

Deferred tax liabilities:

    

Amortization of intangible assets

     (17,508     (13,518

Tax depreciation in excess of book depreciation

     (7,182     (4,811

Prepaid expenses

     (655     (721

Non-accrual experience accounting method

     (968     (968

Conversion from cash basis accounting

     (120     (380
  

 

 

   

 

 

 

Deferred tax liabilities

     (26,433     (20,398
  

 

 

   

 

 

 

Net deferred tax liability

   $ (15,254   $ (10,876
  

 

 

   

 

 

 

 

Based on the Company's historical pattern of taxable income, the Company believes it will produce sufficient income in the future to realize its deferred income tax assets. Management provides a valuation allowance for any net deferred tax assets when it is more likely than not that a portion of such net deferred tax assets will not be recovered. Management established a valuation allowance during 2008 purchase accounting related to the tax net operating losses acquired in a stock acquisition in 2008. The acquired Company had state tax net operating losses of approximately $65.5 million which will fully expire by 2029. The acquired Company has two providers, one of which has generated cumulative income over the last three years and has shown increased profits. Management expects to continue to generate net revenue for this provider and therefore, the entire valuation allowance was released in the current year.

The components of the Company's income tax expense (benefit) from continuing operations, less noncontrolling interest, were as follows:

 

     2011     2010      2009  
     (In thousands)  

Current:

       

Federal

   $ (5,924   $ 24,811       $ 19,026   

State

     (636     4,145         3,071   
  

 

 

   

 

 

    

 

 

 
     (6,560     28,956         22,097   

Deferred:

       

Federal

     4,545        2,520         4,001   

State

     47        251         645   
  

 

 

   

 

 

    

 

 

 
     4,592        2,771         4,646   
  

 

 

   

 

 

    

 

 

 

Total income tax expense (benefit)

   $ (1,968   $ 31,727       $ 26,743   
  

 

 

   

 

 

    

 

 

 

The above table does not include a deferred tax asset adjustment related to state income tax on the settlement. The amount of this adjustment is $214,000 and did not affect income tax expense for the year.

A reconciliation of the differences between income taxes expense on net income attributable to LHC Group, Inc., computed at the federal statutory rate and provisions for income taxes for each period is as follows:

 

     2011     2010     2009  
     (In thousands)  

Income taxes computed at federal statutory tax rate

   $ (5,232   $ 28,170      $ 24,734   

State income taxes, net of federal benefit

     (443     2,984        2,480   

Reduction in valuation allowance

     (392     (193     (689

Nondeductible expenses

     675        766        743   

Uncertain tax position

     3,200        —          —     

Other items

     437        —          —     

Income tax credits

     (213 )     —          (525
  

 

 

   

 

 

   

 

 

 

Total income tax expense (benefit)

   $ (1,968   $ 31,727      $ 26,743   
  

 

 

   

 

 

   

 

 

 

The Company is subject to both federal and state income tax for jurisdictions within which it operates. Within these jurisdictions, the Company is open to examination for tax years ended after December 31, 2008.

 

As of December 31, 2011, $3.4 million was recorded in income tax payable as an unrecognized tax benefit which, if recognized, would decrease our effective tax rate. A reconciliation of the total amounts of unrecognized tax benefits follows:

 

Total unrecognized tax benefits as of December 31, 2010

   $ —    

Increases (decreases) in unrecognized tax benefits as a result of:

  

Tax positions taken during the current period

     3,415   
  

 

 

 

Total unrecognized tax benefits as of December 31, 2011

   $ 3,415   
  

 

 

 

The Company recognizes interest and penalties related to uncertain tax positions in interest expense and general and administrative expenses, respectively. During the years ended December 31, 2011, 2010 and 2009, the Company did not recognize any interest or penalties in its consolidated financial statements, nor has it recorded an accrued liability of interest or penalty payments related to uncertain tax positions.

The unrecognized tax benefit relates to the settlement with the United States of America. See Note 10 to these consolidated financial statements.