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Income Taxes | 12 Months Ended
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Jul. 31, 2011
Income Taxes |
Income Taxes |
11. | Income Taxes
As of July 31, 2011, the Company had utilized all available Federal net operating loss ("NOL") carryforwards. These NOL carryforwards expired in the year ended July 31, 2008 and were limited in deductibility each year under Section 382 of the Internal Revenue Code. The Company had only been able to use these NOL carryforwards to the extent of approximately $8.0 million per year through December 31, 2007 (the "Section 382 Amount"). However, during the year ended July 31, 2005, the Company amended previously filed tax returns (for tax years 1997-2002) in an effort to remove the restrictions under Section 382 of the Internal Revenue Code on approximately $73.8 million of NOL carryforwards to reduce future taxable income. As a result, the Company requested a refund related to the amended returns in the amount of $6.2 million and has reduced its federal tax liability in the amount of $19.6 million in subsequent returns. These NOL carryforwards relate to fresh start accounting from the Company's reorganization in 1992. During the year ended July 31, 2006, the Internal Revenue Service ("IRS") completed its examination of the Company's filing position in these amended returns and disallowed the Company's request for refund and its position to remove the restrictions under Section 382 of the Internal Revenue Code. Consequently, the accompanying financial statements and table of deferred items and components of the tax provision have only recognized benefits related to the NOL carryforwards to the extent of the Section 382 Amount reported in its tax returns prior to its amendments. The Company appealed the examiner's disallowance of these NOL carryforwards to the Office of Appeals. In December 2008, the Office of Appeals denied the Company's appeal, as well as a request for mediation. The Company disagreed with the IRS interpretation disallowing the utilization of the NOL's and in August 2009, the Company filed a complaint in the United States District Court for the District of Colorado against the United States of America seeking a refund of approximately $6.2 million in Federal income taxes paid. On July 1, 2011, the District Court granted the Company summary judgment, concluding that the IRS's decision disallowing the utilization of the NOLs was inappropriate. The sole issue now before the District Court is the amount of the tax refund to which the Company is entitled. The IRS is entitled to appeal the decision of the District Court to grant the motion for summary judgment and we do not know whether the IRS will do so or, if it does appeal, whether the appeal would be successful. The Company is also a party to two related tax proceedings in the United States Tax Court regarding calculation of NOL carryover deductions for tax years 2006, 2007 and 2008. The two proceedings involve substantially the same issues as the litigation in the District Court wherein the Company disagrees with the IRS as to the utilization of NOLs. With respect to the case involving the 2006 tax year, a trial date has been set for November 2011, but the Company expects that the case will be stayed pending final resolution of the District Court case, which as described above, now only involves the determination of the tax refund to which the Company is entitled. Similarly, while no trial date has been set, the Company expects that it will stipulate with the IRS that the case involving tax years 2007 and 2008 be stayed until the District Court proceeding is resolved. Since the legal proceeding surrounding the utilization of the NOLs have not been fully resolved, including a determination of the amount of refund and the possibility that the District Court's ruling may be appealed by the IRS, there remains considerable uncertainty of what portion, if any, of the NOLs will be realized, and as such, the Company has not reflected any of the benefits of the utilization of the restricted NOLs within its financial statements. However, the range of potential reversal of other long-term liabilities and accrued interest and penalties that would be recorded as a benefit to the Company's income tax provision is between zero and $27.6 million. The Company has state NOL carryforwards (primarily California) totaling $30.0 million of which approximately $4.9 million was acquired with the acquisition of Northstar-at-Tahoe during the year ended July 31, 2011 and which expire by the year ending July 31, 2031. As of July 31, 2011, the Company has recorded a valuation allowance of $1.6 million, primarily on California NOL carryforwards generated in prior years, as the Company has determined that it is more likely than not that these NOL carryforwards will not be realized. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows (in thousands):
|  | July 31, |  |  |
|  | 2011 |  |  | 2010 |  |  |
Deferred income tax liabilities: |  |  |  |  |  |  |  |  |  |
Fixed assets |  | $ | 131,024 |  |  | $ | 109,921 |  |  |
Intangible assets |  |  | 34,350 |  |  |  | 31,825 |  |  |
Real estate and other investments |  |  | 5,326 |  |  |  | -- |  |  |
Total |  |  | 170,700 |  |  |  | 141,746 |  |  |
Deferred income tax assets: |  |  |  |  |  |  |  |  |  |
Deferred membership revenue |  |  | 22,668 |  |  |  | 26,282 |  |  |
Real estate and other investments |  |  | 2,124 |  |  |  | 5,041 |  |  |
Deferred compensation and other accrued liabilities |  |  | 10,093 |  |  |  | 10,902 |  |  |
Stock-based compensation |  |  | 13,436 |  |  |  | 10,366 |  |  |
Unfavorable lease obligation, net |  |  | 15,754 |  |  |  | -- |  |  |
Net operating loss carryforwards other tax credits |  |  | 2,187 |  |  |  | 2,041 |  |  |
Other, net |  |  | 1,985 |  |  |  | 1,612 |  |  |
Total |  |  | 68,247 |  |  |  | 56,244 |  |  |
Valuation allowance for deferred income taxes |  |  | (1,588 | ) |  |  | (1,588 | ) |  |
Deferred income tax assets, net of valuation allowance |  |  | 66,659 |  |  |  | 54,656 |  |  |
Net deferred income tax liability |  | $ | 104,041 |  |  | $ | 87,090 |  |  |
The net current and non-current components of deferred income taxes recognized in the Consolidated Balance Sheets are as follows (in thousands):
|  | July 31, |
|  | 2011 |  |  | 2010 |
Net current deferred income tax asset |  | $ | 29,167 |  |  | $ | 21,406 |
Net non-current deferred income tax liability |  |  | 133,208 |  |  |  | 108,496 |
Net deferred income tax liability |  | $ | 104,041 |  |  | $ | 87,090 |
Significant components of the provision (benefit) for income taxes are as follows (in thousands):
|  | Year Ended July 31, |
|  | 2011 |  |  | 2010 |  |  | 2009 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (9,886 | ) |  | $ | 19,661 |  |  | $ | (242 | )
State |  |  | (1,210 | ) |  |  | 2,788 |  |  |  | 119 |
Total current |  |  | (11,096 | ) |  |  | 22,449 |  |  |  | (123 | )
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 28,087 |  |  |  | (3,989 | ) |  |  | 27,358 |
State |  |  | 4,107 |  |  |  | (438 | ) |  |  | 3,409 |
Total deferred |  |  | 32,194 |  |  |  | (4,427 | ) |  |  | 30,767 |
Provision for income taxes |  | $ | 21,098 |  |  | $ | 18,022 |  |  | $ | 30,644 |
A reconciliation of the income tax provision from continuing operations and the amount computed by applying the United States Federal statutory income tax rate to income before income taxes is as follows:
|  | Year Ended July 31, |
|  | 2011 |  |  | 2010 |  |  | 2009 |
At U.S. Federal income tax rate |  |  | 35.0 % |  |  |  | 35.0 % |  |  |  | 35.0 % |
State income tax, net of Federal benefit |  |  | 3.1 % |  |  |  | 2.8 % |  |  |  | 2.8 % |
Nondeductible meals or entertainment |  |  | 0.4 % |  |  |  | 0.3 % |  |  |  | 0.2 % |
Noncontrolling interest |  |  | 0.1 % |  |  |  | (3.5) % |  |  |  | (0.7) % |
General business credits |  |  | (1.0) % |  |  |  | (1.1) % |  |  |  | (0.8) % |
Other |  |  | 0.4 % |  |  |  | -- % |  |  |  | 1.2 % |
|  |  | 38.0 % |  |  |  | 33.5% |  |  |  | 37.7 % |
A reconciliation of the beginning and ending amount of unrecognized tax benefits associated with uncertain tax positions, excluding associated deferred tax benefits and accrued interest and penalties, if applicable, is as follows (in thousands):
|  | Unrecognized Tax Benefits |
Balance as of August 1, 2008 |  | $ | 17,796 |
Additions based on tax positions related to the current year |  |  | -- |
Additions for tax positions of prior years |  |  | 9,524 |
Reductions for tax positions of prior years |  |  | -- |
Settlements |  |  | -- |
Balance as of July 31, 2009 |  | $ | 27,320 |
Additions based on tax positions related to the current year |  |  | -- |
Additions for tax positions of prior years |  |  | -- |
Reductions for tax positions of prior years |  |  | -- |
Lapse of statute of limitations |  |  | (272 | )
Settlements |  |  | -- |
Balance as of July 31, 2010 |  | $ | 27,048 |
Additions based on tax positions related to the current year |  |  | -- |
Additions for tax positions of prior years |  |  | -- |
Reductions for tax positions of prior years |  |  | -- |
Lapse of statute of limitations |  |  | (475 | )
Settlements |  |  | -- |
Balance as of July 31, 2011 |  | $ | 26,573 |
Any unrecognized tax benefits that became more likely than not of being realized that are recorded in other long-term liabilities would decrease the Company's effective tax rate. In addition, the Company does not anticipate a significant change to its unrecognized tax benefits during the twelve months ending July 31, 2012, subject to resolution of the legal proceedings associated with the utilization of NOL carryforwards as previously discussed. The Company's policy is to accrue income tax related interest and penalties, if applicable, within income tax expense. As of July 31, 2011 and 2010, accrued interest and penalties, net of tax, is $1.9 million and $2.2 million, respectively. For the years ended July 31, 2011, 2010 and 2009, the Company recognized $(0.2) million, $(0.2) million and $0.5 million of interest expense and penalties, net of tax, respectively. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The IRS has completed its examination of the Company's tax returns for tax years 2001 through 2003 and has issued a report of its findings. As discussed above, the examiner's primary finding is the disallowance of the Company's position to remove the restrictions under Section 382 of the Internal Revenue Code of approximately $73.8 million of NOL carryforwards; however, the Company has filed a complaint in Federal court. With the exception of the utilization of NOL carryforwards as discussed above, the Company is no longer subject to U.S. Federal examinations for tax years prior to 2006. With few exceptions, the Company is no longer subject to examination by various state jurisdictions for tax years prior to 2006.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 + Details
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