Income Taxes

6 Months Ended

Jun. 30, 2012

Income Taxes

Income Taxes

18.Income Taxes

Refer to Note 1 within the footnotes to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, for a detailed discussion of the accounting policy related to income taxes.  During interim periods, the Company calculates and reports an estimated annual effective income tax rate pursuant to ASC 740-270, “Income Taxes — Interim Reporting.”

Three Months Ended June 30, 2012

The Company’s effective income tax rate from continuing operations for the three months ended June 30, 2012 was negative 91.5%, resulting in income tax expense of approximately $29.1 million. The abnormal tax rate differs from the federal statutory tax rate of 35% primarily due to the establishment of a valuation allowance against substantially all of the Company’s deferred tax assets (negative 101%) as well as a non-deductible discrete item attributable to the write-off of goodwill (negative 25%).

In assessing the need for a valuation allowance, the Company considered both positive and negative evidence related to the likelihood of realization of the deferred tax assets.  The weight given to the positive and negative evidence is commensurate with the extent to which the evidence can be objectively verified.  GAAP states that a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome in determining that a valuation allowance is not needed against deferred tax assets.  As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses.

During the three months ended June 30, 2012, the Company entered into a three-year cumulative loss position.  This cumulative loss position, along with other evidence, merited the establishment of a valuation allowance against the deferred tax assets.

The valuation allowance recorded during the three months ended June 30, 2012 was approximately $32.1 million, resulting in net deferred tax assets of approximately $0.6 million.  A sustained period of profitability is required before the Company would change its judgment regarding the need for a valuation allowance against its net deferred tax assets.

There were no significant changes to the Company’s unrecognized tax benefits during the three months ended June 30, 2012.

Three Months Ended June 30, 2011

The Company’s effective income tax rate from continuing operations for the three months ended June 30, 2011 of 48.2% resulted in income tax expense of approximately $1.2 million.  The Company’s tax rate differs from the federal statutory tax rate of 35% primarily due to state and local income taxes.

Six Months Ended June 30, 2012

The Company’s effective income tax rate from continuing operations for the six months ended June 30, 2012 was negative 76.9%, resulting in income tax expense of approximately $28.5 million.  The abnormal tax rate differs from the federal statutory tax rate of 35% primarily due to the establishment of the previously mentioned valuation allowance against substantially all of the Company’s deferred tax assets during the three months ended June 30, 2012 (negative 87%), as well as the previously mentioned non-deductible discrete item attributable to the write-off of goodwill recorded during the three months ended June 30, 3012 (negative 21%) and tax expense associated with stock-based compensation shortfalls (negative 5%).

Six Months Ended June 30, 2011

The Company’s effective income tax rate from continuing operations for the six months ended June 30, 2011 of 42.5% resulted in income tax expense of approximately $7.3 million.  The Company’s tax rate differs from the federal statutory tax rate of 35% primarily due to a re-measurement of net deferred tax assets due to a change in estimate of our apportioned statutory income tax rate and state and local income taxes, partially offset by a benefit related to the ClearPoint bargain purchase gain.