Income Taxes

9 Months Ended

Sep. 30, 2012

Income Taxes

Income Taxes

18.Income Taxes

Refer to Note 1 within the footnotes to the consolidated financial statements contained 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 September 30, 2012

The Company’s effective income tax rate from continuing operations for the three months ended September 30, 2012 was 44.2%, resulting in an income tax benefit of approximately $2.2 million.  The income tax benefit is primarily attributable to a $2.2 million increase in the net value of the deferred tax assets.  Such increase is due to the Company’s ability to carry-back realizable net operating losses to prior years.

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

Three Months Ended September 30, 2011

The Company’s effective income tax rate from continuing operations for the three months ended September 30, 2011 of 3.9% resulted in an income tax benefit of approximately $3.1 million.  The Company’s tax rate differs from the federal statutory tax rate of 35% primarily due to non-deductible discrete items primarily associated with the write-off of goodwill related to the Investment Banking division.  The effective rate also differs from the statutory rate due to state and local taxes.

Nine Months Ended September 30, 2012

In the second quarter of 2012, the Company established a valuation allowance against substantially all of the Company’s deferred tax assets.  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 second quarter of 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 Company’s effective income tax rate from continuing operations for the nine months ended September 30, 2012 was negative 62.5%, resulting in income tax expense of approximately $26.3 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 (negative 75%), as well as the non-deductible discrete item attributable to the write-off of goodwill (negative 20%) and tax expense associated with stock-based compensation shortfalls (negative 8%).

Nine Months Ended September 30, 2011

The Company’s effective income tax rate from continuing operations for the nine months ended September 30, 2011 of negative 6.8% resulted in income tax expense of approximately $4.2 million.  The Company’s tax rate differs from the federal statutory tax rate of 35% primarily due to non-deductible discrete items primarily associated with the write-off of goodwill related to the Investment Banking division. The effective rate also differs from the statutory rate due to state and local taxes.