NOTE 11 - INCOME TAXES

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

NOTE 11 - INCOME TAXES

For the years ended December 31, 2012, 2011 and 2010, we recognized income tax (benefit) expense comprised of the following:

	Years Ended
	December 31,
	2012		2011		2010
Federal tax		34.00%		34.00%		34.00%
State franchise tax, net of federal benefit		9.56%		6.74%		-2.24%
Non deductible expenses		11.28%		14.40%		-7.76%
Changes in valuation allowance		-1240.29%		-44.79%		-28.68%
(Benefit from) provision for income taxes		-1185.45%		10.35%		-4.68%

A reconciliation of the statutory U.S. federal rate and effective rates is as follows (in thousands):

	Years Ended
	December 31,
	2012			2011		2010
State current tax	$	732		$	820	$	576
Other current tax		32			–		–
Federal deferred tax		(51,003	)		–		–
State deferred tax		(9,671	)		–		–
(Benefit from) provision for income taxes	$	(59,910	)	$	820	$	576

Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial and income tax reporting purposes and operating loss carryforwards.

Our deferred tax assets and liabilities comprise the following (in thousands):

	December 31,
Deferred tax assets:	2012			2011
Net operating losses	$	85,603		$	79,874
Accrued expenses		9,679			8,359
Unfavorable contract liability		3,901			3,559
Equity compensation		2,406			3,530
Allowance for doubtful accounts		1,831			1,820
Other		1,194			1,072
Valuation Allowance		(7,645	)		(65,883	)
Total Deferred Tax Assets	$	96,969		$	32,331
Deferred tax liabilities:
Property Plant & Equipment		(9,680	)		(11,652	)
Goodwill		(14,221	)		(12,212	)
Unrealized gain on hedging agreement		–			(2,478	)
Intangibles		(10,411	)		(5,202	)
Other		(2,260	)		(1,064	)
Total Deferred Tax Liabilities	$	(36,572	)	$	(32,608	)
Net Deferred Tax Asset (Liability)	$	60,397		$	(277	)

As of December 31, 2012, we had federal and state net operating loss carryforwards of approximately $224.7 million and $73.0 million, respectively, which expire at various intervals from the years 2017 to 2032.  As of December 31, 2012, $23.5 million of our federal net operating loss carryforwards acquired in connection with the 2011 acquisition of Raven Holdings U.S., Inc. were subject to limitations related to their utilization under Section 382 of the Internal Revenue Code. Future ownership changes as determined under Section 382 of the Internal Revenue Code could further limit the utilization of net operating loss carryforwards.  Cumulative excess tax benefits of $4.4 million, related to the exercise of nonqualified stock options, will be recorded in equity when realized.

We consider all evidence available when determining whether deferred tax assets are more likely-than-not to be realized, including projected future taxable income, scheduled reversals of deferred tax liabilities, prudent tax planning strategies, and recent financial operations. The evaluation of this evidence requires significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income. As of December 31, 2012, we have determined that deferred tax assets of $97.0 million are more-likely than not to be realized. We have also determined that deferred tax liabilities of $14.2 million are required related to book basis in goodwill that has an indefinite life.

Prior to 2012, we had recorded a valuation allowance on the majority of our deferred tax assets to reduce the deferred tax assets to the amount that was believed more likely than not to be realized. In assessing the need for a valuation allowance, we considered all available positive and negative evidence, including past results, the existence of cumulative losses in prior years, and forecasted future taxable income, and prudent tax planning strategies. During 2012, the majority of our valuation allowance, primarily related to net operating losses (NOLs), was reversed based on historical earnings and forecasts of future taxable income, resulting in the recognition of a $60.4 million tax benefit. The remaining valuation allowance primarily relates to state NOL’s.

For the next five years, and thereafter, federal net operating loss carryforwards expire as follows (in thousands):

	Total Net Operating Loss Carryforwards		Amount Subject to 382 limitation
Year Ended
2013	$	–	$	–
2014		–		–
2015		–		–
2016		–		–
2017		15,184		–
Thereafter		209,725		23,475
	$	224,909	$	23,475

We file consolidated income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. We continue to reinvest earnings of the non-US entities for the foreseeable future and therefore have not recognized any U.S. tax expense on these earnings. With limited exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 1998. We do not anticipate the results of any open examinations would result in a material change to its financial position.

In 2010, we acquired a subsidiary that recognized a liability for uncertain tax positions in a prior year. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Balance at December 31, 2009	$	–
Additional based on tax positions of acquired subsidiaries in prior years		90
Balance at December 31, 2012	$	90

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. We recognized no penalties and interest during the years ended December 31, 2012, 2011 and 2010, and had assumed approximately $90,000 during the year ended December 31, 2010 for the payment of penalties and interest. The reserves for uncertain tax positions are included in accounts payable, accrued and other liabilities as of December 31, 2012 and 2011.