Income Taxes

9 Months Ended

Jul. 31, 2011

7. Income Taxes

A reconciliation of the Company’s effective tax rate from the federal statutory tax rate for the nine-month and three-month periods ended July 31, 2011 and 2010 is set forth in the tables below (amounts in thousands).


	2011						2010
Nine-month period ended July 31:	$			%*			$			%*
Federal tax benefit at statutory rate		(15,625	)		(35.0	)		(37,701	)		(35.0	)
State taxes, net of federal benefit		(1,451	)		(3.3	)		(3,501	)		(3.3	)
Reversal of tax provisions due to expiration of statutes and settlements		(19,273	)		(43.2	)		(40,460	)		(37.6	)
Reversal of accrual for uncertain tax positions		(30,827	)		(69.0	)
Valuation allowance — recognized		18,791			42.1			52,423			48.7
Valuation allowance — reversed		(23,123	)		(51.8	)		(37,736	)		(35.0	)
Accrued interest on anticipated tax assessments		2,799			6.3			966			0.9
Increase in unrecognized tax benefit								13,000			12.1
Other		(686	)		(1.5	)		(858	)		(0.8	)

Tax benefit		(69,395	)		(155.4	)		(53,867	)		(50.0	)


*		Due to rounding, amounts may not add.


	2011						2010
Three-month period ended July 31:	$			%*			$			%*
Federal tax provision at statutory rate		1,361			35.0			289			35.0
State taxes, net of federal benefit		126			3.2			(948	)		(114.9	)
Reversal of tax provisions due to expiration of statutes and settlements		(16,933	)		(435.5	)		(40,460	)		(4,904.3	)
Reversal of accrual for uncertain tax positions		(12,873	)		(331.1	)
Valuation allowance — recognized								17,408			2,110.1
Valuation allowance — reversed		(10,846	)		(279.0	)		(13,685	)		(1,658.8	)
Accrued interest on anticipated tax assessments		1,174			30.2			(1,797	)		(217.8	)
Increase in unrecognized tax benefit								13,000			1,575.8
Other		(229	)		(5.9	)		(286	)		(34.7	)

Tax benefit		(38,220	)		(983.0	)		(26,479	)		(3,209.6	)


*		Due to rounding, amounts may not add.

The Company currently operates in 19 states and is subject to taxation in various state jurisdictions. The Company estimates its state tax liabilities based upon the individual taxing authorities’ regulations, estimates of income by taxing jurisdiction and the Company’s ability to utilize certain tax-saving strategies. Based on the Company’s estimate of the allocation of income or loss, as the case may be, among the various taxing jurisdictions and changes in tax regulations and their impact on the Company’s tax strategies, the Company’s estimated rate for state income taxes is 5.0% for each of fiscal 2011 and fiscal 2010.

The Company recognizes in its tax benefit potential interest and penalties. Information as to the amounts recognized in its tax benefit, before reduction for applicable taxes and reversal of previously accrued interest and penalties, of potential interest and penalties in the nine-month and three-month periods ended July 31, 2011 and 2010, and the amounts accrued for potential interest and penalties at July 31, 2011 and October 31, 2010 is set forth in the table below (amounts in thousands).


Recognized in statements of operations:
Nine-month period ended July 31, 2011	$	2,500
Nine-month period ended July 31, 2010	$	1,500
Three-month period ended July 31, 2011	$	1,806
Three-month period ended July 31, 2010	$	—


Accrued at:
July 31, 2011	$	28,806
October 31, 2010	$	39,209

A reconciliation of the change in the unrecognized tax benefits for the nine-month and three-month periods ended July 31, 2011 and 2010 is set forth in the table below (amounts in thousands).


	Nine months ended July 31,						Three months ended July 31,
	2011			2010			2011			2010
Balance, beginning of period	$	160,446		$	171,366		$	141,392		$	177,116
Increase in benefit as a result of tax positions taken in prior years		5,943			4,250			3,443
Increase in benefit as a result of tax positions taken in current year					1,586						86
Decrease in benefit as a result of resolution of uncertain tax positions		(17,954	)		(8,793	)					(8,793	)
Decrease in benefit as a result of lapse of statute of limitation		(8,790	)		(32,053	)		(8,790	)		(32,053	)
Decrease in benefit as a result of completion of tax audits		(35,370	)					(31,770	)

Balance, July 31,	$	104,275		$	136,356		$	104,275		$	136,356

The Company’s unrecognized tax benefits are included in “Income taxes payable” on the Company’s Condensed Consolidated Balance Sheets. If these unrecognized tax benefits reverse in the future, they would have a beneficial impact on the Company’s effective tax rate at that time. During the next twelve months, it is reasonably possible that the amount of unrecognized tax benefits will change. The anticipated changes will be principally due to expiration of tax statutes, settlements with taxing jurisdictions, increases due to new tax positions taken and the accrual of estimated interest and penalties.

The Company is allowed to carry forward tax losses for 20 years and apply such tax losses to future taxable income to realize federal deferred tax assets. As of July 31, 2011, the Company had approximately $10.0 million of tax loss carryforwards, resulting from losses that it recognized on its fiscal 2009 tax return, in excess of the amount it could carry back against its fiscal 2007 federal taxable income. In addition, the Company will be able to reverse its previously recognized valuation allowances during any future period for which it reports book income before income taxes. The Company will continue to review its deferred tax assets in accordance with ASC 740 “Income Taxes”.

On November 6, 2009, the Worker, Homeownership, and Business Assistance Act of 2009 (the “Act”) was enacted into law. The Act amended Section 172 of the Internal Revenue Code to allow net operating losses realized in a tax year ending after December 31, 2007 and beginning before January 1, 2010 to be carried back for up to five years (such losses were previously limited to a two-year carryback). This change allowed the Company to carry back its fiscal 2010 taxable losses to prior years and to file for a refund of previously paid federal income taxes. The Company received a tax refund in its second quarter of fiscal 2011 of $154.3 million.

At July 31, 2011 and October 31, 2010, the Company had recorded cumulative valuation allowances against its entire net deferred federal tax asset of $359.8 million and $364.2 million, respectively.

For state tax purposes, due to past and projected losses in certain jurisdictions where the Company does not have carryback potential and/or cannot sufficiently forecast future taxable income, the Company has recognized net cumulative valuation allowances against its state deferred tax assets of $45.0 million as of July 31, 2011 and October 31, 2010. Future valuation allowances in these jurisdictions may continue to be recognized if the Company believes it will not generate sufficient future taxable income to utilize any future state deferred tax assets.