Income Taxes

3 Months Ended

Jan. 31, 2012

Income Taxes [Abstract]

Income Taxes

8. Income Taxes

The table below provides, for the periods indicated, a reconciliation of the Company’s effective tax rate from the federal statutory tax rate (amounts in thousands).

		September 30,			September 30,			September 30,			September 30,
	Three months ended January 31,
	2012						2011
	$			%*			$			%*
Federal tax (benefit) provision at statutory rate		(2,243	)		(35.0	)		(5,966	)		(35.0	)
State taxes, net of federal benefit		(271	)		(4.2	)		(554	)		(3.3	)
Reversal of state tax provisions – finalization of audits								(2,340	)		(13.7	)
Increase in unrecognized tax benefits		1,500			23.4
Reversal of accrual for uncertain tax positions		(5,279	)		(82.4	)		(17,954	)		(105.3	)
Increase in deferred tax assets – net		(525	)		(8.2	)
Valuation allowance – recognized		4,089			63.8			7,027			41.2
Valuation allowance – reversed		(2,843	)		(44.3	)		(1,260	)		(7.4	)
Accrued interest on anticipated tax assessments		1,950			30.4			813			4.8
Other								(230	)		(1.3	)
Tax provision (benefit)		(3,622	)		(56.5	)		(20,464	)		(120.0	)

* Due to rounding, amounts may not add.

The Company currently operates in 20 states and is subject to various state tax jurisdictions. The Company estimates its state tax liability based upon the individual taxing authorities’ regulations, estimates of income by taxing jurisdiction and the Company’s ability to utilize certain tax-saving strategies. Due primarily to a change in 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 was 6.5% and 5.0% for fiscal 2012 and 2011, respectively.

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 three-month periods ended January 31, 2012 and 2011, and the amounts accrued for potential interest and penalties at January 31, 2012 and October 31, 2011 are set forth in the table below (amounts in thousands).

		September 30,
Recognized in statements of operations:
Three-month period ended January 31, 2012	$	3,000
Three-month period ended January 31, 2011	$	1,250
Accrued at:
January 31, 2012	$	29,500
October 31, 2011	$	29,200

The table below provides, for the periods indicated, a reconciliation of the change in the unrecognized tax benefits (amounts in thousands).

		September 30,			September 30,
	Three months ended January 31,
	2012			2011
Balance, beginning of period	$	104,669		$	160,446
Increase in benefit as a result of tax positions taken in prior years		4,500			1,250
Decrease in benefit as a result of resolution of uncertain tax positions		(4,000	)		(17,954	)
Decrease in benefit as a result of completion of tax audits		(4,122	)		(3,600	)
Balance, end of period	$	101,047		$	140,142

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 January 31, 2012, the Company estimates that it will have approximately $52.0 million of tax loss carryforwards, resulting from losses that it expects to recognize on its fiscal 2011 tax return. In addition, the Company expects to be able to reverse previously recognized valuation allowances against future tax provisions 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.

At January 31, 2012 and October 31, 2011, the Company had recorded cumulative valuation allowances against its entire net deferred federal tax asset of $354.6 million and $353.4 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 $74.0 million as of January 31, 2012. In 2011, the Company took steps to merge a number of entities to better align financial and tax reporting and to reduce administrative complexity going forward. Some of these mergers occurred in higher state tax jurisdictions creating additional state tax deferred assets of $28.9 million, offset entirely by an increase in the state tax valuation allowance. 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.