18.

Income Taxes

The Company had no income tax benefit or expense for the three months ended August 31, 2011 and an income tax benefit of $5.3 million for the three months ended August 31, 2010. For the nine months ended August 31, 2011, the Company’s income tax expense totaled $.1 million, compared to an income tax benefit of $5.0 million for the nine months ended August 31, 2010. Due to the effects of its deferred tax asset valuation allowances, carrybacks of its net operating losses (“NOLs”), and changes in its unrecognized tax benefits, the Company’s effective tax rates for the three-month and nine-month periods ended August 31, 2011 and 2010 are not meaningful items as the Company’s income tax amounts are not directly correlated to the amount of its pretax losses for those periods.

In accordance with Accounting Standards Codification Topic No. 740, “Income Taxes” (“ASC 740”), the Company evaluates its deferred tax assets quarterly to determine if valuation allowances are required. ASC 740 requires that companies assess whether valuation allowances should be established based on the consideration of all available evidence using a “more likely than not” standard. During the three months ended August 31, 2011, the Company recorded a valuation allowance of $2.5 million against net deferred tax assets generated from the loss for the period. During the three months ended August 31, 2010, the Company recorded a net reduction of $2.4 million to the valuation allowance against net deferred tax assets. The net reduction was comprised of a $5.4 million federal income tax benefit from the increased carryback of the Company’s 2009 net operating loss to offset earnings it generated in 2004 and 2005, partially offset by a $3.0 million valuation allowance recorded against the net deferred tax assets generated from the loss for the period. For the nine months ended August 31, 2011, the Company recorded valuation allowances of $73.3 million against the net deferred tax assets generated from losses for the period. For the nine months ended August 31, 2010, the Company recorded a net increase of $31.6 million to the valuation allowance against net deferred tax assets. The net increase was comprised of a $37.0 million valuation allowance recorded against the net deferred tax assets generated from the loss for the period, partially offset by the $5.4 million federal income tax benefit from the increased carryback of the Company’s 2009 net operating loss to offset earnings it generated in 2004 and 2005.

The Company’s net deferred tax assets totaled $1.1 million at both August 31, 2011 and November 30, 2010. The deferred tax asset valuation allowance increased to $844.4 million at August 31, 2011 from $771.1 million at November 30, 2010. This increase reflected the impact of the $73.3 million valuation allowance recorded during the nine months ended August 31, 2011.

During the three months ended August 31, 2011, the Company did not have a change to its total gross unrecognized tax benefits. During the nine months ended August 31, 2011, net reductions to the Company’s total gross unrecognized tax benefits were $.3 million. The total amount of unrecognized tax benefits, including interest and penalties, was $6.6 million as of August 31, 2011. The Company anticipates that total unrecognized tax benefits will decrease by approximately $2.0 million during the 12 months from this reporting date due to various state filings associated with the resolution of the federal audit.

The benefits of the Company’s NOLs, built-in losses and tax credits would be reduced or potentially eliminated if the Company experienced an “ownership change” under Internal Revenue Code Section 382 (“Section 382”). Based on the Company’s analysis performed as of August 31, 2011, the Company does not believe that it has experienced an ownership change as defined by Section 382, and, therefore, the NOLs, built-in losses and tax credits the Company has generated should not be subject to a Section 382 limitation as of this reporting date.