Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

Income Taxes

5. Income Taxes

In calculating the provision for income taxes, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances known at each interim period. On a quarterly basis, the estimated effective tax rate is adjusted, as appropriate, based upon changed facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and each interim period thereafter.

During the third quarter of 2011, the Internal Revenue Service ("IRS") issued a favorable private letter ruling ("PLR") to the Company concerning the treatment of a loss related to the dissolution of an inactive subsidiary. The Company had previously recorded approximately $93.0 million of deferred tax assets, fully offset by a valuation allowance, related to the capital loss.

As a result of the PLR, the Company recharacterized the $93.0 million of deferred tax assets previously reported as capital in character to $89.0 million in deferred tax assets relating to net operating losses and intangible assets, with $4.0 million being limited due to Internal Revenue Code Section 382 limitations. In addition, during the third quarter of 2011, the Company derecognized approximately $32.0 million of previously recorded gross deferred tax assets and related offsetting valuation allowance to account for uncertainties related to the loss. At December 31, 2010, the Company had no unrecognized tax benefits. As of September 30, 2011, the unrecognized tax benefits of $32.0 million, if recognized, would not have an impact on the effective tax rate due to the Company's valuation allowance recorded on its deferred tax assets. Based upon the timing and status of its current examinations by taxing authorities, the Company does not believe that it is reasonably possible that there could be a material change in the amount of unrecognized tax benefits occurring within the next twelve months.

The PLR relies on certain facts, assumptions and representations from management regarding the past conduct of the Company's businesses and other matters. If any of these facts, assumptions or representations are incorrect, the Company may not be able to rely on the ruling and could be subject to significant tax liabilities in the event we utilize the related deferred tax assets. Notwithstanding the PLR, the IRS could determine on audit that the ordinary loss should be treated as a capital loss if it is determined that any of these facts, assumptions or representations are not correct.

As of September 30, 2011, the Company has a valuation allowance offsetting all deferred tax assets. The future realization of the Company's deferred tax assets depends on the availability of sufficient future taxable income of the appropriate character. Management is required to evaluate whether a valuation allowance should be maintained against deferred tax assets based on the consideration of available evidence using a "more likely than not" standard at each reporting date. In making this evaluation, management weighs available positive and negative evidence. Management considers, among other factors, the Company's operating results, the global business environment and industry outlook. The deferred tax asset valuation allowance is maintained until sufficient positive evidence exists to support release of the allowance. Because evidence such as the Company's operating results during the most recent three-year period is afforded more weight than forecasted results for future periods, the Company's cumulative losses during this three-year period represents sufficient negative evidence regarding the need for maintaining a full valuation allowance at this time. It is reasonably possible that, if the Company continues to generate income over the near term, management may determine there is sufficient positive evidence as to the timing and amount of future taxable income to allow for the future release of the valuation allowance.