Income Taxes

9 Months Ended

Sep. 30, 2012

Income Taxes

Income Taxes

8.  Income Taxes

For the nine months ended September 30, 2012 and 2011, the provision for income taxes was 5.9% and 44.9%, respectively, of income (loss) before income taxes. The provision for each period differs from the expected federal statutory rate of 35.0% as a result of certain non-deductible expenses and state income taxes and, for the 2012 period, the recording of a valuation allowance against our federal net operating loss carryforwards (“NOLs”). For 2012, the vast majority of the goodwill impairment charge is not deductible for income tax purposes.

For the nine months ended September 30, 2012, our income tax expense differs from the amount that would result from applying the federal statutory rate to our loss before income taxes as follows (dollars in thousands):

Federal statutory tax rate	35		%
Expected tax expense (benefit)	$	(72,029	)
State and foreign income taxes, net of federal benefit	(1,787		)
Non-deductible compensation	549
Non-deductible goodwill impairment	62,421
Change in valuation allowance	23,000
Other	(20		)
Provision for income taxes	$	12,134

As of September 30, 2012, we had NOLs with a tax-effected carrying value of approximately $42.4 million for federal and state purposes. Our federal NOLs will expire on various dates ranging from 2012 to 2028. Utilization of these carryforwards is dependent upon us having future federal taxable income in amounts sufficient to realize the federal NOLs. We provide a valuation allowance for deferred tax assets when we do not have sufficient positive evidence to conclude that it is more likely than not that some portion, or all, of our deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon future taxable income during the periods in which those temporary differences become deductible.

In assessing the need for a valuation allowance for our deferred tax assets, we considered all available positive and negative evidence, including our ability to carry back operating losses to prior periods, projected future taxable income, tax planning strategies and the reversal of deferred tax liabilities.   We also gave specific consideration of the goodwill impairment charge recorded during the third quarter (see Note 5).  Given the significance of the goodwill impairment charge which causes our three year cumulative results of operations to be a loss, we do not believe we have sufficient positive evidence to conclude that future realization of all of our federal net deferred tax assets is more likely than not.  As such, we established a valuation allowance of approximately $23.0 million at September 30, 2012. We will reassess the valuation allowance quarterly, and if future evidence allows for a partial or full release of the valuation allowance, a tax benefit will be recorded accordingly.