Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

5. Income Taxes

A summary of the income tax expense is as follows (in thousands):

	Year Ended December 31,
	2011			2010			2009
Current:
Federal	$	(6,844	)	$	3,071		$	3,662
State		190			652			1,215
Foreign		311			54			65
Total current		(6,343	)		3,777			4,942
Deferred:
Federal		(873	)		943			2,734
State		1,713			(82	)		22
Foreign		-			-			-
Excess tax benefits related to stock based compensation		-			1,543			871
Tax deficiencies related to restricted stock expense		(426	)		(15	)		(66	)
Purchase accounting adjustment - Core Mobility		-			-			(1,765	)
Other adjustments		-			(1	)		-
Total deferred		414			2,388			1,796
Total provision	$	(5,929	)	$	6,165		$	6,738

A reconciliation of the provision for income taxes to the amount of income tax expense that would result from applying the federal statutory rate to the profit before income taxes is as follows:

	Year Ended December 31,
	2011			2010			2009
Federal statutory rate		35	%		35	%		35	%
State tax, net of federal benefit		4			5			7
Equity compensation		-			3			13
R&D tax credit		-			(5	)		(4	)
Goodwill impairment		(5	)		-			-
Other		-			(5	)		8
Change in valuation allowance		(30	)		-			-
		4	%		33	%		59	%

The major components of the Company’s deferred tax assets and liabilities are as follows (in thousands):

	Year Ended December 31,
	2011			2010
Current
Various reserves	$	369		$	366
Nondeductible accruals		1,661			1,208
Deferred state taxes		-			228
Prepaid expenses		(96	)		(127	)
Other		25			(27	)
Equity compensation		-			917
Valuation allowance		(1,951	)		-
Total Current	$	8		$	2,565
Non- current
Credit carryforwards		4,223			1,201
Net operating loss carryforwards		11,286			659
State tax		-			(591	)
Fixed assets		1,695			(850	)
Amortization		35,252			(53	)
Identifiable intangibles acquired		(2,288	)		(2,258	)
Equity based compensation		978			165
Other		83			-
Valuation allowance		(51,239	)		-
Total Non-current	$	(10	)	$	(1,727	)

The Company has federal and state net operating loss carryforwards of approximately $22.0 million and $57.8 million, respectively, at December 31, 2011, to reduce future cash payments for income taxes. Of the $22.0 million of NOL carryforwards at December 31, 2011, $0.5 million relates to the excess tax benefits from employee restricted stock. Equity will be increased by $0.5 million if and when such excess tax benefits are ultimately realized. These federal net operating loss carryforwards will expire from 2025 through 2031 and state net operating loss carryforwards will expire 2015 through 2031. The Company also had $0.6 million of AMT credit carryforwards with an indefinite life, available to offset regular federal income tax requirements.

The Company has federal and state tax credit carryforwards of approximately $3.6 million and $1.0 million, respectively, at December 31, 2011. These tax credits will begin to expire in 2027.

At December 31, 2011 and 2010, respectively, the Company had unrecognized tax benefits of approximately $0.3 million and zero, including interest and penalties, respectively.

We account for income taxes as required FASB ASC Topic No. 740, Income Taxes. This Topic clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Topic also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Topic requires an entity to recognize the financial statement impact of a tax position when it is more likely than not that the position will be sustained upon examination. The amount recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. In addition, the Topic permits an entity to recognize interest and penalties related to tax uncertainties either as income tax expense or operating expenses. The Company has chosen to recognize interest and penalties related to tax uncertainties as operating expense.

The Company assesses whether a valuation allowance should be recorded against its deferred tax assets based on the consideration of all available evidence, using a “more likely than not” realization standard. The four sources of taxable income that must be considered in determining whether deferred tax assets will be realized are: (1) future reversals of existing taxable temporary differences (i.e., offset of gross deferred tax assets against gross deferred tax liabilities); (2) taxable income in prior carryback years, if carryback is permitted under the applicable tax law; (3) tax planning strategies and (4) future taxable income exclusive of reversing temporary differences and carryforwards.

In assessing whether a valuation allowance is required, significant weight is to be given to evidence that can be objectively verified. A significant factor in the Company’s assessment is that the Company is in a three-year historical cumulative loss as of the end of fiscal 2011. This fact, combined with uncertain near-term market and economic conditions, reduced the Company’s ability to rely on projections of future taxable income in assessing the realizability of its deferred tax assets.

After a review of the four sources of taxable income as of December 31, 2011 (as described above), and after consideration of the Company’s three-year cumulative loss position as of December 31, 2011, the Company recorded a valuation allowance related to its U.S.-based deferred tax amounts, with a corresponding charge to income tax expense, of $53.2 million during the year ended December 31, 2011.

The Company’s gross unrecognized tax benefits as of December 31, 2011 and the changes in those balances are as follows (in thousands):

	Tax Year Ending
	2011
Beginning Balance	$	-
Increases for tax positions for current year		162
Increases/(Decreases) in tax positions for the prior year		162
Lapse in statute of limitations		-
Settlements		-
Other		-
Change in valuation allowance		-
Gross Unrecognized tax benefits, ending balance	$	324

The Company is subject to U.S. federal income tax as well as to income tax of multiple state jurisdictions. Federal income tax returns of the Company are subject to IRS examination for the 2008 through 2010 tax years. State income tax returns are subject to examination for a period of three to four years after filing. The Company is currently under examination by the Internal Revenue Service (“IRS”) for the 2008 tax year. The outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs. As of December 31, 2011, a current estimate of the range of changes that may occur within the next twelve months cannot be made due to the uncertainty regarding the timing of these events.