NOTE 7 — INCOME TAXES
The Company’s effective tax rate was (5.5)% for the three
months ended September 30, 2013, compared to 38.0% for the
three months ended September 30, 2012. The Company’s
effective tax rate was (3.9)% for the nine months ended
September 30, 2013, compared to 33.8% for the nine months
ended September 30, 2012.
For the three and nine months ended September 30, 2013, the
Company’s effective tax rate differed from federal and state
statutory rates primarily due to the accrual of a valuation
allowance against substantially all of the Company’s net
deferred tax assets and the tax expense related to separate state
filings. In computing its Estimated Annual Effective Tax Rate for
the three and nine months ended September 30, 2012, the
Company recognized a $104.0 million deferred tax benefit related to
the impairment of the indefinite life trade name.
Deferred income tax assets and liabilities are computed for
differences between the carrying amounts of assets and liabilities
for financial statement and tax purposes. Deferred income tax
assets are required to be reduced by a valuation allowance when it
is determined that it is more likely than not that all or a portion
of a deferred tax asset will not be realized.
Beginning with the year ended December 31, 2011, the Company
accrued a valuation allowance against substantially all of its net
deferred tax assets since the Company determined that it is more
likely than not that substantially all of its net deferred tax
assets will not be realized. The Company intends to maintain its
valuation allowance until sufficient positive evidence exists to
support the reversal of all or a portion of its valuation
allowance.
The Company increased its valuation allowance by $20.3 million to
$258.8 million at September 30, 2013 from $238.5 million at
December 31, 2012 to offset corresponding increases in its net
deferred tax assets for the nine months ended September 30,
2013. The Company increased its valuation allowance by $6.9 million
to $258.8 million at September 30, 2013 from $251.9 million at
June 30, 2013 to offset corresponding increases in its net
deferred tax assets for the three months ended September 30,
2013.
The Company is required to disclose certain information, within its
interim financial statements, when material changes occur regarding
its tax uncertainties. For the nine months ended September 30,
2013, no material changes occurred with respect to the
Company’s tax uncertainties which would require
disclosure.
As of September 30, 2013, federal net operating loss
(“NOLs”) carryforwards of approximately $478.4 million
were available to offset future federal taxable income. Such NOLs
will expire at various times and in varying amounts during the
Company’s calendar 2015 through 2033 tax years. A significant
portion of these NOLs are subject to an annual utilization
limitation as required by Section 382 of the Internal Revenue
Code of 1986, as amended.
The Company files federal and state income tax returns in
jurisdictions with varying statutes of limitations expiration
dates. The Company’s calendar 2009 through 2012 tax years
generally remain subject to examination by tax authorities. The
Internal Revenue Service (“IRS”) has recently completed
its audit of the Company’s calendar 2009 Federal income tax
return and made immaterial changes to the Company’s NOL
carryforwards. Certain state tax agencies are currently examining
the tax years 2006 and forward.
Net income tax payments made (and refunds received) for the
nine-month period ended September 30, 2013 and 2012 amounted
to $0.8 million and $1.2 million, respectively.