Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

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Income Taxes
 9 Months Ended
Sep. 30, 2012
Income Taxes [Abstract]  
Income Taxes
11. Income Taxes

U.S. GAAP requires the interim period tax provision to be determined as follows:

 

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At the end of each quarter, the Company estimates the tax that will be provided for the year stated as a percent of estimated “ordinary” income for the year. The term ordinary income refers to earnings from continuing operations before income taxes, excluding significant unusual or infrequently occurring items.

 

  •  

The estimated annual effective rate is applied to the year-to-date “ordinary” income at the end of each quarter to compute the year-to-date tax applicable to ordinary income. The tax expense or benefit related to ordinary income in each quarter is the difference between the most recent year-to-date and the prior quarter year-to-date computations.

 

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The tax effects of significant unusual or infrequently occurring items are recognized as discrete items in the interim period in which the events occur. The impact of changes in tax laws or rates on deferred tax amounts, the effects of changes in judgment about beginning of the year valuation allowances and change in tax reserves resulting from the finalization of tax audits or reviews are examples of significant unusual or infrequently occurring items that are recognized as discrete items in the interim period in which the event occurs.

The determination of the annual effective tax rate is based upon a number of significant estimates and judgments, including the estimated annual pretax income of the Company and the development of tax planning strategies during the year.

Net deferred tax assets consist of the following:

 

                 
    September 30,
2012		     December 31,
2011		  

Current:

                

Deferred revenue

   $ 176     $ 30  

Prepaid expenses and accruals

     435       162  
   

 

 

    

 

 

  

Net current deferred tax assets

     611       192  
   

 

 

    

 

 

  

Non-Current:

                

Deferred rent

   $ 644     $ 535  

Net operating loss and tax credit carry-forwards

     17,535       9,910  

Loss on investments

     2,157       2,157  

Amortization and depreciation

     (12,236 )      (4,516 ) 

Other

     2,531       2,050  
   

 

 

    

 

 

  

Net long-term deferred tax assets

     10,631       10,136  
   

 

 

    

 

 

  
     

Net deferred tax assets

     11,242       10,328  

Less valuation allowance

     (3,444 )      (3,444 ) 
   

 

 

    

 

 

  
    $ 7,798     $ 6,884  
   

 

 

    

 

 

  

The valuation allowance as of September 30, 2012 and December 31, 2011 was related to capital losses of $2,157 and Federal and state net operating losses of $1,287 primarily due to Section 382 limitations. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some or all of the deferred tax assets will be realized.

The following table includes tax expense and the effective tax rate for the Company’s income from operations:

 

                                 
    Three Months Ended
September 30,		     Nine Months Ended
September 30,		  
    2012     2011     2012     2011  

Income (loss) before income taxes

   $ 923     $ 3,031     $ 1,043     $ 9,471  

Income tax provision

     372       1,106       420       3,695  

Effective tax rate

     40.3 %      36.5 %      40.3 %      39.0 % 

Upon exercise of stock options, the Company recognizes any difference between U.S. GAAP compensation expense and income tax compensation expense as a tax windfall or shortfall. The difference is charged to equity in the case of a windfall. When the exercise results in a windfall and the windfall results in a net operating loss (“NOL”), or the windfall increases an NOL carryforward, no windfall is recognized until the deduction reduces the income tax payable. For U.S. GAAP purposes, the Company has deferred the recognition of approximately $1,583 in windfall tax benefits associated with its stock-based compensation until a cash tax savings is realized. The benefit will be recorded in stockholders’ equity when utilized on an income tax return to reduce taxes payable, and as such, it will not impact the Company’s effective tax rate.

The total amount of the gross liability for unrecognized tax benefits reported in other non-current liabilities was $752 and $573 at September 30, 2012 and December 31, 2011, respectively. At September 30, 2012, the amount of unrecognized tax benefits that would benefit the Company’s effective tax rate, if recognized, was $563.

The Company recognizes potential interest and penalties related to unrecognized tax benefits in income tax expense. The Company had accrued interest and penalties of $209 as of both September 30, 2012 and December 31, 2011.

The Company files a consolidated federal income tax return and separate tax returns with various states. Additionally, a subsidiary of the Company files a tax return in a foreign jurisdiction. The Company’s tax returns for the calendar years ended December 31, 2011, 2010 and 2009, and fiscal year ended March 31, 2009 remain open to examination by the Internal Revenue Service in their entirety. They also remain open with respect to state taxing jurisdictions.