INCOME TAXES

The Company follows ASC Topic 740, Income Taxes (“ASC 740”). Under the asset and liability method of ASC 740, deferred assets and liabilities are recognized for the future costs and benefits attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The Company periodically reviews the requirements for a valuation allowance and makes adjustments to such allowances when changes in circumstances result in changes in the Company’s judgment about the future realization of deferred tax assets. ASC 740 places greater emphasis on historical information, such as the Company’s cumulative operating results than it places on estimates of future taxable income. Therefore, the Company has reduced the valuation allowance by $(5.6) million in the twelve months ended December 31, 2013 resulting in a cumulative balance of $82.5 million on deferred tax assets and tax credit carryforwards. The Company has a cumulative net deferred tax liability of $7.1 million as of December 31, 2013 related to indefinite lived intangibles with book basis and no tax basis. The Company considered all income sources, including other comprehensive income, in determining the amount of deferred taxes recorded. The Company intends to maintain a valuation allowance until evidence would support the conclusion that it is more likely than not that the deferred tax asset will be realized. The Company has recorded $0.1 million of tax expense during the twelve months ended December 31, 2013, which was net of a non-recurring tax benefit of $1.3 million, which was attributable to the prior year impairment of goodwill, for which all tax basis had been previously amortized. The Company concluded that this adjustment was immaterial.

The provision for income taxes consist of the following for 2013, 2012, and 2011:



(in thousands)	2013			2012			2011
Current Income Tax (Expense) Benefit
Federal	$	—		$	—		$	—
State and local	53			(107		)	29
Foreign	(160		)	(252		)	(262		)
Total current income tax expense	(107		)	(359		)	(233		)
Deferred Income Tax Benefit / (Expense)
Federal	20			(1,061		)	(1,149		)
State and local	3			(182		)	(198		)
Total deferred income tax benefit / (expense)	23			(1,243		)	(1,347		)
Income tax provision	$	(84	)	$	(1,602	)	$	(1,580	)

A reconciliation of the federal income tax provision at the statutory rate to the effective rate for 2013, 2012, and 2011 is as follows:



(in thousands)	2013			2012			2011
Computed tax benefit at the federal statutory rate of 35%	$	591		$	19,069		$	4,879
State income taxes, net of federal benefit	(19		)	(57		)	(50		)
Non-deductible compensation	(91		)	(537		)	(30		)
Non-deductible expense	(113		)	(131		)	(132		)
Non-deductible goodwill impairment	1,257			(15,490		)	—
Tax on foreign income	(104		)	(252		)	(262		)
Valuation allowance	(1,686		)	(4,186		)	(6,090		)
Other	81			(18		)	105
Income tax provision	$	(84	)	$	(1,602	)	$	(1,580	)
Effective tax rate	5.0		%	2.9		%	11.3		%

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2013 and 2012 were as follows:



(in thousands)	2013			2012
Deferred Tax Assets
Provision for doubtful accounts	$	614		$	1,020
Accrued rent	1,572			1,748
Reserve for newsstand returns	100			139
Accrued compensation	4,854			10,464
Deferred revenue	1,582			1,165
NOL/credit carryforwards	62,766			59,868
Depreciation	5,374			6,071
Amortization of intangible assets	6,054			7,756
Other	208			242
Total deferred tax assets	83,124			88,473
Deferred Tax Liabilities
Prepaid expenses	(585		)	(293		)
Amortization of intangible assets	(7,094		)	(7,117		)
Total deferred tax liabilities	(7,679		)	(7,410		)
Valuation allowance	(82,539		)	(88,180		)
Net Deferred Tax Liability	$	(7,094	)	$	(7,117	)

At December 31, 2013, the Company had aggregate federal net operating loss carryforwards of $130.6 million (before-tax), which will be available to reduce future taxable income through 2033, with the majority expiring in years 2024 and 2025. The Company had federal and state tax credit and capital loss carryforwards of $3.9 million (tax effected) which begin to expire in 2014. To the extent the Company achieves positive net income in the future, the net operating loss and credits carryforwards may be utilized and the Company’s valuation allowance will be adjusted accordingly.

ASC 740 further establishes guidance on the accounting for uncertain tax positions. As of December 31, 2013, the Company had an ASC 740 liability balance of $0.06 million. Of this amount, $0.04 million represented unrecognized tax benefits, which if recognized at some point in the future would favorably impact the effective tax rate, and $0.02 million is interest. The Company treats interest and penalties due to a taxing authority on unrecognized tax positions as interest and penalty expense. Accrued interest and penalties of $0.02 million is included in the accounts payable and accrued liabilities line item on the December 31, 2013 and 2012 consolidated balance sheets. Following is a reconciliation of the Company’s total gross unrecognized tax benefits for 2013 and 2012.



(in thousands)	2013			2012
Gross balance at January 1	$	50		$	50
Additions based on tax positions related to the current year	—			—
Additions for tax positions of prior years	—			—
Reductions for tax positions of prior years	—			—
Settlements	(9		)	—
Reductions due to lapse of applicable statute of limitations	—			—
Gross balance at December 31	41			50
Interest and penalties	22			22
Balance including interest and penalties at December 31	$	63		$	72

The Company is no longer subject to U.S. federal income tax examinations by tax authorities for the years before 2005 and state examinations for the years before 2003. The Company does not anticipate that the liability will change significantly over the next 12 months.