INCOME TAXES

12 Months Ended

Dec. 31, 2011

INCOME TAXES

INCOME TAXES

10. INCOME TAXES

        The income tax provision (benefit) attributable to continuing operations and discontinued operations for the years ended December 31 is as follows (amounts in thousands):

	2011		2010		2009
Income tax provision/(benefit)
Continuing operations	$	9,586	$	18,751	$	20,556
Discontinued operations		—		—		25
	$	9,586	$	18,751	$	20,581

        The following table presents the domestic and foreign components of pretax income and recorded income tax expense attributable to continuing operations for the years ended December 31 (amounts are in thousands):

	2011		2010		2009
Components of pre-tax income
Domestic	$	18,705	$	35,838	$	53,717
Foreign		10		463		377
Consolidated	$	18,715	$	36,301	$	54,094
Provision/(benefit) for income tax
Domestic	$	9,528	$	17,680	$	20,616
Foreign		58		1,040		(29	)
Consolidated		9,586		18,720		20,587
Income tax provision/(benefit) from minority ownership loss		—		31		(31	)
Provision for income tax, as reported	$	9,586	$	18,751	$	20,556

        The Company's income tax provision attributable to income from continuing operations before income tax consists of the following components as of December 31 (amounts in thousands):

	2011		2010		2009
Current	$	334	$	1,283	$	1,001
Deferred		9,252		17,468		19,555
Total provision for income tax	$	9,586	$	18,751	$	20,556

        The reconciliation between the Company's effective tax rate on income from continuing operations and the statutory tax rate for the years ended December 31 is as follows:

	2011			2010			2009
Effect of:
Federal statutory rate		35.0	%		35.0	%		35.0	%
Foreign provision		0.1	%		(0.1	)%		(0.3	)%
State/province income tax		2.4	%		1.7	%		2.6	%
Non-deductible compensation cost		7.8	%		2.4	%		1.9	%
Change in valuation allowance		2.1	%		(4.1	)%		1.0	%
Adjustment to carrying value		3.6	%		0.0	%		(2.3	)%
Foreign dividends and IRC Sec. 956 inclusions, net of foreign tax deduction		0.2	%		14.7	%		0.0	%
Non-deductible expenses and other items		0.0	%		2.1	%		0.1	%
Effective tax rate		51.2	%		51.7	%		38.0	%

        The following table outlines the principal components of deferred tax items at December 31 (amounts in thousands):

	2011			2010		2009
Deferred tax assets related to:
Intangibles	$	82,088		$	102,598	$	121,710
Net operating losses		29,733			16,576		11,370
Stock compensation expense		5,412			4,768		3,912
Accounts receivable allowances		2,770			6,675		7,421
Accrued and prepaid expenses		702			300		586
Other		492			734		472
Property, equipment and leasehold improvements		—			235		614
Foreign tax credits		—			—		4,297
Valuation allowance		(905	)		—		(1,475	)
Total deferred income tax assets	$	120,292		$	131,886	$	148,907
Deferred tax liabilities related to:
Property, equipment and leasehold improvements	$	242		$	—	$	—
Other		512			339		143
Total deferred income tax liabilities	$	754		$	339	$	143
Deferred income taxes, net	$	119,538		$	131,547	$	148,764

        For all of our investments in foreign subsidiaries, except for GCA (Macau), S.A. ("GCA Macau") and one-time repatriation events in 2010, deferred taxes have not been provided on unrepatriated foreign earnings. Unrepatriated earnings as of December 31, 2011, are approximately $3.2 million. These earnings are considered permanently reinvested, as it is management's intention to reinvest foreign earnings in foreign operations. The Company projects that it will have sufficient cash flow in the U.S. and does not need to repatriate these foreign earnings to finance U.S. operations.

        As a result of certain realization requirements under the FASB guidance on share-based payments, the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets at December 31, 2011, 2010 and 2009 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Equity will be increased by $1.7 million if and when such deferred tax assets are ultimately realized. The Company uses the FASB guidance on income taxes ordering for purposes of determining when excess tax benefits have been realized.

        The Company paid foreign taxes of $7.0 million in prior years related to the former UK branch and the one-time repatriation events in 2010. Due to the uncertainty of future foreign source and taxable income, the Company elected to deduct these foreign taxes. In making such determination, we considered all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, projected future foreign source income, tax planning strategies and recent financial operations. These assumptions required significant judgment about the forecasts of future taxable and foreign source income.

        As of December 31, 2011, the Company has approximately $83.0 million accumulated federal net operating losses. The net operating losses can be carried forward and applied to offset taxable income for 20 years and will expire starting in 2025.

        The Company has state net operating loss carry forwards which will expire in 2012 through 2031. The determination and utilization of these state net operating loss carry forwards are dependent upon apportionment percentages and other respective state laws, which can change from year to year. As of December 31, 2011, the Company has approximately $2.3 million accumulated state net operating losses. We have a valuation allowance of $0.8 million related to certain state net operating loss carry forwards, which are expected to expire before utilization, due to shorter carry forward periods and decreased apportionment percentages in those states.

        At December 31, 2011, we had a net deferred income tax asset of $119.5 million. We recognized a deferred tax asset upon our conversion from a limited liability company to a corporation on May 14, 2004. Prior to that time, all tax attributes flowed through to the members of the limited liability company. The principal component of the deferred tax asset is a difference between our assets for financial accounting and tax purposes. This difference results from a significant balance of acquired goodwill of approximately $687 million that was generated as part of the conversion to a corporation plus approximately $98 million in pre-existing goodwill carried over from periods prior to the conversion. Both of these assets are recorded for tax purposes but not for accounting purposes. This asset is amortized over 15 years for tax purposes, resulting in annual pretax income being $52.3 million lower for tax purposes than for financial accounting purposes. At an estimated blended domestic effective tax rate of 36.1%, this results in tax payments being approximately $18.9 million less than the annual provision for income taxes shown on the income statement for financial accounting purposes, or the amount of the annual provision, if less. There is an expected aggregate of $138.6 million in cash savings over the remaining life of the portion of our deferred tax asset related to the conversion. This deferred tax asset may be subject to certain limitations. We believe that it is more likely than not that we will be able to utilize our deferred tax asset, exclusive of a small amount of charitable contribution carry forwards (which expire in 2015 and 2016 if not utilized), and certain state and foreign net operating loss carry forwards. However, the utilization of this tax asset is subject to many factors beyond our control including our earnings, a change of control of the Company and future estimations of earnings.

        The Company has analyzed filing positions in all of the federal, state and foreign jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company believes that its income tax filing positions and deductions will be sustained upon audit and does not anticipate any adjustments that will result in a material change to its financial position. We may from time to time be assessed interest or penalties by tax jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. The Company's policy for recording interest and penalties associated with audits and unrecognized tax benefits is to record such items as a component of income tax expenses.

        The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. The Company is currently under examination by the state of New York for 2006 through 2008. The Company has a number of federal and state income tax years still open for examination as a result of the net operating loss carry forwards. Accordingly, the Company is subject to examination for both U.S. federal and a few state tax returns for the years 2005 to present. For the remaining state, local and foreign jurisdictions, with few exceptions, the Company is no longer subject to examination by tax authorities for years before 2008.