Income Taxes

3 Months Ended

Mar. 31, 2012

Income Taxes [Abstract]

Income Taxes

4.    Income Taxes

The Company’s income is taxed in the United States of America and various state jurisdictions.  Our federal returns for 2008 and each subsequent year are presently subject to further examination by the Internal Revenue Service.  State returns are filed in most state jurisdictions, with varying statutes of limitations.

The Company calculates income taxes in accordance with US GAAP which requires that, for interim periods, we project full-year income and permanent differences between book income and taxable income in order to calculate an effective tax rate for the entire year.  The projected effective tax rate is used to calculate our income tax provision or benefit for the interim periods’ year-to-date financial results.  Deferred tax assets and liabilities are measured using the tax rates, based on certain judgments regarding enacted tax laws and published guidance, in effect in the years when those temporary differences are expected to reverse. A valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized.  The calculation of the deferred tax assets and liabilities, as well as the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance require management to make estimates and assumptions. We believe that our assumptions and estimates are reasonable, although actual results may have a positive or negative material impact on the balances of deferred tax assets and liabilities, valuation allowances or net income (loss).  Only the assumptions and estimates for the calendar year 2012 are used to determine the reasonableness of the Company’s deferred tax assets and liabilities as of the period ended March 31, 2012.  Due to the operating results in the first quarter of 2012 and our projections for 2012, an adjustment to our valuation allowance was determined to be necessary.  Therefore, for the three months ended March 31, 2012, the Company increased its valuation allowance by $1.2 million, bringing the total valuation allowance relating to federal and state deferred tax assets to $13.2 million.

For the three months ended March 31, 2012, our effective tax rate was (1.0)% compared to 10.6% for the same period in 2011.   The difference in the effective tax rates in these two periods is attributable to the valuation allowance that was recorded at December 31, 2011 and increased at March 31, 2012.  Due to the valuation allowance, any federal tax expense or benefit generated in 2012 will have no net effect on the income tax provision.  The tax expense recorded for the three months ended March 31, 2012 relates solely to state tax expense.