INCOME TAXES

3 Months Ended

Mar. 31, 2012

INCOME TAXES

INCOME TAXES

NOTE C — INCOME TAXES

The Company’s statutory federal tax rate is 35%. State tax rates vary among states and average approximately 6.0% to 6.5% although some state rates are much higher and a small number of states do not impose an income tax. The effective tax benefit rates for the three months ended March 31, 2012 and 2011 were 19.4% and 36.5%, respectively. Due to the volatile economy and operating environment, the Company has experienced changes in operating conditions and financial results which have contributed to a large range in the estimate of the annual effective tax rate. Consequently, the income tax benefit for the period was recognized using the year-to-date method. The difference between the Company’s effective tax rate and the federal statutory rate primarily resulted from the effect of state income taxes, nondeductible expenses, changes in the cash surrender value of life insurance and policy proceeds, the alternative fuel tax credit and changes in valuation allowances for deferred tax assets. The most significant factor in the lower tax benefit rate for the three months ended March 31, 2012, compared to the same period of 2011, was an increase in the valuation allowance for deferred tax assets of $4.7 million.

Under generally accepted accounting principles (“GAAP”), the Company must conclude that realization of deferred tax assets is more likely than not in order to avoid recording a valuation allowance for the assets. Various factors must be considered in evaluating the likelihood of realization of these assets. The factors prescribed by GAAP that enter into this determination include whether the Company has taxable income in prior carryback years, the availability of tax planning strategies which would result in realization of deferred tax assets and whether future taxable income will be sufficient to make realization of the deferred tax assets more likely than not. The Company considered these factors in the evaluation of whether realization of deferred tax assets is more likely than not. The Company has no taxable income in recent carryback years and has incurred financial statement losses from operations in recent years, excluding 2011 which was profitable although the amount of operating income was not substantial. For certain types of expenses, a longer carryback period is available by election and that strategy has been considered in the Company’s evaluation of the realizability of deferred tax assets. Recent operating results, including the loss incurred in first quarter 2012, along with the generally weak economy and the Company’s overall operating environment, make projections of future operating results difficult and inherently uncertain. While the Company believes that the deferred tax assets are substantially realizable, the evidence supporting that realization for a portion of those assets does not rise to the level necessary to satisfy the GAAP standard of more likely than not. The Company evaluated the total deferred tax asset under the GAAP requirement and concluded the asset exceeded the amount for which realization is more likely than not, resulting in the increase in the valuation allowance.

During the three months ended March 31, 2012, the Company received refunds of $2.1 million of federal and state taxes paid in prior years, primarily from loss carrybacks, and the Company paid state and foreign income taxes of $0.2 million.