General form of registration statement for all companies including face-amount certificate companies

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Dec. 31, 2010
Income Tax Disclosure [Text Block]
8.
INCOME TAXES.

The asset and liability method is used to account for income taxes. Under this method, deferred tax assets and liabilities are recognized for tax credits and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that those assets will be realized.

The Company files a consolidated federal income tax return. This return includes all corporate companies 80% or more owned by the Company as well as the Company’s pro-rata share of taxable income from pass-through entities in which the Company holds an ownership interest. State tax returns are filed on a consolidated, combined or separate basis depending on the applicable laws relating to the Company and its subsidiaries.

The Company recorded no provision for income taxes for the years ended December 31, 2010 and 2009.

A reconciliation of the differences between the United States statutory federal income tax rate and the effective tax rate as provided in the consolidated statements of operations is as follows:

   
Years Ended December 31,
 
   
2010
   
2009
 
Statutory rate
    (35.0 %)     (35.0 %)
State income taxes, net of federal benefit
    (4.9 )     (5.4 )
Stock compensation
    (1.8 )     0.0  
Change in valuation allowance
    41.5       40.2  
Other
    0.2       0.2  
Effective rate
    0.0 %      0.0 % 

Deferred income taxes are provided using the asset and liability method to reflect temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities using presently enacted tax rates and laws. The components of deferred income taxes included in the consolidated balance sheets were as follows (in thousands):

   
December 31,
 
   
2010
   
2009
 
Deferred tax assets:
           
Net operating loss carryforward
  $ 144,814     $ 97,043  
Capital loss carryover
    7,180       —  
Convertible notes and warrants
    4,520       —  
Stock-based compensation
    3,446       3,309  
Impairment of asset group
    —       100,661  
Deferred financing costs
    —       5,476  
Investment in partnerships
    —       4,365  
Derivative instruments mark-to-market
    —       1,157  
Other accrued liabilities
    231       161  
Other
    279       918  
Total deferred tax assets
    160,470       213,090  
                 
Deferred tax liabilities:
               
Intangibles
    (1,901 )     (2,088 )
Investment in New PE Holdco
    (756 )     —  
Fixed assets
    (191 )     (22,681 )
Total deferred tax liabilities
    (2,848 )     (24,769 )
                 
Valuation allowance
    (158,713 )     (189,412 )
Net deferred tax liabilities
  $ (1,091 )   $ (1,091 )
                 
Classified in balance sheet as:
               
Deferred income tax benefit (current assets)
  $ —     $ —  
Deferred income taxes (long-term liability)
    (1,091 )     (1,091 )
    $ (1,091 )   $ (1,091 )

At December 31, 2010 and 2009, the Company had federal net operating loss carryforwards of approximately $373,623,000 and $255,706,000, and state net operating loss carryforwards of approximately $388,479,000 and $260,792,000, respectively. These net operating loss carryforwards expire at various dates beginning in 2013. The deferred tax asset for the Company’s net operating loss carryforwards at December 31, 2010 does not include $5,420,000 which relates to the tax benefits associated with warrants and non-statutory options exercised by employees, members of the board and others under the various incentive plans. These tax benefits will be recognized in stockholders’ equity (deficit) rather than in the statements of operations but not until the period in which these amounts decrease taxes payable.

A portion of the Company’s net operating loss carryforwards will be subject to provisions of the tax law that limit the use of losses incurred by a company prior to becoming a member of a consolidated group as well as losses that existed at the time there is a change in control of an enterprise. The amount of the Company’s net operating loss carryforwards that would be subject to these limitations was approximately $76,928,000 at December 31, 2010.

In assessing whether the deferred tax assets are realizable, a more likely than not standard is applied. If it is determined that it is more likely than not that deferred tax assets will not be realized, a valuation allowance must be established against the deferred tax assets. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the associated temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

A valuation allowance has been established in the amount of $158,713,000 and $189,412,000 at December 31, 2010 and 2009, respectively, based on Company’s assessment of the future realizability of certain deferred tax assets. For the years ended December 31, 2010 and 2009, the Company recorded an increase (decrease) in the valuation allowance of $(30,699,000) and $124,034,000, respectively. The valuation allowance on deferred tax assets is related to future deductible temporary differences and net operating loss carryforwards (exclusive of net operating losses associated with items recorded directly to equity) for which the Company has concluded it is more likely than not that these items will not be realized in the ordinary course of operations.

At December 31, 2010, the Company had no increase or decrease in unrecognized income tax benefits for the year as a result of tax positions taken in a prior or current period. There was no accrued interest or penalties relating to tax uncertainties at December 31, 2010. Unrecognized tax benefits are not expected to increase or decrease within the next twelve months.

The Company is subject to income tax in the United States federal jurisdiction and various state jurisdictions and has identified its federal tax return and tax returns in state jurisdictions below as “major” tax filings. These jurisdictions, along with the years still open to audit under the applicable statutes of limitation, are as follows:

Jurisdiction
Tax Years
Federal
2007 – 2009
California
2006 – 2009
Colorado
2006 – 2009
Idaho
2007 – 2009
Nebraska
2007 – 2008
Oregon
2007 – 2009
Wisconsin
2006 – 2008

However, because the Company had net operating losses and credits carried forward in several of the jurisdictions, including the United States federal and California jurisdictions, certain items attributable to closed tax years are still subject to adjustment by applicable taxing authorities through an adjustment to tax attributes carried forward to open years.