Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

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Income Taxes
9 Months Ended
Sep. 30, 2013
Income Taxes [Abstract]  
Income Taxes
6. Income Taxes
 
During the three and nine months ended September 30, 2013, our income tax expense consisted of federal and state alternative minimum taxes. Our effective income tax rate differs from the statutory income tax rate primarily as a result of our use of net operating losses to offset current federal and state income taxes. We evaluated the appropriateness of our deferred tax assets and related valuation allowance in accordance with ASC 740 based on all available positive and negative evidence.  A valuation allowance is recorded against a portion of our gross deferred tax assets as we have determined the realization of these assets does not meet the more likely than not criteria.  In making that determination, we considered the available positive and negative evidence, including our recent earnings trend, expected future taxable income and the federal and state effective tax rates related to future taxable income.
 
On March 6, 2012, we entered into a binding agreement with PSI Systems, Inc. (“PSI”) to resolve all outstanding patent litigation among the parties (see Note 2 – Legal Proceedings on our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012). Because of the PSI litigation settlement during the first quarter of 2012, we eliminated what had previously been negative evidence.  The litigation settlement became positive evidence because (1) it eliminated the hard-to-predict fluctuations in litigation expenditures which we expected to be material in future forecasts, (2) it eliminated the potential for a material negative financial judgment against us and (3) it eliminated the possibility of an injunction against us.  We believe the other positive and negative evidence we evaluated is consistent (e.g., no material change has occurred) relative to our evaluation of this evidence in prior periods.  Based on this discrete event, we extended our forecast of projected taxable income from two years to three years for the portion of our deferred tax asset for which it is more likely than not that a tax benefit will be realized under ASC 740 as of March 31, 2012.  As a result, we released a portion of our valuation allowance totaling $11.9 million during the first quarter of 2012. As of September 30, 2013, we continued to maintain a valuation allowance for the remainder of our gross deferred tax assets.
 
We recorded income tax expense for corporate alternative minimum U.S. federal and state taxes of approximately $90,000 and $180,000 during the three and nine months ended September 30, 2013, respectively. We recorded income tax expense for corporate alternative minimum U.S. federal and state taxes of approximately $230,000 and $394,000 during the three and nine months ended September 30, 2012, respectively.