Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Abstract]  
Income Taxes
INCOME TAXES
The components of domestic and foreign income before income taxes as of December 31, 2012, 2011 and 2010, are as follows: 
 
2012
 
2011
 
2010
 
 
 
(Restated)
 
(Restated)
Domestic
$
29,400,084

 
$
43,255,574

 
$
35,642,365

Foreign
(4,793,198
)
 
924,531

 
4,056,936

 
$
24,606,886

 
$
44,180,105

 
$
39,699,301


The income tax provision for the years ended December 31, 2012, 2011 and 2010 is as follows: 
 
2012
 
2011
 
2010
 
 
 
(Restated)
 
(Restated)
Current:
 

 
 

 
 

   Federal
$
9,135,447

 
$
(10,073,322
)
 
$
10,357,326

   State
732,514

 
(273,221
)
 
1,588,801

   Foreign
177,713

 
(277,157
)
 
280,064

 
10,045,674

 
(10,623,700
)
 
12,226,191

Deferred:
 

 
 

 
 

   Federal
(2,586,080
)
 
18,724,198

 
(741,160
)
   State
85,387

 
1,826,239

 
(368,604
)
   Foreign
(1,298,228
)
 
840,435

 
1,069,208

 
(3,798,921
)
 
21,390,872

 
(40,556
)
 
$
6,246,753

 
$
10,767,172

 
$
12,185,635


 
The Company’s deferred income tax assets and liabilities result primarily from temporary differences between financial reporting and tax recognition of depreciation, reserves, and certain accrued liabilities. Deferred income tax assets and liabilities at December 31, 2012 and 2011 consist of the following:
 
2012
 
2011
Deferred income tax assets:
 

 
 

   Compensation accruals
$
2,151,789

 
$
1,710,319

   Reserves
2,603,512

 
2,296,691

   Other accruals
1,302,684

 
541,408

   Net operating losses
267,996

 
334,033

   Interest rate swaps
3,125,847

 
2,601,154

   Credits
1,225,197

 
3,434,973

   Deferred revenue
1,336,827

 
—

Gross deferred income tax assets
12,013,852

 
10,918,578

Valuation allowance
(2,827,444
)
 
(2,869,637
)
Total deferred income tax assets
$
9,186,408

 
$
8,048,941

Deferred income tax liabilities:
 

 
 

   Depreciation
$
(26,839,863
)
 
$
(27,787,503
)
   Contract refinancing
(725,328
)
 
(1,029,451
)
   Canada
(949,850
)
 
(2,248,078
)
   Acquisition accounting
(368,878
)
 
(480,341
)
Total deferred income tax liabilities
(28,883,919
)
 
(31,545,373
)
Deferred income tax assets and liabilities, net
$
(19,697,511
)
 
$
(23,496,432
)

 The Company recorded a valuation allowance in the amount of $2,827,444 and $2,869,637 as of December 31, 2012 and 2011, respectively, related to the following items. The Company recorded a deferred tax asset relating to interest rate swaps in the amount of $2,559,448 and $2,601,154 as of December 31, 2012 and 2011, respectively. The deferred tax asset represents a future capital loss which can only be recognized for income tax purposes to the extent of capital gain income.  Although the Company anticipates sufficient future taxable income, it is more likely than not, it will not be of the appropriate character to allow for the recognition of the future capital loss. The Company recorded a deferred tax asset relating to a state net operating loss of $267,996 and $268,483 at one of its subsidiaries as of December 31, 2012 and 2011, respectively. It is more likely than not that the Company will not generate sufficient taxable income at the subsidiary level to utilize the net operating loss.
The provision for income taxes is based on the various rates set by federal and local authorities and is affected by permanent and temporary differences between financial accounting and tax reporting requirements. The following is a reconciliation of the effective tax rates for 2012, 2011 and 2010:
 
2012
 
2011
 
2010
 
 
 
(Restated)
 
(Restated)
Income before income tax
$
24,606,886

 
$
44,180,105

 
$
39,699,301

 
 
 
 
 
 
Federal statutory tax expense
$
8,612,410

 
$
15,463,037

 
$
13,894,755

State income taxes, net of federal benefit
817,901

 
1,553,018

 
1,220,197

Net state impact of deferred rate change
—

 
(259,339
)
 
—

Non deductible expenses
2,611,576

 
115,629

 
99,128

Stock-based compensation expense
336,564

 
240,557

 
12,132

Energy efficiency preferences
(7,032,798
)
 
(6,247,283
)
 
(4,246,589
)
Foreign items and rate differential
557,104

 
239,692

 
(70,656
)
Miscellaneous
343,996

 
(338,139
)
 
1,276,668

 
$
6,246,753

 
$
10,767,172

 
$
12,185,635

 
 
2012
 
2011
 
2010
 
 
 
 
(Restated)
 
(Restated)
Effective tax rate:
 
 
 
 

 
 

Federal statutory rate expense
 
35.0
 %
 
35.0
 %
 
35.0
 %
State income taxes, net of federal benefit
 
3.3
 %
 
3.5
 %
 
3.1
 %
Net state impact of deferred rate change
 
—
 %
 
(0.6
)%
 
—
 %
Non deductible expenses
 
10.6
 %
 
0.3
 %
 
0.3
 %
Stock-based compensation expense
 
1.4
 %
 
0.5
 %
 
—
 %
Energy efficiency preferences
 
(28.6
)%
 
(14.1
)%
 
(10.7
)%
Foreign items and rate differential
 
2.3
 %
 
0.5
 %
 
(0.2
)%
Miscellaneous
 
1.4
 %
 
(0.7
)%
 
3.2
 %
 
 
25.4
 %
 
24.4
 %
 
30.7
 %

 
A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits for the years ended December 31, 2012 and 2011 is as follows:
 
 
2012
 
2011
Balance, beginning of year
 
$
1,400,000

 
$
8,100,000

Additions for prior year tax positions
 
3,500,000

 
100,000

Settlements paid to tax authorities
 
—

 
—

Reductions of prior year tax positions
 
—

 
(6,800,000
)
Balance, end of year
 
$
4,900,000

 
$
1,400,000


 At December 31, 2012 and 2011, the Company had approximately $4,900,000 and $1,400,000, respectively, of total gross unrecognized tax benefits. The current year increase in unrecognized tax benefits relates primarily to identification of non deductible expenses. Of the total gross unrecognized tax benefits as of December 31, 2012 and 2011, $3,400,000 and $800,000, respectively, (both net of the federal benefit on state amounts) represent the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods.
At December 31, 2012 the Company had Federal and state net operating loss carryforwards of approximately $27,600,000 and $5,700,000, respectively, which will expire from 2014 through 2031. The portion of the Federal and state net operating loss relating to excess stock option deductions are approximately $27,600,000 and $5,700,000 respectively, the tax benefit of which will be recorded as an adjustment to additional paid in capital when realized.

At December 31, 2012 the company had a Federal tax credit carryforward of approximately $1,200,000 which will expire in 2033.  The portion of the Federal tax credit relating to excess stock option deductions is approximately $1,200,000, the tax benefit of which will be recorded as an adjustment to additional paid in capital when realized.

The tax years 2007 through 2012 remain open to examination by major taxing jurisdictions. The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for federal and state income taxes. The amount included in tax expense for 2012 is $300,000.