Schedule II Deferred tax valuation accounts (Tables)

12 Months Ended

Dec. 31, 2012

Income Taxes

The income tax benefit from continuing operations consists of the following:



	Years Ended December 31,
	2012			2011
Current tax provision:
Federal	$	—		$	—
State	76			249
Total current tax provision	76			249

Deferred tax (benefit) provision:
Federal	(13,711		)	(19,358		)
State	(1,561		)	(3,632		)
Total deferred tax (benefit) provision	(15,272		)	(22,990		)
Total income tax (benefit) provision	$	(15,196	)	$	(22,741	)

The income tax benefit from continuing operations of $15,196 for the year ended December 31, 2012 is primarily the result of income tax benefits of $43,912 from the losses from continuing operations before taxes of $161,888, partially offset by a valuation allowance of $28,716. The tax benefit includes $8,252 related to the reduction of our deferred tax liability as a result of the impairment of goodwill. The income tax benefit for continuing operations of $22,741 for the year ended December 31, 2011 was primarily the result of purchase price adjustments which will provide a future source of taxable income enabling us to utilize our net operating losses and the release of our December 31, 2010 valuation allowance.

Reconciliations of the difference between income taxes from continuing operations computed at the statutory federal rate, and provision for income taxes for the years ended December 31, 2012 and 2011, are as follows:



	Years Ended December 31,
	2012		2011
Statutory rate	35.0	%	35.0	%
Change in valuation allowance	(17.7	)	27.0
Goodwill impairment	(7.8	)	—
Return to provision true-up	(0.9	)	3.1
24/7 Formats transaction	—		5.4
Refinancing of long-term debt	—		2.0
Transaction fees	—		(2.0	)
State taxes, net of federal benefits	—		0.6
Other	0.8		0.1
	9.4	%	71.2	%

The primary components of temporary differences which give rise to deferred taxes and deferred liabilities are as follows:



	December 31, 2012			December 31, 2011
Deferred tax assets
Capital loss	$	13,526		$	13,735
Net operating losses	58,010			54,123
Accrued interest	3,329			2,737
Restructuring	2,477			1,637
Transaction fees	339			79
Stock-based compensation	3,452			977
Deferred rent	833			380
Allowance for bad debt	453			725
Investment impairment	449			462
Other	6,708			343
Total deferred tax assets	89,576			75,198
Deferred tax liabilities
Depreciation	(4,366		)	(4,602		)
Intangible assets	(31,166		)	(49,148		)
Deferred cancellation of indebtedness	(12,230		)	(23,502		)
Accrued expense and other	(168		)	(674		)
Total deferred tax liabilities	(47,930		)	(77,926		)

Valuation allowance	(41,646		)	(12,930		)
Net deferred tax liability	$	—		$	(15,658	)
Net deferred tax asset — current	1,202			1,961
Net deferred tax (liability) — non-current	$	(1,202	)	$	(17,619	)

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that either some portion or the entire deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, tax-planning strategies, and available carry-back capacity in making this assessment. Based on this evidence, we have recorded a valuation allowance of approximately $28,716 for the year ended December 31, 2012. The recording of the valuation allowance was the primary cause of the variance between the statutory rate and our effective tax rate.

At December 31, 2012, we had net operating loss carry-forwards ("NOLs") available to offset future taxable income of $145,769 for federal, and $99,976 for various state, tax returns. The NOLs expire in various amounts starting from 2018 to 2032.

Subsequent to December 31, 2012, on February 28, 2013 we entered into a number of agreements that may significantly change our capital structure, which may result in an ownership change, as defined under Section 382 of the Internal Revenue Code ("IRC"). Consequently, the amount of NOLs available to be used in future years may possibly be limited under IRC Section 382. When the recapitalization is completed on April 15, 2013, we will be better able to determine how much, if any, of the NOLs are available to be used in the future.

The authoritative guidance associated with the accounting for uncertainty in income taxes recognized in an enterprise's financial statements prescribes a recognition threshold and measurement attribute for the recognition and measurement of a tax position taken or expected to be taken in a tax return. The evaluation of a tax position in accordance with this interpretation is a two-step process. The first step is recognition, in which the enterprise determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The second step is measurement. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of the liability to recognize in the financial statements.

Unrecognized tax benefit activity is as follows:



	Unrecognized Tax Benefit
Assumption of Westwood unrecognized tax benefits upon acquisition	$	2,858
Additions for current period tax positions	31
Balance at December 31, 2011	2,889
Additions for prior period tax positions	401
Expiration of statute of limitations and audit settlements	(46		)
Balance at December 31, 2012	$	3,244

As of December 31, 2012, the total amount of federal, state, and local unrecognized tax benefits was $3,244, which includes interest of $1,279. The amount of unrecognized benefit that we estimate will be reversed in the next year is $1,146. Substantially all our unrecognized tax benefits, if recognized, would affect the effective tax rate. We are currently under audit for our 2009 U.S. federal income tax return.

We determined, based upon the weight of available evidence, that it is more likely than not that our tax positions will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the positions. Therefore, no reserve had been previously accrued until the acquisition of Westwood. We classify interest expense and penalties related to unrecognized tax benefits as income tax expense. The accrued interest and penalties at December 31, 2012 and 2011 were $1,279 and $1,200, respectively. For the years ended December 31, 2012 and 2011, we recognized $79 and $31 of interest and penalties, respectively.

Income Tax Valuation Accounts



Years Ended December 31,	Balance at Beginning of Period	Additions Charged to Costs and Expenses	Deductions Write-offs and Other Adjustments	Balance at End of Period
2012	12,930	28,716	—	41,646
2011	2,614	8,639	1,677	12,930

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 109

-Paragraph 136, 172

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 235

-SubTopic 10

-Section S99

-Paragraph 1

-Subparagraph (SX 210.4-08.(h))

-URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690

Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

-Name Regulation S-X (SX)

-Number 210

-Section 08

-Paragraph h

-Article 4

Reference 4: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 740

-SubTopic 10

-Section 50

-Paragraph 15

-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319

Reference 5: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 109

-Paragraph 43, 44, 45, 46, 47, 48, 49

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 6: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 740

-SubTopic 10

-Section 50

-Paragraph 2

-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319

Reference 7: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 740

-SubTopic 10

-Section 50

-Paragraph 9

-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319

Reference 8: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 740

-SubTopic 10

-Section 50

-Paragraph 3

-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319

+ Details

DIAL GLOBAL, INC. /DE/ 10-K