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Income Taxes
9 Months Ended
Sep. 30, 2011
Income Taxes [Abstract] 
Income Tax Disclosure [Text Block]
Income Taxes
For the nine months ended September 30, 2011, income taxes were calculated using the liability method. The provision for income taxes reflects the Company's estimate of the effective rate expected to be applicable for the full fiscal year, adjusted by any discrete events, which are reported in the period in which they occur. This estimate is re-evaluated each quarter based on our estimated tax expense for the year.
We recorded an income tax provision of $10.1 million and $3.7 million for the three months ended September 30, 2011 and 2010, respectively, representing effective income tax rates of 38% and 31%, respectively. We recorded an income tax provision of $17.4 million and $5.1 million for the nine months ended September 30, 2011 and 2010, respectively, representing effective income tax rates of 19% and 30%, respectively. Our effective income tax rate during the three and nine months ended September 30, 2010 differs from the 35% statutory rate primarily due to the changes in our liability for uncertain tax positions, state income taxes (net of federal benefit), the effect of foreign operations and items not deductible for tax, including those related to certain costs the Company incurred in connection with the acquisition of i2 Technologies, Inc. during first quarter 2010. Our effective income tax rate during the three and nine months ended September 30, 2011 differs from our statutory rate of 35% primarily due to the mix of revenue by jurisdiction, state income taxes (net of federal benefit) and the tax benefits related to a specified tax deduction that offsets a substantial portion of our litigation settlements received in the first quarter as well as settlement of foreign tax liabilities in the second quarter 2011.
As of September 30, 2011 approximately $12.3 million of unrecognized tax benefits would impact our effective tax rate if recognized. It is reasonably possible that approximately $4.9 million of unrecognized tax benefits will be recognized within the next twelve months. We have placed a valuation allowance against the Arizona research and development credit as well as certain State net operating losses as we do not expect to be able to utilize them prior to their expiration.
We treat interest and penalties related to uncertain tax positions as a component of income tax expense. We have accrued interest and penalties related to uncertain tax positions of $0.3 million and $0.2 million in the nine months ended September 30, 2011 and 2010, respectively. As of September 30, 2011 and December 31, 2010 there are approximately $3.4 million and $3.0 million, respectively, of interest and penalty accruals related to uncertain tax positions which are reflected in the consolidated balance sheet under the caption "Liability for uncertain tax positions." To the extent interest and penalties are not assessed with respect to the uncertain tax positions, the accrued amounts for interest and penalties will be reduced and reflected as a reduction of the overall tax provision.
We conduct business globally and, as a result, JDA Software Group, Inc. or one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business we are subjected to examination by taxing authorities throughout the world, including the United States, the United Kingdom, and India. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2004 due to the expiration of the statute of limitations. We are currently under audit by the Internal Revenue Service for the 2010 tax year and various other years in India. The finalization of these audits has not yet occurred; however, we do not anticipate any material adjustments.
We have participated in the Internal Revenue Service's Compliance Assurance Program (“CAP”) since 2007. The CAP program was developed by the Internal Revenue Service to allow for transparency and to remove uncertainties in tax compliance. The Internal Revenue Service has completed their audit of our tax returns prior to 2009 and no material adjustments have been made as a result of these examinations.