Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

Income Taxes

8. Income Taxes

The effective tax rates for the three months ended September 30, 2011 and 2010 were 33.3% and 42.0%, respectively. The effective tax rates for the nine months ended September 30, 2011 and 2010 were 36.9% and 41.1%, respectively. As of December 31, 2010, the Company had $20.7 million of gross unrecognized tax benefits. During the nine months ended September 30, 2011, the Company had an increase in gross unrecognized tax benefits of approximately $5.6 million. The gross unrecognized tax benefits, if recognized by the Company, will result in a reduction of approximately $21.0 million to the provision for income taxes thereby favorably impacting the Company's effective tax rate. The Company's unrecognized tax benefits are classified as "Other non-current liabilities" in the consolidated balance sheet. Income tax benefits attributable to the exercise of employee stock options of $11.6 million and $16.1million, during the three month period ended September 30, 2011 and 2010, respectively, were recorded directly to additional paid-in capital. Income tax benefits attributable to the exercise of employee stock options of $45.0 million and $34.6 million, during the nine month period ended September 30, 2011 and 2010, respectively, were recorded directly to additional paid-in capital.

The Company includes interest and penalties related to unrecognized tax benefits within the provision for income taxes. As of September 30, 2011, the total amount of gross interest and penalties accrued was $1.8 million, which is classified as "Other non-current liabilities" in the consolidated balance sheet.

The Company files U.S. federal and state tax returns. The Company is currently under examination by the IRS for the years 2008 and 2009, and the year 2010 remains subject to examination by the IRS. The statute of limitations for years 1997 through 2007 expired in September 2011 which resulted in a discrete benefit of approximately $3.5 million in the three months ended September 30, 2011. The Company is currently under examination by the state of California for the years 2006 and 2007. The years 1997 through 2005, as well as 2008 through 2010, remain subject to examination by the state of California.

Given the potential outcome of the current examinations, it is reasonably possible that the balance of unrecognized tax benefits could significantly change within the next twelve months. However, at this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.