Income Taxes

9 Months Ended

Jun. 30, 2010

Income Taxes

Income Taxes

Note 10. Income Taxes

We base the provision for income taxes in our interim financial statements on estimated annual effective tax rates in the tax jurisdictions where we operate. Our effective tax rates differ from the U.S. federal statutory rate primarily due to the tax impact of nondeductible compensation, research and development ("R&D") tax credits, nondeductible acquisition costs, state taxes, foreign operations, and transfer pricing adjustments. If actual results differ from the assumptions used in estimating our annual effective income tax rates, future income tax expense could be materially affected.

For the three months ended June 30, 2011 and 2010, our effective tax rate was 182.45% and 43.95%. For the nine months ended June 30, 2011 and 2010, our effective tax rate was 178.32% and 38.50%. The increase in the effective tax rate for the three and nine months of 2011 compared to the same periods of the prior year is primarily the result of nondeductible compensation and mark to market related to the TripIt acquisition, the decrease in pre-tax income from 2010, nondeductible acquisition costs, and partially offset by an increase in R&D development credits (the U.S. federal R&D tax credit was retroactively reinstated in the first quarter of 2011) and a decrease in the earnings from tax jurisdictions with higher statutory rates in which we operate.

We measure and recognize uncertain tax positions. To recognize such positions we first determine if it is more likely than not that the position will be sustained on audit. We then measure the benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. Since we are in a net operating loss position for those positions that require a reserve we do not include interest and penalties related to our contingencies in our income tax expense.

Prior Period Correction

During the first quarter of 2011, we discovered an incorrect assumption related to the tax deductibility of certain operating expenses which resulted in an understatement of the provision for income taxes reported in prior periods. This error had no impact on previously reported cash flows from operating, financing or investing activities and was considered to be immaterial to our previously reported results of operations and financial position. Since the cumulative impact of this error is significant to the results of the first, second and third quarter of 2011 respectively, we applied the guidance of Staff Accounting Bulletin No. 108 ("SAB 108") and corrected the prior period financial statements, even though such revision previously was, and continues to be, immaterial to the prior period financial statements.

The following is an income statement reconciliation of the comparable period for the three months ended June 30, 2010:

		$3,634		$3,634			$3,634		$3,634
	Income  Taxes Expense		Net Income			Basic Net Income  Per Share		Diluted Net Income Per Share
Reported	$	2,741	$	3,743		$	0.07	$	0.07
Adjustment		109		(109	)		—	$	—
Revised	$	2,850	$	3,634		$	0.07	$	0.07

The following is an income statement reconciliation of the comparable period for the nine months ended June 30, 2010:

	Income  Taxes Expense		Net Income			Basic Net Income  Per Share			Diluted Net Income Per Share
Reported	$	10,180	$	17,112		$	0.35		$	0.32
Adjustment		327		(327	)		(0.01	)	$	—
Revised	$	10,507	$	16,785		$	0.34		$	0.32

The following is a reconciliation of balance sheet amounts as of September 30, 2010:

	Deferred Costs and Other Assets			Deferred Tax Assets			Additional  paid-in capital		Accumulated Deficit
Reported	$	26,671		$	13,601		$	739,772	$	(98,570	)
Adjustment		(31	)		(926	)		9		(966	)
Revised	$	26,640		$	12,675		$	739,781	$	(99,536	)