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Income Taxes
12 Months Ended
Dec. 31, 2011
Income Taxes  
Income Taxes

(9)       Income Taxes

 

The components of income before income taxes and income tax expense for the years ended December 31, 2011, 2010 and 2009 are as follows (in thousands):

 

 

 

Years ended December 31,

 

 

 

2011

 

2010

 

2009

 

Income (loss) before income taxes:

 

 

 

 

 

 

 

Domestic

 

$

21,976

 

$

17,452

 

$

3,642

 

Foreign

 

6,415

 

3,400

 

(247

)

Total income before income taxes

 

$

28,391

 

$

20,852

 

$

3,395

 

 

 

 

 

 

 

 

 

Income tax expense:

 

 

 

 

 

 

 

Current:

 

 

 

 

 

 

 

Federal

 

$

6,753

 

$

4,633

 

$

829

 

State and local

 

1,734

 

1,095

 

900

 

Foreign

 

1,765

 

1,328

 

994

 

Total current

 

10,252

 

7,056

 

2,723

 

Deferred:

 

 

 

 

 

 

 

Federal

 

426

 

1,023

 

2,088

 

State and local

 

64

 

149

 

(23

)

Foreign

 

(211

)

(108

)

(203

)

Total deferred

 

279

 

1,064

 

1,862

 

Total income tax expense

 

$

10,531

 

$

8,120

 

$

4,585

 

 

The difference between the expense for income tax expense computed at the statutory rate and the reported amount of income tax expense is as follows:

 

 

 

December 31,

 

 

 

2011

 

2010

 

2009

 

Federal income tax rate

 

35.0

%

35.0

%

35.0

%

State and local taxes net of federal benefit

 

4.1

 

3.8

 

5.4

 

Foreign taxes

 

(1.2

)

2.2

 

3.6

 

Permanent differences

 

2.1

 

(0.6

)

1.7

 

Valuation allowance adjustments

 

0.1

 

(0.5

)

(0.4

)

Reduction of uncertain tax position liability

 

(3.1

)

 

 

Effect of goodwill impairment loss

 

 

 

90.0

 

Other

 

0.1

 

(1.0

)

(0.2

)

 

 

 

 

 

 

 

 

Effective tax rate

 

37.1

%

38.9

%

135.1

%

 

Uncertain Tax Positions

 

During the fourth quarter of 2011, we recognized an income tax benefit of $891,000 on the reduction of an uncertain tax position liability relating to a period that is now outside the applicable statute of limitations. The income tax benefit included an $800,000 reduction in the uncertain tax position liability and the reversal of $91,000 of accrued interest and penalties. Excluding the impact of this income tax benefit, our effective income tax rate was 40.2% for the year ended December 31, 2011 compared to an effective rate of 38.9% for the year ended December 31, 2010.

 

As of December 31, 2011, we had $1,418,000 of unrecognized tax benefits, all of which would favorably impact the effective tax rate if recognized. This liability is included in other long-term liabilities in the consolidated balance sheet. We expect that the liability for unrecognized tax benefits will decrease by $1,418,000 during the year ended December 31, 2012 as the statute of limitations on the related tax position is due to run. We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. For the years ended December 31, 2011, 2010 and 2009 we recognized $(6,000), $93,000 and $73,000, respectively, of interest expense (income) related to these tax positions which is reflected within income tax expense in the consolidated statements of operations. As of December 31, 2011, we had $160,000 of accrued interest related to these tax positions. We and our subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions.  With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examination by tax authorities for years prior to 2002.

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest, is as follows (in thousands):

 

 

 

Years ended December 31,

 

 

 

2011

 

2010

 

2009

 

Unrecognized tax benefits at beginning of the year

 

$

2,218

 

$

2,218

 

$

2,218

 

Additions related to current year tax positions

 

 

 

 

Additions related to prior year tax positions

 

 

 

 

Settlements

 

 

 

 

Reductions due to lapse of statute of limitations

 

(800

)

 

 

Unrecognized tax benefits at end of the year

 

$

1,418

 

$

2,218

 

$

2,218

 

 

Deferred Income Taxes

 

The tax effects of temporary differences between the financial reporting and tax basis of assets and liabilities that are included in the net deferred tax assets and liabilities are summarized as follows (in thousands):

 

 

 

December 31,

 

 

 

2011

 

2010

 

Deferred tax assets:

 

 

 

 

 

Allowance for doubtful accounts

 

$

380

 

$

273

 

Accrued liabilities

 

1,363

 

926

 

Stock-based compensation expense

 

1,174

 

811

 

Net federal, state and foreign operating loss carryforwards

 

465

 

855

 

Deferred tax assets

 

3,382

 

2,865

 

Deferred tax liabilities:

 

 

 

 

 

Intangible assets, property and equipment, principally due to difference in depreciation and amortization

 

5,709

 

3,828

 

Net deferred tax liabilities

 

(2,327

)

(963

)

Less valuation allowance

 

(326

)

(701

)

Net deferred tax liabilities, net of valuation allowance

 

$

(2,653

)

$

(1,664

)

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets may not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon these factors, management believes it is more likely than not that the Company will realize the benefits of deferred tax assets, net of the valuation allowance.

 

As of December 31, 2011, we had utilized all of our available credit carryovers for Federal tax purposes. In addition, as of December 31, 2011, we had foreign net operating loss carryforwards of $326,000 which expire in 2012 and beyond. There is a valuation allowance of $326,000 against the foreign net operating loss carryforwards due to the uncertainty of future profitability in foreign jurisdictions.

 

Foreign Income

 

As of December 31, 2011, we had approximately $9,200,000 of accumulated undistributed earnings generated by our foreign subsidiaries. No provision has been made for income taxes that would be payable upon the distribution of such earnings since we intend to permanently reinvest these earnings. If these earnings were distributed in the form of dividends or otherwise, the distributions would be subject to U.S. federal income tax at the statutory rate of 35 percent, less foreign tax credits available to offset such distributions, if any. In addition, such distributions may be subject to withholding taxes in the various tax jurisdictions.