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Income Taxes
12 Months Ended
Dec. 31, 2011
Income Taxes [Abstract]  
Income Taxes
11. Income Taxes

The provision for income taxes is based on income recognized for consolidated financial statement purposes and includes the effects of permanent and temporary differences between such income and income recognized for income tax return purposes. As a result of the reverse spin-off from Ceridian, deferred tax assets consisting of net operating loss ("NOL") and credit carryforwards were transferred from Ceridian to the Company, along with temporary differences related to the Company's business. The NOL carryforwards will expire in various amounts from 2012 to 2029. Arbitron Mobile also incurred losses in 2011 available for U.S. carryforward subject to the separate return limitation year rules.

The components of income before income tax expense and a reconciliation of the statutory federal income tax rate to the income tax rate on income before income tax expense for the years ended December 31, 2011, 2010, and 2009 are as follows (dollars in thousands):

 

     2011     2010     2009  

Income (loss) before income tax expense:

      

U.S.

   $ 89,188     $ 70,657      $ 59,853   

International

     (841     1,115        1,279   
  

 

 

   

 

 

   

 

 

 

Total

   $ 88,347      $ 71,772      $ 61,132   
  

 

 

   

 

 

   

 

 

 

Income tax expense (benefit):

      

Current:

      

U.S.

   $ 32,871      $ 18,706      $ 18,464   

State, local and foreign

     3,892        2,441        2,198   
  

 

 

   

 

 

   

 

 

 

Total

     36,763        21,147        20,662   
  

 

 

   

 

 

   

 

 

 

Deferred:

      

U.S.

     (3,783     3,700        1,310   

State, local and foreign

     2,076        2,447        (3,000
  

 

 

   

 

 

   

 

 

 

Total

     (1,707     6,147        (1,690
  

 

 

   

 

 

   

 

 

 
   $ 35,056      $ 27,294      $ 18,972   
  

 

 

   

 

 

   

 

 

 

U.S. statutory rate

     35.0     35.0     35.0
  

 

 

   

 

 

   

 

 

 

Income tax expense at U.S. statutory rate

   $ 30,921     $ 25,120      $ 21,396   

State income taxes, net of federal benefit

     3,452        2,834        2,904   

Meals and entertainment

     198        187        199   

Change in valuation allowance for foreign tax credit and capital loss

     1,099        (169     —     

State NOL's recognized

     —          —          (4,801

Adjustments to tax liabilities

     (279     202        207   

Other

     (335     (880     (933
  

 

 

   

 

 

   

 

 

 

Income tax expense

   $ 35,056      $ 27,294      $ 18,972   
  

 

 

   

 

 

   

 

 

 

Effective tax rate

     39.7     38.0     31.0
  

 

 

   

 

 

   

 

 

 

 

The effective tax rate increased from 38.0% in 2010 to 39.7% in 2011 primarily due to a valuation allowance with respect to the U.S. deferred tax asset arising from the 2011 net operating loss incurred by Arbitron Mobile.

The Company's Indian operations are conducted in a Special Economic Zone (SEZ) providing for a reduction of tax rates on certain classes of income when certain conditions are met. The Company was in compliance with these conditions as of December 31, 2011. Beginning April of 2011, the Company became subject to a Minimum Alternate Tax in India due to a change in legislation affecting all SEZ operating companies. The earnings from our foreign operations in India are subject to a tax holiday which partially expires in fiscal year 2013. A deferred tax liability was recognized for the cumulative undistributed earnings which the Company does not expect to permanently reinvest outside of the U.S. Therefore, the Company's reduction of tax expense due to the tax holiday in India was immaterial during fiscal years 2011 and 2010.

 

The following table summarizes the activity related to the Company's unrecognized tax benefits as of December 31, 2011, and 2010 (in thousands):

 

     2011     2010  

Balance at January 1

   $ 1,896      $ 2,210   

Increases related to current year tax positions

     107        270   

Decreases related to prior years' tax positions

     (537     (353

Expiration of the statute of limitations for the assessment of taxes

     (166     (231
  

 

 

   

 

 

 

Balance at December 31

   $ 1,300      $ 1,896   
  

 

 

   

 

 

 

During 2011, certain liabilities for tax contingencies related to prior periods were recognized. Certain other liabilities were reversed due to the settlement and completion of income tax audits and returns and the expiration of audit statutes during the year. The Company's net unrecognized tax benefits for these changes and other items decreased by $0.6 million to $1.3 million as of December 31, 2011. If recognized, the $1.3 million of unrecognized tax benefits would reduce the Company's effective tax rate in future periods.

The Company accrues potential interest and penalties and recognizes income tax expense where, under relevant tax law, interest and penalties would be assessed if the uncertain tax position ultimately were not sustained. The Company has recorded a liability for potential interest and penalties of $0.2 million as of December 31, 2011.

Management determined it is reasonably possible that certain unrecognized tax benefits as of December 31, 2011, will decrease during the subsequent 12 months due to the expiration of statutes of federal and state limitations and due to the settlement of certain state audit examinations. The estimated decrease in these unrecognized federal tax benefits and the estimated decrease in unrecognized tax benefits from various states are both immaterial.

The Company files numerous income tax returns, primarily in the United States, including federal, state, and local jurisdictions, and certain foreign jurisdictions. Tax years ended December 31, 2008 through December 31, 2010, remain open for assessment by the Internal Revenue Service. Generally, the Company is not subject to state, local, or foreign examination for years prior to 2006. However, tax years 1992 through 2005 remain open for assessment for certain state taxing jurisdictions where NOL carryforwards were utilized on income tax returns for such states since 2006.

Temporary differences and the resulting deferred income tax assets as of December 31, 2011, and 2010, were as follows (in thousands):

 

     2011     2010  

Deferred tax assets

    

Current deferred tax assets

    

Accruals

   $ 5,084      $ 3,315   

Net operating loss carryforwards

     1,314        1,443   
  

 

 

   

 

 

 
     6,398       4,758   

Noncurrent deferred tax assets

    

Benefit plans

   $ 11,237      $ 8,744   

Accruals

     2,372        1,192   

Net operating loss carryforwards

     760        1,575   

Share-based compensation

     7,573        5,742   

Partnership interest

     1,851       2,002   

Investment impairment

     1,355        —     
    

 

 

 

Other

     1,316        724   
  

 

 

   

 

 

 
     26,464       19,979   

Less valuation allowance

     (1,262     (163
  

 

 

   

 

 

 

Total deferred tax assets

     31,600       24,574   

Deferred tax liabilities

    

Noncurrent deferred tax liabilities

    

Basis differences in intangible assets and property and equipment

   $ (22,860 )   $ (19,346

Benefit plans

     (2,476     (2,431

Other

     (1,168     (734
  

 

 

   

 

 

 

Total deferred tax liabilities

     (26,504     (22,511
  

 

 

   

 

 

 

Net deferred tax assets

   $ 5,096     $ 2,063   
  

 

 

   

 

 

 

 

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 will be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during periods in which the temporary differences become deductible and before tax credits or net operating loss carryforwards expire. Management considered the historical results of the Company during the previous three years and projected future U.S. and foreign taxable income and determined that a valuation allowance of $1.3 million and $0.2 million was required as of December 31, 2011 and 2010, respectively, for net operating losses, specific capital losses and foreign tax credit carryforwards.

Income taxes paid in 2011, 2010, and 2009 were $31.7 million, $24.9 million, and $23.7 million, respectively.