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Income Taxes
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6 Months Ended | ||||||||||||||||||||||||||||||
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Jun. 30, 2011
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| Income Taxes [Abstract] | |||||||||||||||||||||||||||||||
| Income Taxes |
10. Income Taxes
The Company maintains a valuation allowance to adjust the basis of net deferred tax assets in
accordance with the provisions of FASB ASC 740, Income Taxes (“ASC 740”). As a result,
substantially all domestic federal income taxes, as well as certain state and foreign income taxes,
recorded for the three and six months ended June 30, 2011 and 2010 were fully offset by a
corresponding change in valuation allowance. Income tax expense recorded for the three and six
months ended June 30, 2011 consisted of income tax expenses in foreign and state jurisdictions in
which the Company operates, with the six months ended June 30, 2011 partially offset by a valuation
allowance change resulting in a deferred tax benefit of $1.2 million related to the SLM
acquisition. Income tax expense recorded for the three and six months ended June 30, 2010 consisted
primarily of income tax expenses in foreign and state jurisdictions in which the Company operates.
Income tax expense differs from the expected tax at statutory rates due primarily to the change in
valuation allowance for deferred tax assets and different tax rates in the various foreign
jurisdictions. Additionally, the aggregate tax expense is not always consistent when comparing
periods due to the changing income before income taxes mix between domestic and foreign operations
and within the foreign operations. In concluding that a full valuation allowance on domestic
federal and certain state and foreign income taxes was required, the Company primarily considered
such factors as the history of operating losses and the nature of the deferred tax assets. Interim
period income tax expense or benefit is computed at the estimated annual effective tax rate, unless
adjusted for specific discrete items as required.
Income tax expense as a percentage of income before income taxes was approximately 9.9% and 29.5%
for the six months ended June 30, 2011 and 2010, respectively. For the three months ended June 30,
2011 and 2010 income tax expense as a percentage of income before income taxes was approximately
20.5% and 29.4%, respectively. Excluding the $1.2 million acquisition related deferred tax benefit
noted above, the effective income tax rate for the six months ended June 30, 2011 was 21.9%. The
remaining change in the income tax rates between periods is related to changes in the mix of income
before income taxes between countries whose income taxes are offset by full valuation allowance and
those that are not, and differing statutory tax rates in the countries in which the Company incurs
tax liabilities.
In accordance with ASC 740, the Company recognizes the tax benefit from uncertain tax positions
only if it is more-likely-than-not that the tax position will be sustained on examination by the
applicable taxing authorities, based on the technical merits of the position. The tax benefit
recognized is based on the largest amount of tax benefit that is greater than 50 percent likely of
being realized upon ultimate settlement with the taxing authority.
The Company recognizes interest expense on underpayments of income taxes and accrued penalties
related to unrecognized non-current tax benefits as part of the income tax provision. The Company
incurred no significant interest or penalties for the three and six months ended June 30, 2011 and
2010. Unrecognized tax benefits at June 30, 2011 and December 31, 2010 of $0.9 million and $0.8
million, respectively, for uncertain tax positions related to transfer pricing are included in
other liabilities on the consolidated balance sheets and would impact the effective tax rate for
certain foreign jurisdictions if recognized.
A reconciliation of the change in the unrecognized tax benefits for the six months ended June 30,
2011 is as follows (in thousands):
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