Income Taxes

9 Months Ended

Jun. 30, 2011

Income Taxes

Income Taxes

10. Income Taxes

        Our provision for income taxes is impacted by a number of factors, including federal taxes, our international tax structure, state tax rates in the jurisdictions where we conduct business, and our ability to utilize state tax credits that expire between 2013 and 2016. Therefore, our overall effective income tax rate could vary as a result of these factors.

        The effective income tax rate for the three months ended June 30, 2011 was 5.5%. The effective income tax rate for the nine months ended June 30, 2011 was 9.6%, which reflects the current estimate of our full year projected effective income tax rate, net of items that only impact the current or prior quarters. The effective income tax rate for the three and nine months ended June 30, 2010 was 31.2% and 33.7%, respectively. Our effective income tax rate for the three and nine months ended June 30, 2011 is lower than the statutory rate and the prior comparable periods primarily due to the worldwide pre-tax loss for the nine months ended June 30, 2011, which included a domestic loss for which federal and state tax benefits have been recognized as well as our international tax structure.

        We accrue interest and penalties related to unrecognized tax benefits in income tax expense. This methodology is consistent with previous periods. At June 30, 2011, we had $1,609 and $551 accrued for the potential payment of interest and penalties, respectively. As of June 30, 2011, we were subject to U.S. federal income tax examinations for the tax years 2007-2010, and to non-U.S. examinations for the tax years of 2005-2010. In addition, we are generally subject to state and local examinations for fiscal years 2007-2010.

        The Company is under an Internal Revenue Service ("IRS") examination for tax years 2007-2009. Among other issues, the IRS has questioned the values used by the Company to transfer product and provide services to an international subsidiary. The Company believes it has appropriately valued such product transfers and services and intends to continue to support this position as the IRS examination continues to progress.

        At June 30, 2011, we had a liability of $10,059 for unrecognized tax benefits, the recognition of which would have an effect of $7,437 on income tax expense and the effective income tax rate. We do not believe that the amount will change significantly in the next 12 months. At this time, we are unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes.