Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes

Income Taxes

(14) Income Taxes

        Income tax (benefit) expense consisted of the following components (dollars in thousands):

	2011			2010			2009
Current:
Federal	$	(1,160	)	$	18,524		$	14,946
State		1,282			5,026			3,160
Foreign		5,632			6,118			7,010
		5,754			29,668			25,116
Deferred:
Federal		(25,146	)		(4,289	)		7,224
State		(8,409	)		(766	)		664
Foreign		962			740			613
		(32,593	)		(4,315	)		8,501
Total	$	(26,839	)	$	25,353		$	33,617

        Income before income taxes consisted of the following (dollars in thousands):

	2011			2010		2009
U.S.	$	(222,337	)	$	45,000	$	74,102
Foreign		15,709			4,333		2,349
Total	$	(206,628	)	$	49,333	$	76,451

        Deferred income taxes are provided for temporary differences in reporting certain items. The tax effects of temporary differences that gave rise to the net deferred tax asset (liability) at December 31 were as follows (dollars in thousands):

	2011			2010
Deferred tax assets:
Compensation and benefits	$	9,565		$	13,999
Net operating loss and capital loss carry forward		15,810			14,804
Share-based compensation		12,430			12,455
Allowance for doubtful accounts		663			569
Tax benefits on uncertain tax positions		2,846			2,459
Goodwill and other intangibles		2,370			—
Depreciation		—			1,868
Other		8,914			4,373
Total deferred tax assets		52,598			50,527
Less: valuation allowance		16,279			12,674
Total deferred tax assets, net of valuation allowance		36,319			37,853
Deferred tax liabilities:
Goodwill and other intangibles		—			(29,615	)
Depreciation		(2,038	)		—
Capitalized software		(17,769	)		(20,122	)
Other		(738	)		(1,328	)
Total deferred tax liabilities		(20,545	)		(51,065	)
Net deferred tax assets (liabilities)	$	15,774		$	(13,212	)

        At December 31, 2011, the Company believes that it is more likely than not that future reversals of its existing taxable temporary differences and the results of future operations will generate sufficient taxable income to realize the deferred tax assets, net of valuation allowance. Since 2009, the Company has maintained a full valuation allowance against Asia Pacific net operating losses and since 2010, a partial valuation allowance against European net operating losses in Ireland was recorded.

        Net operating loss carry forwards expire as follows (dollars in thousands):

	Amount		Years remaining
Hong Kong, Australia and Ireland operating losses	$	64,638	Indefinite
United States		3,937	18 years
	$	68,575

        The effective tax rate varied from the U.S. federal statutory income tax rate due to the following:

	2011			2010			2009
U.S. federal statutory income tax rate		35.0	%		35.0	%		35.0	%
State and local income taxes, net of U.S. federal income tax effect		2.2			6.0			3.9
Foreign tax impact, net		(0.9	)		9.8			5.9
Non-deductible costs *		(23.7	)		1.1			—
Other, net		0.4			(0.5	)		(0.8	)
Effective income tax rate		13.0	%		51.4	%		44.0	%

*

Non-deductible costs reflect the goodwill impairment charge incurred in 2011 and a portion of Majestic acquisition costs incurred in 2010.

        There were no reductions of current taxes payable relating to the exercise of employee stock options and the issuance of employee restricted share awards, while related tax shortfalls increased current taxes payable by $3.3 million, $2.2 million and $1.5 million in 2011, 2010 and 2009, respectively. For further discussion, see Note 21, Employee and Non Employee Director Stock and Benefit Plans.

Tax Uncertainties

        Under ASC 740, Income Taxes, a tax benefit from an uncertain tax position may be recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.

        During 2011, uncertain tax positions in the U.S. were resolved for the 2006, 2007 and 2008 fiscal years resulting in a decrease in the Company's liability of $0.6 million and the related deferred tax asset of $0.2 million. As a result of this, the Company recognized a net tax benefit of $0.4 million.

        A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (dollars in thousands):

Uncertain Tax Benefits	2011			2010			2009
Balance, January 1	$	12,380		$	10,999		$	18,376
Additions based on tax positions related to the current year		2,402			2,088			2,551
Additions based on tax positions of prior years		647			897			731
Reductions for tax positions of prior years		(42	)		(35	)		(678	)
Reductions due to settlements with taxing authorities		(516	)		(758	)		(9,767	)
Reductions due to expiration of statute of limitations		(329	)		(811	)		(214	)
Balance, December 31	$	14,542		$	12,380		$	10,999

        Included in the balance at December 31, 2011, 2010 and 2009, are $12.0 million, $10.8 million, and $9.4 million, respectively, of unrecognized tax benefits which, if recognized, would affect the Company's effective tax rate.

        With limited exception, the Company is no longer subject to U.S. federal, state, local or foreign income tax audits by taxing authorities for years preceding 2007. The Internal Revenue Service is currently examining the Company's U.S. federal income tax returns for 2007, 2008 and 2009. Certain state and local returns are also currently under various stages of audit. The Company does not anticipate a significant change to the total of unrecognized tax benefits within the next twelve months.

        At December 31, 2011, interest expense of $2.7 million, gross of related tax effects of $1.1 million, was accrued related to unrecognized tax benefits. As a continuing policy, interest accrued related to unrecognized tax benefits is recorded as income tax expense. During 2011, 2010 and 2009, the Company recognized $0.7 million, $0.5 million and $0.2 million, respectively, of tax related interest expense. Penalties of $0.1 million were recognized in 2010 and 2009 as a component of income tax expense. No such penalties were incurred during 2011.