10.

Income Taxes

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


	2011			2010			2009
	(In thousands)
Domestic	$	(10,106	)	$	3,675		$	12,331
Foreign		(8,658	)		(5,428	)		(2,424	)

	$	(18,764	)	$	(1,753	)	$	9,907

Income tax (benefit) provision is comprised of the following:


	Year Ended December 31,
	2011			2010			2009
	(In thousands)
Current:
Federal	$	140		$	341		$	457
State		182			261			246
Foreign		1,060			1,159			139

Total		1,382			1,761			842
Deferred:
Federal		(3,492	)		656			4,744
State		(832	)		141			285
Foreign		(32	)		(2,735	)		67

Total		(4,356	)		(1,938	)		5,096

Income tax (benefit) provision	$	(2,974	)	$	(177	)	$	5,938

A reconciliation of the statutory United States income tax rate to the effective income tax rate is as follows:


	Year Ended December 31,
	2011			2010			2009
Statutory federal tax rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal benefit		2.3			(15.0	)		3.5
Nondeductible items		(5.7	)		(35.2	)		8.2
Foreign rate differences		(5.4	)		(40.7	)		2.0
Change in statutory tax rates		(0.6	)		—			—
Change in valuation allowance		(8.9	)		139.0			6.9
Stock compensation shortfalls		0.0			(18.9	)		7.7
True-ups and other adjustments		0.1			(31.6	)		(1.0	)
Tax credits		0.0			—			(3.2	)
Foreign tax withholding		(0.6	)		(11.0	)		—
Uncertain tax positions		(0.3	)		(11.5	)		0.8

Effective tax rate		15.9	%		10.1	%		59.9	%

The Company recognized income tax benefit of approximately $3.0 million during the year ended December 31, 2011, which is comprised of current tax expense of $0.3 million related to federal alternative minimum tax and state income tax liabilities and $1.1 million of foreign income tax expense, and a deferred tax benefit of approximately $4.4 million related to temporary differences between the tax treatment and financial reporting treatment for certain items, most notably the Nielsen transaction.

The Company recognized income tax benefit of approximately $0.2 million during the year ended December 31, 2010, which is comprised of current tax expense of $0.6 million related to federal alternative minimum tax and state income tax liabilities and $1.2 million of foreign income tax expense, and deferred tax benefit of approximately $1.9 million related primarily to the reduction in the deferred tax asset valuation allowance.

The Company recognized income tax expense of approximately $5.9 million during the year ended December 31, 2009, which is comprised of current tax expense of $0.7 million related to federal alternative minimum tax and state income tax liabilities and $0.1 million of foreign income tax expense, and deferred tax expense of approximately $5.1 million related primarily to the utilization of net operating losses during the year.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes. Significant components of the Company's net deferred income taxes are as follows:


	December 31,
	2011			2010
	(In thousands)
Deferred tax assets:
Net operating loss carryforwards	$	15,822		$	18,716
Capital loss carryforwards		747			89
Tax credits		1,817			1,497
Allowance for doubtful accounts		600			521
Accrued salaries and benefits		500			343
Deferred revenues		809			503
Capital leases		4,202			3,639
Deferred compensation		7,167			4,366
Deferred rent		3,275			3,386
Other		654			1,304

Gross deferred tax assets		35,593			34,364
Valuation allowance		(2,741	)		(1,027	)

Net deferred tax assets		32,852			33,337
Deferred tax liabilities:
Intangible assets		(4,774	)		(10,704	)
Property and equipment		(4,907	)		(4,839	)
Prepaid maintenance		(171	)		(445	)
Other		(231	)		(208	)

Total deferred tax liabilities		(10,083	)		(16,196	)

Net deferred tax asset	$	22,769		$	17,141

As of December 31, 2011 and 2010, the Company had valuation allowances of $2.7 million and $1.0 million, respectively, against certain deferred tax assets, which consisted primarily of net operating loss carryforwards.

As of December 31, 2011, the Company concluded that it was not more-likely-than-not that a substantial portion of its Netherlands deferred tax assets would be realized and determined that it was appropriate to establish a valuation allowance of $1.3 million against its Netherlands deferred tax assets. In making that determination, the Company considered the losses incurred in the Netherlands during 2011 and in prior years and the uncertainty regarding the future profitability of the Netherlands operations. The Company also concluded that it was not more-likely-than-not that a substantial portion of its deferred tax assets in certain other foreign jurisdictions would be realized and that an increase to the valuation allowance was necessary. In making that determination, the Company considered the losses incurred in these foreign jurisdictions during 2010, the current overall economic environment, and the uncertainty regarding the profitability of certain foreign operations currently in start-up phase. As a result, the Company recorded an increase in the deferred tax asset valuation allowance of approximately $0.4 million.

As of December 31, 2010, the Company concluded that it was more likely than not that a substantial portion of its UK deferred tax assets would be realized and determined that it was appropriate to release the entire valuation allowance of $2.8 million in the fourth quarter. In making that determination, the Company considered the profitability of the UK entity achieved in 2010 and prior years, coupled with the timing of the reversal of taxable temporary differences and the forecasted profitability in future years. The Company also concluded that it was not more likely than not that a substantial portion of its deferred tax assets in certain other foreign jurisdictions would be realized and that an increase to the valuation allowance was necessary. In making that determination, the Company considered the losses incurred in these foreign jurisdictions during 2010, the current overall economic environment, and the uncertainty regarding the profitability of certain foreign operations currently in start-up phase. As a result, the Company recorded an increase in the deferred tax asset valuation allowance of approximately $0.3 million.

The valuation allowance as of December 31, 2011 of $2.7 million relates to the deferred tax assets (primarily net operating loss carryforwards) of the foreign subsidiaries that are either loss companies or are in their start-up phases and the U.S. capital loss carryforwards. To the extent the Company determines that, based on the weight of available evidence, all or a portion of its valuation allowance is no longer necessary, the Company will recognize an income tax benefit in the period such determination is made for the reversal of the valuation allowance. If management determines that, based on the weight of available evidence, it is more-likely-than-not that all or a portion of the net deferred tax assets will not be realized, the Company may recognize income tax expense in the period such determination is made to increase the valuation allowance. It is possible that any such reduction of or addition to the Company's valuation allowance may have a material impact on the Company's results from operations.

The following is a summary of activities in the deferred tax asset valuation allowance for the fiscal years indicated:


	December 31,
	2011			2010
	(In thousands)
Deferred Tax Valuation Allowance
Beginning Balance	$	(1,027	)	$	(3,550	)
Additions		(1,763	)		(326	)
Reductions		49			2,849

Ending Balance	$	(2,741	)	$	(1,027	)

As of December 31, 2011, the Company had federal and state net operating loss carryforwards for tax purposes of approximately $50.8 million and $36.9 million, respectively. As of December 31, 2010, the Company had federal and state net operating loss carryforwards for tax purposes of approximately $51.9 million and $37.3 million, respectively. These net operating loss carryforwards begin to expire in 2022 for federal income tax purposes and begin to expire in 2013 for state income tax purposes. At December 31, 2011, the Company had an aggregate net operating loss carryforward for tax purposes related to its foreign subsidiaries of $30.6 million, which begins to expire in 2013. In addition, at December 31, 2011, the Company had alternative minimum tax credit carryforwards of $1.5 million which can be carried forward indefinitely and research & development credit carryforwards of $0.7 million which begin to expire in 2025.

The exercise of certain stock options and the vesting of certain restricted stock awards during the years ended December 31, 2011 and 2010 generated income tax deductions equal to the excess of the fair market value over the exercise price or grant date fair value, as applicable. The Company will not recognize a deferred tax asset with respect to the excess of tax over book stock compensation deductions until the tax deductions actually reduce our current taxes payable. As such, the Company has not recorded a deferred tax asset in the accompanying financial statements related to the additional net operating losses generated from the windfall tax deductions associated with the exercise of these stock options and the vesting of the restricted stock awards. If and when we utilize these net operating losses to reduce income taxes payable, the tax benefit will be recorded as an increase in additional paid-in capital. As of December 31, 2011 and December 31, 2010, the cumulative amounts of net operating losses relating to such option exercises and vesting events that have been included in the gross net operating loss carryforwards above are $26.4 million and $16.6 million, respectively. During the year ended December 31, 2011, the Company recognized windfall tax benefits of approximately $0.2 million related to certain state tax jurisdictions, which were recorded as an increase to additional paid-in capital.

During the years ended December 31, 2011 and 2010, certain stock options were exercised and certain shares related to restricted stock awards vested at times when the Company's stock price was substantially lower than the fair value of those shares at the time of grant. As a result, the income tax deduction related to such shares is less than the expense previously recognized for book purposes. Such shortfalls reduce additional paid-in capital to the extent relevant windfall tax benefits have been previously recognized. As described above, the Company recognized a portion of the windfall tax benefits in 2011 and recorded an increase to additional paid-in capital. Therefore, the impact of the shortfalls totaling $0.1 million has not been included in income tax expense but has reduced additional paid-in capital for the year ended December 31, 2011. As of December 31, 2010, the Company had not yet recognized windfall tax benefits because the tax benefits had not resulted in a reduction of current taxes payable. Therefore, the impact of the shortfalls totaling $0.9 million was included in income tax expense for the year ended December 31, 2010. Looking forward the Company cannot predict the stock compensation shortfall impact because of dependency upon future market price performance of our stock.

Under the provisions of Internal Revenue Code Section 382, certain substantial changes in the Company's ownership may result in a limitation on the amount of U.S. net operating loss carryforwards that could be utilized annually to offset future taxable income and taxes payable. A portion of the Company's net operating loss carryforwards are subject to an annual limitation under Section 382 of the Internal Revenue Code. We do not expect that this limitation will impact our ability to utilize all of our net operating losses prior to their expiration. Additionally, despite the net operating loss carryforwards, the Company may have a future tax liability due to alternative minimum tax, foreign tax or state tax requirements.

The Company intends to indefinitely reinvest the undistributed earnings from its foreign subsidiaries. As of December 31, 2011, the Company has not recorded U.S. income tax expense related to undistributed foreign earnings of approximately $2.6 million.

For uncertain tax positions, the Company uses a more-likely-than-not recognition threshold based on the technical merits of the tax position taken. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefits determined on a cumulative probability basis, which are more-likely-than-not to be realized upon ultimate settlement in the financial statements. As a result, the Company has unrecognized tax benefits, which are tax benefits related to uncertain tax positions which have been or will be reflected in income tax filings that have not been recognized in the financial statements due to potential adjustments by taxing authorities in the applicable jurisdictions. As of December 31, 2011, 2010 and 2009, the Company had unrecognized tax benefits of $1.4 million, $2.4 million and $1.2 million, respectively, all of which would affect the Company's tax rate if recognized. The Company anticipates that approximately $0.1 million of unrecognized tax benefits will reverse during the next year due to the filing of related tax returns and the expiration of statutes of limitation. The net decrease in the liability for unrecognized income tax benefits since the date of adoption resulted from the following:


	December 31,
	2011			2010		2009
	(In thousands)
Unrecognized tax benefits beginning balance	$	2,376		$	1,198	$	240
Increase related to tax positions of prior years		1			121		29
Increase related to acquired tax positions recorded through purchase accounting		1			997		864
Increase related to tax positions of the current year		17			60		65
Decrease related to tax positions of prior years		(959	)		0		0
Decrease due to settlements		(42	)		0		0
Decrease due to lapse in statutes of limitations		(8	)

Unrecognized tax benefits ending balance	$	1,386		$	2,376	$	1,198

The Company recognizes interest and penalties related to income tax matters in income tax expense. As of December 31, 2011, the amount of accrued interest and penalties on unrecognized tax benefits was $0.6 million. As of December 31, 2010, the amount of accrued interest expense on unrecognized tax benefits was $0.8 million. The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. For income tax returns filed by the Company, the Company is no longer subject to U.S. federal examinations by tax authorities for years before 2008 or state and local tax examinations by tax authorities for years before 2007, although tax attribute carryforwards generated prior to these years may still be adjusted upon examination by tax authorities.