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Income taxes | 12 Months Ended
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Dec. 31, 2011
Income taxes |
Income taxes |
10. Income taxes On January 1, 2007, we adopted ASC 740. There was no cumulative effect recorded as a charge to retained earnings from the adoption of FIN 48. The income taxes by jurisdiction consist of the following for the years ended December 31:
|  | 2011 |  | 2010 |  | 2009 |
--- | --- | --- | --- | --- | --- | --- | ---
U.S. Federal: |  |  |  |  |  |  |  |  |  |
Current |  | $ | 1,971 |  | $ | 214 |  | $ | 70 |
Deferred |  |  | 2,261 |  |  | (10,360 | ) |  | 242 |
Total U.S. Federal |  |  | 4,232 |  |  | (10,146 | ) |  | 312 |
U.S. state and local: |  |  |  |  |  |  |  |  |  |
Current |  |  | 1,092 |  |  | 1,193 |  |  | 623 |
Deferred |  |  | (1,260 | ) |  | 50 |  |  | 50 |
Total U.S. state and local |  | $ | (168 | ) | $ | 1,243 |  | $ | 673 |
Income taxes differ from the amounts computed by applying the U.S. federal income tax rate to pretax income (loss) before income taxes as a result of the following for the years ended December 31:
|  | 2011 |  | 2010 |  | 2009 |
--- | --- | --- | --- | --- | --- | --- | ---
Federal statutory rate |  |  | 34.0 | % |  | 34.0 | % |  | 34.0 | %
State and local |  |  | (0.7 | ) |  | 16.7 |  |  | 30.7 |
Stock options |  |  | 1.9 |  |  | 4.0 |  |  | 12.5 |
Non-controlling interests |  |  | (2.0 | ) |  | (2.6 | ) |  | (6.3 | )
Valuation allowance |  |  | 0.0 |  |  | (172.9 | ) |  | (29.5 | )
Other |  |  | 3.8 |  |  | (2.6 | ) |  | 4.9 |
Income tax expense (benefit). |  |  | 37.0 | % |  | (123.4) | % |  | 46.3 | %
In 2010, we established a foreign subsidiary in the United Kingdom, which has generated losses resulting in a $400 deferred tax asset with a corresponding valuation allowance. Deferred income tax reflects the tax effects of temporary differences that gave rise to significant portions of our deferred tax assets and liabilities and consisted of the following at December 31:
|  | 2011 |  | 2010 |
--- | --- | --- | --- | --- | ---
Deferred tax assets: |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 3,735 |  | $ | 7,597 |
Outside basis differences for U.S. partnerships |  |  | 3,524 |  |  | 3,234 |
Stock options |  |  | 1,397 |  |  | 115 |
Deferred revenue |  |  | 1,014 |  |  | 787 |
Deferred compensation |  |  | 407 |  |  | 354 |
Property and equipment |  |  | — |  |  | 382 |
State taxes |  |  | — |  |  | 406 |
Other |  |  | 455 |  |  | 404 |
Valuation allowance |  |  | (1,822 | ) |  | (3,109 | )
Net deferred tax assets |  |  | 8,710 |  |  | 10,170 |
Deferred tax liabilities: |  |  |  |  |  |  |
Intangible assets |  |  | (1,202 | ) |  | (893 | )
State taxes |  |  | (926 | ) |  | — |
Property and equipment |  |  | (133 | ) |  | — |
Net deferred tax liabilities |  |  | (2,261 | ) |  | (893 | )
Net deferred taxes |  | $ | 6,449 |  | $ | 9,277 |
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2011 and 2010, we had federal net operating loss carryforwards of approximately $7,979 and $15,618, respectively, state net operating loss carryforwards of approximately $27,900 and $32,079, respectively, and foreign net operating loss carryforwards of $1,334. The federal net operating loss carryforwards will begin to expire in 2021, and our foreign net operating loss carryforwards have an indefinite life. Our state net operating loss carryforwards are principally related to California net operating losses for which the ability to utilize has been suspended for several years and will begin to expire in 2012. Our ability to utilize certain of our net operating loss carryforwards may be limited in the event that a change in ownership, as defined in the Internal Revenue Code, occurs in the future. At December 31, 2010, we recorded a $12,280 release to the valuation allowance on our U.S. federal net deferred tax assets due to changes in our expectations regarding our ability to realize these deferred tax assets. This resulted from a determination that it was more likely than not that the U.S. federal net deferred tax assets would be realized. At December 31, 2011, we recorded a $1,287 release to the valuation allowance on our state net deferred tax assets, due to changes in our expectations regarding our ability to realize these deferred tax assets. This resulted from a determination that it was more likely than not that the state net deferred tax assets would be realized. In reaching the determination of releasing a valuation allowance, we have evaluated all significant available positive and negative evidence including, but not limited to, our three year cumulative results, trends in our business, expected future results and the character, amount and expiration periods of our net deferred tax assets. The underlying assumptions we used in forecasting future income required significant judgment and took into account our recent performance. During 2011, we realized excess windfall tax benefits of $0.2 million from stock option exercises. These benefits reduced income taxes payable and were recorded as an increase to additional paid-in capital in the accompanying consolidated balance sheets as of December 31, 2011. In accordance with the reporting requirements under ASC 718, we did not include $1.8 million of excess windfall tax benefits resulting from stock option exercises as components of our gross deferred tax assets and corresponding valuation allowance disclosures, as tax attributes related to those windfall tax benefits should not be recognized until they result in a reduction of taxes payable. The tax effected amount of gross unrealized net operating loss carryforwards excluded under ASC 718 was $1.8 million at December 31, 2011. When realized, those excess windfall tax benefits are credited to additional paid-in capital. We recognized interest and penalties related to income tax matters in income tax expense (benefit) which were not material during the years ended December 31, 2011, 2010, and 2009. The adoption of ASC 740 guidance required us to identify, evaluate and measure all uncertain tax positions taken or to be taken on tax returns and to record liabilities for the amount of these positions that may not be sustained, or may only partially be sustained, upon examination by the relevant taxing authorities. Although we believe that our estimates and judgments were reasonable, actual results may differ from these estimates. Some or all of these judgments are subject to review by the taxing authorities. We have no significant uncertain tax positions for the years ended December 31, 2011, 2010 and 2009. Our annual income taxes and the determination of the resulting deferred tax assets and liabilities involve a significant amount of judgment. Our judgments, assumptions and estimates relative to current income taxes take into account current tax laws, their interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. We operate within federal, state and international taxing jurisdictions and are subject to audit in these jurisdictions. These audits can involve complex issues which may require an extended period of time to resolve. We are subject to taxation in the United States and in various states. Our tax years 2008 and forward are subject to examination by the IRS and our tax years 2007 and forward are subject to examination by material state jurisdictions. However, due to prior year loss carryovers, the IRS and state tax authorities may examine any tax years for which the carryovers are used to offset future taxable income. We accrue interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of December 31, 2011, 2010 and 2009, there was no accrued interest or penalties. The following table sets forth the changes in the valuation allowance, for all periods presented:
|  | Valuation Allowance |
--- | --- | --- | ---
Balance, December 31, 2008 |  | $ | 14,258 |
Additions charged to operations |  |  | 731 |
Balance, December 31, 2009 |  |  | 14,989 |
Additions charged to operations |  |  | 400 |
Decrease credited to operations |  |  | (12,280 | )
Balance, December 31, 2010 |  |  | 3,109 |
Decrease credited to operations |  |  | (1,287 | )
Balance, December 31, 2011 |  | $ | 1,822 |

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 + Details
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