Rosetta Stone 2011 Annual Report Download - page 117

Table of Contents
ROSETTA STONE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. INCOME TAXES (Continued)
Reconciliation of income tax provision (benefit) computed at the U.S. federal statutory rate to income tax expense is as follows (in thousands):
Year Ended December 31,
2011 2010 2009
Income tax expense at statutory federal rate $ (9,789) $ 4,506 $ 7,157
State income tax expense, net of federal income tax effect (869) 229 809
Domestic production activities deduction 580 (315) (481)
Nondeductible LTIP expense 2,062 — —
Nondeductible intercompany interest 29 134 205
Other nondeductible expenses 698 161 143
Tax rate differential on foreign operations (206) 16 (192)
Increase (decrease) in valuation allowance — (4,872) (566)
Other tax credits (619) — —
Other 134 (270) 9
Income tax expense (benefit) $ (7,980) $ (411) $ 7,084
The Company adopted Accounting Standards Codification topic 740-10-25, Income Taxes: Overall: Recognition, ("ASC 740-10-25") on January 1,
2007, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with Accounting
Standards Codification topic 740, Income Taxes. ASC 740-10-25 prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10-25 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows (in thousands):
2011
Balance at January 1, $ —
Increases for tax positions taken during prior period —
Increases for tax positions taken during current period 165
Balance at December 31, $ 165
During the twelve months ended December 31, 2011 the Company established a liability under ASC 740-10 of $165,000 for unrecognized tax benefits
associated with certain tax credits and foreign withholding taxes. Interest and penalties related to uncertain tax positions are recorded as part of the provision
for income taxes, which were zero at the adoption date and $25,000 for the year ended December 31, 2011. These liabilities for unrecognized tax benefits are
included in "Other Long Term Liabilities". As of December 31, 2011 and 2010, the Company had $165,000 and zero of unrecognized tax benefits,
respectively, which if recognized, would affect income tax expense. The Company does not expect that the amounts of unrecognized tax benefits will change
significantly within the next twelve months.
F-36