eFax 2011 Annual Report Download - page 38

Non
-Operating Income and Expenses
Interest and Other Income.
Our interest and other income is generated primarily from interest earned on cash, cash equivalents and
short- and long-
term investments, gain on sale of investments and gains from foreign currency transactions. Interest and other income amounted
to $1.3 million, $6.8 million and $3.1 million for the years ended December 31, 2011, 2010 and 2009, respectively. The decrease in interest and
other income from 2010 to 2011 was primarily due to the gain on the sale of investments in the amount of approximately $4.4 million recognized
in 2010 and reduced interest income in 2011 due to lower cash and investment balances following an acquisition in the fourth quarter 2010. The
increase in interest and other income from 2009 to 2010 was primarily due to gain on the sale of investments in the amount of approximately
$4.4 million in 2010.
Interest and Other Expense
. Our interest and other expense amounted to $0.1 million, $0.1 million and $0.4 million for the years
ended December 31, 2011, 2010 and 2009, respectively. Interest and other expense were primarily related to interest expense.
Other-than-temporary impairment losses. An other-than-
temporary impairment occurred in connection with our securities for the year
ended December 31, 2009. During the second quarter of 2009, we recorded an impairment of $9.2 million within the consolidated statement of
operations. During the fourth quarter of 2009, we determined that one auction rate security was other-than-
temporarily impaired and recorded an
impairment loss of $0.2 million to the consolidated statement of operations. No other-than-
temporary impairments were recorded for fiscal years
2011 and 2010.
Income Taxes . Our effective income tax rate is based on pre-
tax income, statutory tax rates, tax regulations (including those related to
transfer pricing) and different tax rates in the various jurisdictions in which we operate. The tax bases of our assets and liabilities reflect our best
estimate of the tax benefits and costs we expect to realize. When necessary, we establish valuation allowances to reduce our deferred tax assets
to an amount that will more likely than not be realized.
As of December 31, 2011, we had utilizable federal and state (California) net operating loss carryforwards (“NOLs”)
of $6.7 million
and $6.7 million, respectively, after considering substantial restrictions on the utilization of these NOLs due to “ownership changes”,
as defined
in the Internal Revenue Code of 1986, as amended. We currently estimate that all of the above-
mentioned federal and state NOLs will be
available for use before their expiration. These NOLs expire through the year 2028 for the federal and 2017 for the state. In
addition, as of
December 31, 2011 and 2010, we had available unrecognized state research and development tax credits of $0.2 million and $0.8 million, which
last indefinitely.
In 2008, the Governor of California signed into law legislation that suspended the use of NOLs for tax years beginning on or after
January 1, 2008 and 2009. In 2010, the suspension was extended an additional two years through the end of 2011. As a result, the Company will
not be permitted to utilize its California NOLs generated in prior years to offset taxable income in 2008 through 2011 for purposes of
determining the applicable California income tax due. Current law reinstates use of NOLs in tax years beginning on or after January 1, 2012
absent extension of the suspension.
Income tax expense amounted to $22.4 million, $27.6 million and $31.0 million for the years ended December 31, 2011, 2010 and
2009, respectively. Our effective tax rates for 2011, 2010 and 2009 were 16%, 25% and 32%, respectively.
The decrease in our effective income tax rate from 2010 to 2011 was primarily attributable to the following:
The decrease in our annual effective income tax rate from 2009 to 2010 was primarily attributable to the following:
1.
a reversal during the first quarter 2011 of approximately $14.1 million and the third quarter 2011 of approximately $1.1 million of
uncertain income tax positions as a result of expiring statutes of limitations, offset by return to provision adjustments in the third
quarter of 2011;
2.
an increase during 2011 in foreign tax credits and our ability to offset such credits against Subpart F income;
3.
an increase during 2011 in the portion of our income being taxed in foreign jurisdictions and subject to lower tax rates than in the
U.S.;
4.
a decrease during 2011 in state income taxes, net of the federal income tax benefits, partially offset by:
5. a 2010 book but not tax gain on the sale of an impaired auction rate security, resulting in a significant portion of the valuation
allowance being reversed;
6.
an increase during 2011 in return to provision adjustments; and
7.
a reversal in 2010 of certain income tax contingencies allowed to be recognized as a result of effectively settling the transfer pricing
portion of the Internal Revenue Service
’
s audit of our income tax returns for 2004 through 2008.
1.
an increase during 2010 in the portion of our income being taxed in foreign jurisdictions and subject to lower tax rates than in the
U.S.;
2.
an impairment of certain auction rate securities in 2009, which caused an increase in the effective tax rate for the year due to the
recognition of a valuation allowance;