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Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2012
Income Taxes |
Income Taxes | Note 18. Income Taxes Income (loss) before income taxes are as follows:
|  | Years ended December 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
|  | (in thousands) |
United States |  | $ | (37,682 | ) | $ | 2,622 |  | $ | (21,526 | )
Foreign |  |  | 5,294 |  |  | 4,849 |  |  | 4,265 |
Income (loss) before income taxes |  | $ | (32,388 | ) | $ | 7,471 |  | $ | (17,261 | )
Income taxes (credits) are as follows:
|  | Years ended December 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
|  | (in thousands) |
Current: |  |  |  |  |  |  |  |  |  |
United States |  |  |  |  |  |  |  |  |  |
Federal |  | $ | — |  | $ | — |  | $ | — |
State |  |  | 82 |  |  | 163 |  |  | 309 |
Foreign |  |  | 738 |  |  | 1,646 |  |  | 1,528 |
Total current |  |  | 820 |  |  | 1,809 |  |  | 1,837 |
Deferred: |  |  |  |  |  |  |  |  |  |
Foreign |  |  | 826 |  |  | 585 |  |  | (1,525 | )
Total deferred |  |  | 826 |  |  | 585 |  |  | (1,525 | )
Income taxes |  | $ | 1,646 |  | $ | 2,394 |  | $ | 312 |
Reconciliations of income taxes at the United States Federal statutory rate to the effective income tax rate are as follows:
|  | Years ended December 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
|  | (in thousands) |
Income (credit) at the United States statutory rate |  | $ | (11,336 | ) | $ | 2,615 |  | $ | (6,041 | )
State income taxes |  |  | 53 |  |  | 31 |  |  | 309 |
Unrecognized tax benefits |  |  | (832 | ) |  | 899 |  |  | 842 |
Effect of change in valuation allowance |  |  | 12,662 |  |  | (3,160 | ) |  | 6,550 |
Foreign income tax rate differentials |  |  | (788 | ) |  | (365 | ) |  | (1,490 | )
Restoration of foreign deferred tax assets |  |  | — |  |  | — |  |  | (1,329 | )
Foreign dividend |  |  | 383 |  |  | — |  |  | — |
Stock options |  |  | 1,298 |  |  | — |  |  | — |
Deemed distribution from foreign subsidiaries |  |  | 149 |  |  | 1,533 |  |  | 2,152 |
Other, net |  |  | 57 |  |  | 841 |  |  | (681 | )
Income taxes |  | $ | 1,646 |  | $ | 2,394 |  | $ | 312 |
Significant components of current and long-term deferred income taxes are as follows:
|  | As of December 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |
|  | Current |  | Long Term |  | Current |  | Long Term |
|  | (in thousands) |
Federal net operating loss carryforwards |  | $ | — |  | $ | 88,088 |  | $ | — |  | $ | 79,163 |
State net operating loss carryforwards |  |  | — |  |  | 1,181 |  |  | — |  |  | 2,685 |
Foreign net operating loss carryforwards |  |  | — |  |  | 1,853 |  |  | — |  |  | 1,821 |
Federal tax credit carryforwards |  |  | — |  |  | 17,814 |  |  | — |  |  | 15,505 |
State tax credit carryforwards |  |  | — |  |  | 9,051 |  |  | — |  |  | 9,051 |
Unremitted earnings of foreign subsidiaries |  |  | — |  |  | (8,580 | ) |  | — |  |  | (10,370 | )
Intangible assets |  |  | — |  |  | 661 |  |  | — |  |  | 803 |
Property, plant and equipment |  |  | — |  |  | 5,925 |  |  | — |  |  | 5,589 |
Accrued compensation |  |  | 352 |  |  | 368 |  |  | 541 |  |  | — |
Inventories |  |  | 22,582 |  |  | (215 | ) |  | 22,447 |  |  | — |
Stock compensation |  |  | — |  |  | 4,378 |  |  | — |  |  | 3,970 |
Warranty |  |  | 612 |  |  | 36 |  |  | 1,293 |  |  | 51 |
Other |  |  | 1,820 |  |  | 917 |  |  | 1,243 |  |  | (3,814 | )
Deferred taxes, gross |  |  | 25,366 |  |  | 121,477 |  |  | 25,524 |  |  | 104,454 |
Valuation allowance |  |  | (25,062 | ) |  | (119,605 | ) |  | (24,160 | ) |  | (102,814 | )
Deferred taxes, net |  | $ | 304 |  | $ | 1,872 |  | $ | 1,364 |  | $ | 1,640 |
At December 31, 2012, the Company had $146.8 million of deferred tax assets relating to net operating loss carryforwards, tax credit carryforwards and other temporary differences, which are available to reduce income taxes in future years. A valuation allowance must be established when it is "more likely than not" that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including a company's performance, the market environment in which the company operates, length of carryback and carryforward periods, existing sales backlog, and projections of future operating results. Where there are cumulative losses in recent years there is a strong presumption that a valuation allowance is needed. This presumption can be overcome in very limited circumstances. The Company is in a three year cumulative loss position in the United States. As a result, the Company maintains a 100% valuation allowance for entities in those tax jurisdictions to reduce the carrying value of deferred tax assets to zero. The Company will continue to maintain a full valuation allowance for those tax assets until sustainable future levels of profitability are evident. Changes in the valuation allowance in 2012 and 2011 were attributable to changes in the composition of temporary differences and changes in net operating loss carryforwards. At December 31, 2012, the Company has federal and state net operating loss carryforwards of approximately $89.3 million and foreign net operating loss carryforwards of approximately $1.9 million expiring principally between 2013 and 2032. The Company has research and development and other tax credit carryforwards of approximately $21.8 million at December 31, 2012 that can be used to reduce future federal and state income tax liabilities. These tax credit carryforwards expire principally between 2022 and 2028. In addition, the Company has foreign tax credit carryforwards of approximately $5.0 million at December 31, 2012 that are available to reduce future U.S. income tax liabilities subject to certain limitations. These foreign tax credit carryforwards expire between 2013 and 2016. It is Company policy to provide taxes for the total anticipated tax impact of the undistributed earnings of our wholly-owned foreign subsidiaries', as such earnings are not expected to be reinvested indefinitely. The Company anticipates that US tax resulting from remitting such earnings will be off-set by net operating loss or credit carryforwards to the extent available. In addition, the Company does not anticipate incurring a foreign withholding tax on remitting such earnings since it does not intend to remit the earnings as dividends. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company and most foreign subsidiaries are subject to income tax examinations by tax authorities for all years dating back to 2001. The Company's policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. The Company believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter. At December 31, 2012, the Company had unrecognized tax benefits of approximately $7.7 million, of which approximately $5.1 million reduced the Company's deferred tax assets and the offsetting valuation allowance and $2.6 million was recorded in other long-term liabilities. The Company does not expect any significant changes in unrecognized tax benefits in 2013. A reconciliation of the beginning and ending balance of unrecognized tax benefits are as follows:
|  | 2012 |  | 2011 |
--- | --- | --- | --- | --- | ---
|  | (in thousands) |
Balance at beginning of year |  | $ | 8,089 |  | $ | 6,965 |
Increases in unrecognized tax benefits as a result of tax positions taken during a prior period |  |  | 646 |  |  | 1,124 |
Decreases in unrecognized tax benefits related to settlements with tax authorities |  |  | (880 | ) |  | — |
Increases in unrecognized tax benefits as a result of tax positions taken during the current period |  |  | 663 |  |  | — |
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations |  |  | (799 | ) |  | — |
Balance at end of year |  | $ | 7,719 |  | $ | 8,089 |
Recorded as other long-term liability |  | $ | 2,646 |  | $ | 3,244 |
Recorded as a decrease in deferred tax assets and offsetting valuation allowance |  |  | 5,073 |  |  | 4,845 |
|  | $ | 7,719 |  | $ | 8,089 |

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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 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 2: 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 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: 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 5: 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 6: 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 7: 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 8: 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 + Details
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