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Income Taxes
 12 Months Ended
Dec. 31, 2011
Income Taxes [Abstract]  
INCOME TAXES

14.  INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of December 31 were as follows (in thousands):

 

                 
    2011     2010  

Deferred tax assets:

                

Research and development tax credit carryforwards

   $ 8,707     $ 7,772  

Inventory reserves

     2,255       1,905  

Stock-based compensation

     1,830       1,224  

Vacation accrual

     1,543       1,500  

Investment tax credit carryforwards

     1,381       1,249  

Net operating loss carryforwards

     1,201       1,075  

Capital loss carryforward

     700       700  

Deferred revenue

     635       395  

Alternative minimum tax credit carryforward

     556       1,045  

Unrealized loss on investments

     568       1,023  

Warranty reserves

     144       189  

Bad debt reserves

     92       103  

Other

     855       588  
   

 

 

    

 

 

  

Total deferred tax assets

     20,467       18,768  

Less: Valuation allowance for deferred tax assets

     (9,736 )      (10,259 ) 
   

 

 

    

 

 

  

Net deferred tax assets

     10,731       8,509  

Deferred tax liabilities:

                

Depreciation

     (3,251 )      (1,564 ) 

Prepaid expenses

     (660 )      —  

Goodwill

     (628 )      (549 ) 

Patent amortization

     (544 )      (594 ) 

Unremitted Vicor Custom earnings

     (337 )      (320 ) 

Other

     (593 )      (513 ) 
   

 

 

    

 

 

  

Total deferred tax liabilities

     (6,013 )      (3,540 ) 
   

 

 

    

 

 

  

Net deferred tax assets

  $ 4,718     $ 4,969  
   

 

 

    

 

 

  

In 2011 and 2010, the tax provision is based on the annual effective tax rate for the year, which includes estimated federal, state and foreign income taxes on the Company’s pre-tax income and estimated federal and state income taxes for certain noncontrolling interest subsidiaries that are not part of the Company’s consolidated income tax returns, offset in 2010 by the expected utilization of federal and foreign net operating loss carryforwards.

Prior to September 30, 2010, the Company maintained a valuation allowance against a significant portion of its deferred tax assets, consisting of net operating loss carryforwards, tax credit carryforwards and deductible temporary differences. Based on the Company’s pre-tax income for the nine months ended September 30, 2010 being sufficient to fully utilize its net operating loss carryforwards, a history of cumulative earnings before taxes for financial reporting purposes over a 12-quarter period, and expected future taxable income, management determined it was more likely than not a significant portion of the deferred tax assets would be realized. As a result, at September 30, 2010, the Company determined that it was appropriate to reverse a portion of its valuation allowance by $5,158,000 as a discrete benefit for income taxes for certain deductible temporary differences expected to be realized in future periods. An additional benefit of $1,159,000 was recorded in the fourth quarter of 2010. Management could not make such a determination in the prior quarters of fiscal 2010 due to a lack of confidence in being able to accurately forecast the expected ordinary income (loss) for the year largely due to global economic conditions and the possible impact continued economic and business uncertainty would have on the Company’s business at those times. The 2011 and 2010 tax provisions also include discrete items, principally related to tax credits and expense for net increases in state taxes and accrued interest for potential liabilities.

The tax provision in 2009 provided for estimated income taxes due in various state and international taxing jurisdictions for which losses incurred by the Company cannot be offset, and for estimated federal and state income taxes for certain noncontrolling interests that are not part of the Company’s consolidated income tax returns, offset by the expected utilization of federal and foreign net operating loss carryforwards. The 2009 tax provision also includes discrete items, including benefits for the receipt of refunds for net operating loss carryback claims and for an expected refund due to certain monetized credits, and expense for increases in state taxes and accrued interest for potential liabilities.

As of December 31, 2011, the Company has a remaining valuation allowance of approximately $9,736,000 against certain deferred tax assets, for which realization cannot be considered more likely than not at this time. Such deferred tax assets principally relate to tax credit carryforwards in certain state tax jurisdictions for which sufficient taxable income for utilization cannot be projected at this time or the credits may expire without being utilized. Management assesses the need for the valuation allowance on a quarterly basis. If and when management determines the valuation allowance should be released, the adjustment would result in a tax benefit in the Consolidated Statements of Operations and may include a portion to be accounted for through “Additional paid-in capital”, a component of Stockholders’ Equity. The amount of the tax benefit to be recorded in a particular quarter could be material.

For financial reporting purposes, income before income taxes for the years ended December 31 include the following components (in thousands):

 

                         
    2011     2010     2009  

Domestic

   $ 13,406     $ 28,973     $ 5,236  

Foreign

     626       646       219  
   

 

 

    

 

 

    

 

 

  
    $ 14,032     $ 29,619     $ 5,455  
   

 

 

    

 

 

    

 

 

  

Significant components of the provision (benefit) for income taxes for the years ended December 31 are as follows (in thousands):

 

                         
    2011     2010     2009  

Current:

                        

Federal

   $ 3,624     $ 1,187     $ 939  

State

     496       958       422  

Foreign

     455       209       75  
   

 

 

    

 

 

    

 

 

  
      4,575       2,354       1,436  

Deferred:

                        

Federal

     148       (6,274 )      (74 ) 
   

 

 

    

 

 

    

 

 

  
    $ 4,723     $ (3,920 )    $ 1,362  
   

 

 

    

 

 

    

 

 

  

 

The Company intends to continue to reinvest certain of its foreign earnings indefinitely. Accordingly, no U.S. income taxes have been provided for approximately $2,610,000 of unremitted earnings of international subsidiaries. As of December 31, 2011, the amount of unrecognized deferred tax liability on these earnings was $204,000.

The reconciliation of the federal statutory rate to the effective income tax rate for the years ended December 31 is as follows:

 

                         
    2011     2010     2009  

Statutory federal tax rate

     35.0 %      34.0 %      35.0 % 

State income taxes, net of federal income tax benefit

     3.4       2.7       9.2  

Increase (reduction) in tax reserves

     0.6       2.3       (2.1 ) 

Permanent items

     0.5       0.2       4.0  

Foreign rate differential and deferred items

     0.6       (1.0 )      (0.9 ) 

Tax credits

     (4.0 )      —       2.3  

U.S. manufacturing deduction

     (2.0 )      (0.9 )      —  

Book income attributable to noncontrolling interest

     (1.4 )      (0.3 )      (8.3 ) 

Decrease in valuation allowance

     —       (49.7 )      (14.2 ) 

Other

     1.0       (0.5 )      —  
   

 

 

    

 

 

    

 

 

  
      33.7 %      (13.2 %)      25.0 % 
   

 

 

    

 

 

    

 

 

  

As a result of the difference in treatment of excess stock option deductions available for income tax return and financial statement reporting purposes, the Company has approximately $1,012,000 of federal research and development tax credit and $396,000 of federal alternative minimum tax credit carryforwards that may be offset against future taxable income, which are included in the components of deferred tax assets disclosed above. It is anticipated that when these tax attributes are realized on an income tax return in the future, the related benefit will be recorded against “Additional paid-in capital”. The research and development tax credit carryforwards expire beginning in 2016 for state purposes and in 2025 for federal purposes. The Company has net operating loss carryforwards in certain states, which began expiring in 2010.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

 

         

Balance on January 1, 2011

   $ 1,102  

Additions based on tax provisions related to the current year

     269  

Additions for tax positions of prior years

     34  
   

 

 

  

Balance on December 31, 2011

   $ 1,405  
   

 

 

  

The Company has reviewed the tax positions taken, or to be taken, in its tax returns for all tax years currently open to examination by a taxing authority. The total amount of unrecognized tax benefits, that is the aggregate tax effect of differences between tax return positions and the benefits recognized in the Company’s financial statements, on December 31, 2011 of $1,405,000 including accrued interest, if recognized, may decrease the Company’s income tax provision and effective tax rate. None of the unrecognized tax benefits as of December 31, 2011 are expected to significantly change during the next twelve months. The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. As of December 31, 2011, the Company has accrued approximately $145,000 for the potential payment of interest and recorded approximately $68,000 of income tax expense for interest, net of related tax benefits, for the year ended December 31, 2011.

 

The Company files income tax returns in the United States and various foreign tax jurisdictions. These tax returns are generally open to examination by the relevant tax authorities from three to seven years from the date they are filed. The tax filings relating to the Company’s federal and state taxes are currently open to examination for tax years 2008 through 2010 and 2003 through 2010, respectively. In addition, the 2003, 2004 and 2007 tax years resulted in losses. These years may also be subject to examination since the losses were carried forward and utilized in future years. In January 2012, the Company received a notice from the State of New York that its New York corporate tax returns for the tax years 2008 through 2010 had been selected for audit. There are no other income tax audits currently in process.