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Income Taxes | 12 Months Ended
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Dec. 31, 2012
INCOME TAXES [Abstract] |
Income Taxes | INCOME TAXES Acacia’s provision for income taxes consists of the following (in thousands):
|  | 2012 |  | 2011 |  | 2010
Current: |  |  |  |  |  |
Federal |  | $ | — |  |  | $ | 179 |  |  | $ | — |
State taxes |  | 281 |  |  | 943 |  |  | 1,473 |
Foreign taxes |  | 11,890 |  |  | 7,586 |  |  | 267 |
Total current |  | 12,171 |  |  | 8,708 |  |  | 1,740 |
Deferred: |  |  |  |  |  |
Federal |  | 10,085 |  |  | — |  |  | — |
State taxes |  | (196 | ) |  | — |  |  | — |
Total deferred |  | 9,889 |  |  | — |  |  | — |
Provision for income taxes |  | $ | 22,060 |  |  | $ | 8,708 |  |  | $ | 1,740 |
The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consist of the following at December 31, 2012 and 2011 (in thousands):
|  | 2012 |  | 2011
Deferred tax assets: |  |  |  |
Net operating loss and capital loss carryforwards and credits |  | $ | 15,668 |  |  | $ | 7,626 |
Amortization and depreciation |  | — |  |  | 6,252 |
Stock compensation |  | 1,140 |  |  | 2,665 |
Basis of investments in affiliates |  | 415 |  |  | 1,375 |
Accrued liabilities and other |  | 250 |  |  | 471 |
Unrealized loss on short-term investments |  | 415 |  |  | 746 |
State taxes |  | 212 |  |  | 124 |
Other |  | — |  |  | 278 |
Total deferred tax assets |  | 18,100 |  |  | 19,537 |
Deferred tax liabilities: |  |  |  |
State taxes |  | — |  |  | — |
Fixed assets and intangibles |  | (39,457 | ) |  | — |
Other |  | (60 | ) |  | — |
Total deferred tax liabilities |  | (39,517 | ) |  | — |
Net deferred tax liabilities |  | (21,417 | ) |  | 19,537 |
Less: valuation allowance |  | (5,396 | ) |  | (19,537 | )
Net deferred taxes |  | $ | (26,813 | ) |  | $ | — |
A reconciliation of the federal statutory income tax rate and the effective income tax rate is as follows:
|  | 2012 |  | 2011 |  | 2010
Statutory federal tax rate |  | 35 | % |  | 35 | % |  | 34 | %
State income and foreign taxes, net of federal tax effect |  | 15 | % |  | 27 | % |  | 5 | %
Foreign tax credit |  | (15 | )% |  | (25 | ) |  | — |
Noncontrolling interests in operating subsidiaries |  | — | % |  | (1 | )% |  | (3 | )%
Equity compensation |  | — |  |  | — | % |  | (1 | )%
Nondeductible permanent items |  | 5 | % |  | 4 |  |  | — |
Expired net operating loss carryforwards |  | — | % |  | 1 | % |  | 1 |
Valuation allowance |  | (13 | )% |  | (12 | )% |  | (32 | )%
|  | 27 | % |  | 29 | % |  | 4 | %
Release of Valuation Allowance. As of December 31, 2011, Acacia maintained a full valuation allowance against its net deferred tax assets. The net deferred tax liability resulting from the acquisition of ADAPTIX in January 2012 created an additional source of income to utilize against the majority of Acacia's existing consolidated net deferred tax assets. In addition, Acacia estimated that certain other deferred tax assets related to foreign tax credits and other state related deferreds were more likely than not realizable in future periods. Accordingly, the valuation allowance on the majority of the Company's net deferred tax assets was released, resulting in a financial statement income tax benefit of $10,651,000 for the year ended December 31, 2012. At December 31, 2012, the Company has recorded valuation allowances for certain tax attribute carryforwards and other deferred tax assets due to uncertainty that exists regarding future realizability. Valuation allowances were recorded on deferred tax assets related to capital loss carryforwards totaling $2,935,000, and certain net operating loss carryforwards, totaling $2,046,000, which expire in varying amounts from 2013 through 2032. The valuation allowance also includes $415,000 related to unrealized losses on short-term investments and other deferred tax assets. If, in future periods, Acacia believes that it is more likely than not that these deferred tax benefits will be realized, the majority of the valuation allowances will be recognized in the statement of income. At December 31, 2012, Acacia had U.S. federal and state income tax NOLs totaling approximately $37,855,000 and $55,559,000, expiring between 2025 and 2031, and 2013 and 2030, respectively, for which $0 and $554,000 of federal and state net operating losses are included as a deferred tax asset which will be credited to additional paid-in capital when realized as a reduction of taxes payable on Acacia’s tax return. In addition, $1,928,000 and $33,166,000 of federal and state net operating losses are not included as a deferred tax asset and will be credited to additional paid-in capital when realized as a reduction of taxes payable on Acacia’s tax return as they relate to unrecognized excess tax benefits (see additional information regarding the ordering of windfall tax benefits and use of the "with-and-without" approach below). As of December 31, 2012, $0 and $554,000 of the valuation allowance related to the tax benefits of stock option deductions included in Acacia’s federal and state NOLs deferred tax asset, respectively. Approximately $33,736,000 of the U.S. federal NOLs, acquired in connection with the acquisition of ADAPTIX, are subject to an annual utilization limitation of approximately $14,100,000, pursuant to the "change in ownership" provisions under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). The Company has elected to utilize the “with-and-without approach” regarding ordering of windfall tax benefits to determine whether the windfall tax benefit has reduced taxes payable. Under this approach, the windfall tax benefits would be recognized in additional paid in capital only if an incremental tax benefit is realized after considering all other tax benefits presently available to the Company. Accordingly, the Company recorded income tax benefits of $13,210,000 and $583,000 through additional paid in capital in 2012 and 2011, respectively. In addition, as of December 31, 2012 Acacia has approximately $20,313,000 of foreign tax credits, expiring between 2015 and 2022. Realization of the credits as a reduction of taxes payable on Acacia's tax return will result in an income tax benefit recognizable through additional paid in capital since the entire amount of the credits have been utilized for financial statement purposes under the 'with-and-without approach.” In general, foreign taxes withheld may be claimed as a deduction on future U.S. corporate income tax returns, or as a credit against future U.S. income tax liabilities, subject to certain limitations. The tax provisions for the respective periods provide for the utilization of the foreign taxes withheld as a credit against income tax expense calculated for financial statement purposes. The Company's effective tax rate for the year ended December 31, 2012 differs from the federal statutory rate primarily due to the benefit associated with the release of valuation allowance described above and the impact of foreign withholding taxes withheld by the applicable foreign tax authority, on revenue agreements executed during fiscal year 2012, with third party licensees domiciled in certain foreign jurisdictions, totaling $11,890,000. The increase in the Company’s effective tax rate for the year ended December 31, 2011, as compared to the year ended December 31, 2010, primarily reflects the impact of foreign withholding taxes totaling $7,586,000, which were withheld by the applicable foreign tax authority pursuant to the requirements of the applicable income tax convention, on payments in connection with certain licensing arrangements executed during fiscal year 2011. In general, foreign taxes withheld may be claimed as a deduction on future U.S. corporate income tax returns, or as a credit against future U.S. income tax liabilities, subject to certain limitations. The deductions related to the exercise and vesting of equity-based incentive awards during the periods presented are, in general, available to offset taxable income on Acacia’s consolidated tax returns (subject to suspension of use for certain tax years in California, as described below). Accordingly, the excess tax benefit related to the exercise and vesting of equity-based incentive awards for the periods presented, was credited to additional paid-in capital, not taxes payable. The actual tax benefit realized for excess tax deductions resulting from the exercise and vesting of equity-based incentive awards (noncash tax expense) totaled $13,210,000, $583,000 and $1,302,000 for the years ended December 31, 2012, 2011 and 2010, respectively. In October 2010, the State of California passed a state budget including provisions furthering the suspension of the use of NOLs, for the 2010 and 2011 tax years. As a result, California State NOLs were not available to offset California taxable income for the 2010 or 2011 tax years. As of December 31, 2012 the State of California has not extended the suspension period. Acacia is subject to taxation in the U.S. and various state jurisdictions. With no material exceptions, Acacia is no longer subject to U.S. federal or state examinations by tax authorities for years before 1995. The U.S. Internal Revenue Service is auditing our 2010 Federal consolidated income tax return. The audit is in process and no findings or adjustments have been proposed by the IRS. At December 31, 2012, the Company had total unrecognized tax benefits of approximately $2,127,000, including a recorded noncurrent liability of $85,000, related to unrecognized tax benefits primarily associated with state taxes. No interest and penalties have been recorded for the unrecognized tax benefits as of December 31, 2012. If recognized, approximately $2,127,000 would impact the Company's effective tax rate. The Company does not expect that the liability for unrecognized tax benefits will change significantly within the next 12 months. Activity related to the gross unrecognized tax benefits for the year ended December 31, 2012 was as follows (in thousands):
Balance at January 1, 2012 |  | $ | 85 |
Additions based on tax positions related to the current year |  | — |
Additions for tax positions related to prior years |  | 772 |
Additions resulting from the acquisition of ADAPTIX |  | 1,270 |
Reductions |  | — |
Balance at December 31, 2012 |  | $ | 2,127 |

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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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