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Income Taxes
9 Months Ended
Sep. 30, 2011
Income Taxes [Abstract] 
Income Taxes

12. Income Taxes

For the three and nine months ended September 30, 2011, the Company recorded income tax benefit, including discrete items, of $11.2 million and $10.6 million, respectively. These amounts vary from the income tax benefit that would be computed at the U.S. statutory rate resulting from its operating losses during the same period primarily due to an offsetting increase in the Company's U.S.-based deferred tax valuation allowance, the release of accruals related to uncertain tax positions, and expenses attributable to foreign operations.

The Company recognizes federal, state and foreign current tax liabilities or assets based on its estimate of taxes payable to or refundable by tax authorities in the current fiscal year. The Company also recognizes federal, state and foreign deferred tax liabilities or assets based on the Company's estimate of future tax effects attributable to temporary differences and carry forwards. The Company records a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available evidence and judgment, are not expected to be realized.

The Company assesses whether a valuation allowance should be recorded against its deferred tax assets based on the consideration of all available evidence, using a "more likely than not" realization standard. The four sources of taxable income that must be considered in determining whether deferred tax assets will be realized are: (1) future reversals of existing taxable temporary differences (i.e., offset of gross deferred tax assets against gross deferred tax liabilities); (2) taxable income in prior carryback years, if carryback is permitted under the applicable tax law; (3) tax planning strategies; and (4) future taxable income exclusive of reversing temporary differences and carryforwards.

In assessing whether a valuation allowance is required, significant weight is to be given to evidence that can be objectively verified. A significant factor in the Company's assessment is that the Company is in a three-year historical cumulative loss position. This fact, combined with uncertain near-term market and economic conditions, reduced the Company's ability to rely on projections of future taxable income in assessing the realizability of its deferred tax assets.

After a review of the four sources of taxable income as of September 30, 2011 (as described above), the Company recognized an increase in the valuation allowance primarily related to its U.S.-based deferred tax amounts resulting from carryforward net operating losses generated during the three and nine months ended September 30, 2011. These deferred tax benefits, combined with the increased valuation allowance, resulted in income tax expense of $46,000 and $372,000 for the three and nine months period ended September 30, 2011, respectively. The Company's valuation allowance was $34.7 million on gross deferred tax assets of $37.0 million at September 30, 2011. The net unreserved portion of the Company's remaining deferred tax assets at September 30, 2011 primarily related to research and development tax credits associated with the Company's Canadian subsidiary.

The Company follows the accounting guidance related to financial statement recognition, measurement and disclosure of uncertain tax positions. The Company recognizes the impact of an uncertain income tax position at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. During the three months ended September 30, 2011, the Company released $11.8 million of reserves related to uncertain tax positions due to expiration of the applicable statutes of limitations for certain tax years. As of September 30, 2011 and December 31, 2010, the total liability for unrecognized tax benefits was $411,000 and $12.0 million, respectively, and is included in other long-term liabilities on the Company's consolidated balance sheets. For the three and nine months ended September 30, 2011, the Company included $3,000 and $31,000, respectively, of interest expense related to uncertain tax positions in its Consolidated Statements of Operations.

 

As a result of a $1.7 million correction to the November 30, 2010 acquisition value of Enfora's intangible assets (Note 1), the Company recorded a corresponding correction of $612,000 to its net deferred tax assets during the three months ended September 30, 2011, with a corresponding charge to income tax expense.

Also during the three months ended September 30, 2011, the Company completed its assessment of deferred tax benefits resulting from related to its acquisition of Enfora in 2010. As a result, the Company decreased its estimate of deferred tax assets acquired by $297,000, with a corresponding charge to income tax expense.

The Company and its subsidiaries file U.S., state, and foreign income tax returns in jurisdictions with various statutes of limitations. The California Franchise Tax Board is currently conducting an examination of the Company's California income tax returns for 2006 and 2007. The Internal Revenue Service is currently conducting an examination of the Company's U.S. income tax return for 2009. The Company is also subject to various income federal tax examinations for the 2001 through 2010 calendar years due to the availability of net operating loss carryforwards. The Company believes appropriate provisions for all outstanding issues have been made for all jurisdictions and all open years. However, because audit outcomes and the timing of audit settlements are subject to significant uncertainty, the Company's current estimate of the total amounts of unrecognized tax benefits could increase or decrease for all open years. Currently, the Company does not anticipate that there will be any material change in the recognized tax benefits within next twelve months.