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Income Taxes | 12 Months Ended
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Aug. 31, 2012
Income Taxes |
Income Taxes |
12. Income Taxes The Company's income (loss) from continuing operations before income taxes is primarily derived from the operations in Taiwan and, therefore, income tax expense (benefit) attributable to income from continuing operations is primarily incurred in Taiwan. The statutory income tax rate in Taiwan is 17%. An additional 10% corporate income tax is assessed on undistributed income for the entities in Taiwan, but only to the extent such income is not distributed or set aside as legal reserve before the end of the following year. The 10% surtax is recorded in the period the income is earned, and the reduction in the surtax liability is recognized in the period the distribution to stockholders or the setting aside of legal reserve is finalized in the following year. The Company's income (loss) before income taxes for the years ended August 31, 2012, 2011 and 2010 consist of the following (in thousands):
|  | Years Ended August 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
U.S. operations |  | $ | (17,361 | ) | $ | (5,342 | ) | $ | (625 | )
Foreign operations |  |  | (32,588 | ) |  | (10,071 | ) |  | 11,720 |
Income (loss) before income taxes |  | $ | (49,949 | ) | $ | (15,413 | ) | $ | 11,095 |
The components of income tax expense for the years ended August 31, 2012, 2011 and 2010 consist of the following (in thousands):
|  | Years Ended August 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
Current: |  |  |  |  |  |  |  |  |  |
U.S. federal |  | $ | — |  | $ | — |  | $ | — |
U.S. state |  |  | — |  |  | — |  |  | — |
Foreign |  |  |  |  |  | 38 |  |  | 851 |
Total current |  | $ | — |  | $ | 38 |  | $ | 851 |
Deferred: |  |  |  |  |  |  |  |  |  |
U.S. federal |  |  | — |  |  | — |  | $ | — |
U.S. state |  |  | — |  |  | — |  |  | — |
Foreign |  |  | — |  |  | 687 |  |  | (584 | )
Total deferred |  | $ | — |  | $ | 687 |  |  | (584 | )
Total income tax expense |  | $ | — |  | $ | 725 |  | $ | 267 |
Income tax expense differed from the amounts computed by applying the statutory U.S. federal income tax rate of 34% to pretax income (loss) for the years ended August 31, 2012, 2011 and 2010 as a result of the following (in thousands):
|  | Years Ended August 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
Computed "expected" income tax expense (benefit) |  | $ | (16,983 | ) | $ | (5,240 | ) | $ | 3,772 |
State tax—net of federal benefit |  |  | — |  |  | — |  |  | — |
Foreign tax rate differential |  |  | 2,487 |  |  | 586 |  |  | (1,920 | )
Decrease (increase) in investment credits |  |  | — |  |  | (1,907 | ) |  | 43 |
Valuation allowance |  |  | 14,089 |  |  | 7,179 |  |  | (1,628 | )
Other |  |  | 407 |  |  | 107 |  |  | — |
Income tax expense |  | $ | — |  | $ | 725 |  | $ | 267 |
Net deferred tax assets (liabilities) as of August 31, 2012 and 2011 consist of the following (in thousands):
|  | August 31, 2012 |  | August 31, 2011 |
--- | --- | --- | --- | --- | ---
Deferred tax assets: |  |  |  |  |  |  |
Inventories, primarily due to inventory obsolescence and lower of cost or market provisions |  | $ | 1,810 |  | $ | 1,303 |
Income tax credits |  |  | 1,912 |  |  | 2,962 |
Allowance for doubtful accounts |  |  | 362 |  |  | 236 |
Accruals and other |  |  | 171 |  |  | 134 |
Property, plant and equipment |  |  | 1,292 |  |  | 12 |
Stock-based compensation |  |  | 651 |  |  | 405 |
Foreign investment loss |  |  | 5,506 |  |  | 942 |
Net operating loss carryforwards |  |  | 11,522 |  |  | 3,633 |
Total gross deferred tax assets |  |  | 23,226 |  |  | 9,627 |
Less: Valuation allowance |  |  | (22,474 | ) |  | (9,346 | )
Deferred tax assets, net of valuation allowance |  | $ | 752 |  | $ | 281 |
Deferred tax liabilities: |  |  |  |  |  |  |
Property, plant and equipment |  | $ | (25 | ) | $ | (46 | )
Intangible assets |  |  | (180 | ) |  | (233 | )
Accruals and other |  |  | (547 | ) |  | (2 | )
Total gross deferred tax liabilities |  |  | (752 | ) |  | (281 | )
Net deferred tax assets |  | $ | — |  | $ | — |
A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and tax loss carryforwards utilizable. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of August 31, 2012 and 2011, the Company established full valuation allowances of $22.5 million and $9.3 million, respectively, to offset the net deferred tax assets due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets. During the years ended August 31, 2012, 2011 and 2010, the change in the beginning of the year valuation allowance as a result of changes in estimates was an increase (a decrease) of $0, $584 thousand and $(1,163) thousand, respectively. As of August 31, 2012, unused net operating loss carryforwards and income tax credits were as follows (in thousands):
|  | August 31, 2012 |  | Expiration Year |
--- | --- | --- | --- | --- | ---
U.S. federal net operating loss carryforwards |  | $ | 6,976 |  |  | 2025 - 2032 |
U.S. state net operating loss carryforwards |  |  | 489 |  |  | 2017 - 2024 |
Foreign net operating loss carryforwards (expiring over the next 5 years) |  |  | 2,224 |  |  | 2013 - 2017 |
Foreign net operating loss carryforwards (expiring in more than 5 years) |  |  | 26,665 |  |  | 2018 - 2023 |
Foreign income tax credit carryovers |  |  | 1,912 |  |  | 2013 - 2015 |
Total unused net operating loss carryforwards and income tax credits |  | $ | 38,266 |  |  |  |
Internal Revenue Code section 382 places a limitation (the "Section 382 Limitation") on the amount of taxable income that can be offset by net operating carryforwards after a change in control of a loss corporation. Generally, after a control change, a loss corporation cannot deduct operating loss carryforwards in excess of the Section 382 Limitation. Management believes that any limitation imposed by Section 382 should not have a significant impact on the utilization of its operating loss carryforwards against taxable income in future periods. Uncertain Tax Positions A reconciliation of the beginning and ending balances of the unrecognized tax benefits during the years ended August 31, 2012, 2011 and 2010 consist of the following (in thousands):
|  | Years Ended August 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
Unrecognized benefit—beginning of year |  | $ | 330 |  | $ | 252 |  | $ | 119 |
Gross increases—current year tax positions |  |  | — |  |  | — |  |  | 89 |
Gross increases—prior years tax positions |  |  | — |  |  | 78 |  |  | 44 |
Settlements of prior years tax positions |  |  | (185 | ) |  | — |  |  | — |
Unrecognized benefit—end of year |  | $ | 145 |  | $ | 330 |  | $ | 252 |
The entire amount of the unrecognized tax benefits would impact the Company's effective tax rate if recognized. The impact would be offset by an adjustment to the valuation allowance. Accrued interest and penalties related to unrecognized tax benefits were immaterial. The Company files income tax returns in the United States, various states and certain foreign jurisdictions. The tax years 2005 through 2011 remain open in most jurisdictions. The Company is not currently under examination by income tax authorities in federal, state or other foreign jurisdictions. The Company does not expect that the total amount of unrecognized tax benefits will change significantly within the next 12 months.

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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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