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INCOME TAXES | 12 Months Ended
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Dec. 31, 2011
Notes To Financial Statements [Abstract] |
Income Taxes | NOTE 8: INCOME TAXES The components of the Company’s loss before income taxes are attributable to the following jurisdictions for the years ended December 31 (in thousands):
| 2011 |  | 2010 |  | 2009
United States | $ | (11,551 | ) |  | $ | (7,920 | ) |  | $ | (23,945 | )
Foreign |  | (6,327 | ) |  |  | (3,120 | ) |  |  | (130 | )
| $ | (17,878 | ) |  | $ | (11,040 | ) |  | $ | (24,075 | )
The components of the Company’s income tax provision (benefit) for the years ended December 31 are as follows (in thousands):
Current provision (benefit): |  | 2011 |  | 2010 |  | 2009 |
Federal |  | $ | 2,002 |  |  | $ | 799 |  |  | $ | (8,521 | )
State |  |  | 127 |  |  |  | 235 |  |  |  | (1 | )
Foreign |  |  | 1,197 |  |  |  | 490 |  |  |  | 886 |
|  |  | 3,326 |  |  |  | 1,524 |  |  |  | (7,636 | )
Deferred provision (benefit): |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (347 | ) |  |  | (1,607 | ) |  |  | 269 |
State |  |  | 18 |  |  |  | (191 | ) |  |  | 140 |
Foreign |  |  | (216 | ) |  |  | (150 | ) |  |  | 520 |
|  |  | (545 | ) |  |  | (1,948 | ) |  |  | 929 |
|  | $ | 2,781 |  |  | $ | (424 | ) |  | $ | (6,707 | )
A reconciliation of the Company’s effective income tax rate and the United States federal statutory income tax rate is summarized as follows, for the years ended December 31:
|  | 2011 |  | 2010 |  | 2009
Federal statutory income taxes |  | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State income taxes, net of federal benefit |  | 1.1 |  |  | 1.3 |  |  | 1.6 |
Difference in foreign and United States tax on foreign operations |  | (6.7 | ) |  | (5.7 | ) |  | (3.0 | )
Effect of changes in valuation allowance for net operating loss carryforwards |  | (32.1 | ) |  | (10.3 | ) |  | (7.2 | )
Effect of change in uncertain tax positions (net) |  | (10.5 | ) |  | (17.5 | ) |  | 0.9 |
Federal Sub-Part F Income from foreign operations |  | (2.9 | ) |  | (6.3 | ) |  | 0.0 |
Research and experimentation income tax credits |  | 0.0 |  |  | 8.0 |  |  | 0.0 |
Other |  | 0.5 |  |  | (0.7 | ) |  | 0.6 |
|  | (15.6 | )% |  | 3.8 | % |  | 27.9 | %
For the years ended December 31, 2011, 2010 and 2009, the Company’s effective tax rate was (15.6)%, 3.8% and 27.9%, respectively. For 2011, the Company had a provision for income tax despite the pre-tax losses primarily because of increases in the valuation allowance for deferred tax assets, increases in uncertain income tax positions, and differences from foreign operations. For 2010 and 2009, the Company’s effective income tax rate was lower than what would be expected if the federal statutory income tax rate were applied to income before taxes primarily because of increases in the valuation allowance for deferred tax assets, increases in uncertain income tax positions, and favorable differences from foreign operations. 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 consisted of the following at December 31 (in thousands):
|  | 2011 |  | 2010
Deferred tax assets: |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |
Deferred revenue |  | $ | 23 |  | $ | 25 |
Inventory capitalization |  |  | 837 |  |  | 917 |
Inventory reserves |  |  | 451 |  |  | 430 |
Accrued expenses |  |  | 2,643 |  |  | 1,158 |
Net operating loss |  |  | — |  |  | — |
Other |  |  | 147 |  |  | 1,400 |
Total current deferred tax assets |  |  | 4,101 |  |  | 3,930 |
Noncurrent: |  |  |  |  |  |  |
Depreciation and amortization |  |  | 1,539 |  |  | — |
Net operating loss(1) |  |  | 5,731 |  |  | 3,251 |
Deferred royalty |  |  | 482 |  |  | 625 |
Non-cash accounting charges related to stock options and warrants |  |  | 684 |  |  | 604 |
Accrued expenses |  |  | 79 |  |  | 178 |
Other |  |  | 1,176 |  |  | 1,333 |
Total noncurrent deferred tax assets |  |  | 9,691 |  |  | 5,991 |
Total deferred tax assets |  |  | 13,792 |  |  | 9,921 |
Valuation allowance |  |  | (9,503 | ) |  | (4,059 | )
Total deferred tax assets, net of valuation allowance |  | $ | 4,289 |  | $ | 5,862 |
Deferred tax liabilities: |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |
Prepaid expenses |  | $ | 528 |  | $ | 608 |
Other |  |  | 18 |  |  | 1,066 |
Total current deferred tax liabilities |  |  | 546 |  |  | 1,674 |
Noncurrent: |  |  |  |  |  |  |
Internally-developed software |  |  | 740 |  |  | 1,160 |
Depreciation and amortization |  |  | — |  |  | 963 |
Sub-Part F Income Deferred |  |  | 1,320 |  |  | 801 |
Other |  |  | 161 |  |  | 154 |
Total noncurrent deferred tax liabilities |  |  | 2,221 |  |  | 3,078 |
Total deferred tax liabilities |  | $ | 2,767 |  | $ | 4,752 |
__________________________________________
| (1) The Company’s net operating loss will expire as follows (dollar amounts in thousands):
Jurisdiction |  | Gross NOL |  |  |  | Tax Effected NOL | Expiration Years
Denmark | $ | 8 |  |  | $ | 2 | Indefinite
Mexico |  | 6,297 |  |  |  | 1,889 | 2020-2021
Norway |  | 704 |  |  |  | 197 | Indefinite
Singapore |  | 59 |  |  |  | 10 | Indefinite
Sweden |  | 464 |  |  |  | 122 | Indefinite
Switzerland |  | 9,652 |  |  |  | 887 | 2016-2018
Taiwan |  | 6,318 |  |  |  | 1,074 | 2016-2021
United States (federal) |  | 2,703 |  |  |  | 946 | 2030-2031
United States (states) |  | 24,160 |  |  |  | 604 | 2015-2031
At December 31, 2011 and 2010, the Company’s valuation allowance was $9.5 million and $4.1 million, respectively. The provisions of Topic 740 require a company to record a valuation allowance when the “more likely than not” criterion for realizing a deferred tax asset cannot be met. A company is to use judgment in reviewing both positive and negative evidence of realizing a deferred tax asset. Furthermore, the weight given to the potential effect of such evidence is commensurate with the extent the evidence can be objectively verified. The valuation allowances presented below (in millions) at December 31, 2011 and 2010, represented a reserve against the Company’s net deferred tax asset the Company believed the “more likely than not” criterion for recognition purposes could not be met.
Country | 2011 |  | 2010
Mexico | $ | 1,889 |  | $ | 834
Norway |  | 198 |  |  | 170
Sweden |  | 122 |  |  | 98
Switzerland |  | 784 |  |  | 505
Taiwan |  | 1,074 |  |  | 995
United States |  | 5,436 |  |  | 1,457
Total | $ | 9,503 |  | $ | 4,059
At December 31, 2011 and 2010, the Company did not record a provision for any United States or foreign withholding taxes on its undistributed earnings related to its foreign subsidiaries because it is the intention of the Company to reinvest its undistributed earnings indefinitely in its foreign operations. Generally, such earnings become subject to United States income tax upon the remittance of dividends and under certain other circumstances. At December 31, 2011, it is not practicable to estimate the amount of deferred tax liability on such undistributed earnings. Deferred tax assets (liabilities) are classified in the accompanying Consolidated Balance Sheets of December 31 as follows (in millions):
|  | 2011 |  | 2010 |
Current deferred tax assets |  | $ | 936 |  |  | $ | 2,607 |
Noncurrent deferred tax assets |  |  | 772 |  |  |  | 649 |
Current deferred tax liabilities |  |  | (185 | ) |  |  | (243 | )
Noncurrent deferred tax liabilities |  |  | (1 | ) |  |  | (1,903 | )
Net deferred tax assets (liabilities) |  | $ | 1,522 |  |  | $ | 1,110 |
On January 1, 2007, the Company adopted FIN 48, which was codified into Topic 740, which prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements, uncertain tax positions that it has taken or expects to take on a tax return. Topic 740 requires that a company recognize in its financial statements the impact of tax positions that meet a “more likely than not” threshold, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. As of December 31, 2011, the Company recorded $1.5 million in current liabilities and $2.5 million in other long-term liabilities related to uncertain income tax positions and income tax reserves associated with various audits. At December 31, 2011, the Company had gross tax-affected unrecognized tax benefits of $4.0 million that, if recognized, would impact the effective tax rate. The Company recognizes penalties and interest charges related to unrecognized tax benefits in current tax expense. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows, for the years ended December 31, 2011 and 2010 (in millions):
| 2011 |  | 2010
Balance as of January 1 | $ | 2,114 |  |  | $ | 178 |
Additions for tax positions related to the current year |  | 570 |  |  |  | — |
Additions for tax positions of prior years |  | 1,300 |  |  |  | 1,936 |
Reductions of tax positions of prior years |  | — |  |  |  | — |
Balance as of December 31 | $ | 3,984 |  |  | $ | 2,114 |
Our 2005-2009 tax years remain subject to examination by the IRS for U.S. federal tax purposes. On May 26, 2011 the IRS issued a Revenue Agent’s report (“RAR”) detailing proposed adjustments for the tax years under examination. The net tax deficiency associated with the RAR is $8.5 million plus penalties of $1.5 million. On July 8, 2011, we filed a protest letter challenging the proposed adjustments contained in the RAR and are pursuing resolution of these items with the Appeals Division of the IRS. There are other ongoing audits in various international jurisdictions that are not material to our financial statements. The Company files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. As of December 31, 2011, the tax years that remained subject to examination by a major tax jurisdiction for the Company’s most significant subsidiaries were as follows:
Jurisdiction |  | Open Years
Australia |  | 2007-2011
Canada |  | 2005-2011
Denmark |  | 2008-2011
Japan |  | 2006-2011
Mexico |  | 2009-2011
Norway |  | 2009-2011
Republic of Korea |  | 2006-2011
Singapore |  | 2008-2011
South Africa |  | 2008-2011
Sweden |  | 2009-2011
Switzerland |  | 2008-2011
Taiwan |  | 2006-2011
United Kingdom |  | 2005-2011
United States |  | 2005-2011

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- Definition Description containing the entire income tax disclosure. Examples 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. This element may be used as a single block of text to encapsulate the entire disclosure including data and tables. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 Reference 3: 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 + Details
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