INCOME TAXES

12 Months Ended

Dec. 31, 2011

Notes To Financial Statements [Abstract]

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