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INCOME TAXES | 12 Months Ended
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Dec. 31, 2012
INCOME TAXES [Abstract] |
INCOME TAXES | NOTE 8: INCOME TAXES The components of the Company's income (loss) before income taxes are attributable to the following jurisdictions for the years ended December 31 (in thousands):
|  |  | 2012 |  |  |  | 2011 |
United States |  | $ | (778 | ) |  | $ | (11,551 | )
Foreign |  |  | 478 |  |  |  | (6,327 | )
|  | $ | (300 | ) |  | $ | (17,878 | )
The components of the Company's income tax provision (benefit) for the years ended December 31 are as follows (in thousands):
Current provision (benefit): |  |  | 2012 |  |  |  | 2011 |
Federal |  | $ | (743 | ) |  | $ | 2,002 |
State |  |  | 7 |  |  |  | 127 |
Foreign |  |  | 1,437 |  |  |  | 1,197 |
|  |  | 701 |  |  |  | 3,326 |
Deferred provision (benefit): |  |  |  |  |  |  |  |
Federal |  |  | — |  |  |  | (347 | )
State |  |  | — |  |  |  | 18 |
Foreign |  |  | 387 |  |  |  | (216 | )
|  |  | 387 |  |  |  | (545 | )
|  | $ | 1,088 |  |  | $ | 2,781 |
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:
|  | 2012 |  |  | 2011 |
Federal statutory income taxes |  |  | 35.0 | % |  |  | 35.0 | %
State income taxes, net of federal benefit |  |  | 2.6 |  |  |  | 1.1 |
Difference in foreign and United States tax on foreign operations |  |  | (194.0 | ) |  |  | (6.7 | )
Effect of changes in valuation allowance for net operating loss carryforwards |  |  | (106.2 | ) |  |  | (32.1 | )
Effect of change in uncertain tax positions (net) |  |  | 315.2 |  |  |  | (10.5 | )
Federal Sub-Part F Income from foreign operations |  |  | (170.2 | ) |  |  | (2.9 | )
Research and experimentation income tax credits |  |  | 0.0 |  |  |  | 0.0 |
Other |  |  | (245.5 | ) |  |  | 0.5 |
|  |  | (363.1 | )% |  |  | (15.6 | )%
For the years ended December 31, 2012 and 2011, the Company's effective tax rate was (363.1)% and (15.6)%, respectively. For 2012, 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 2011, 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):
|  | 2012 |  |  | 2011 |
Deferred tax assets: |  |  |  |  |  |
Current: |  |  |  |  |  |
Deferred revenue |  | $ | 7 |  |  | $ | 23 |
Inventory capitalization |  |  | 429 |  |  |  | 837 |
Inventory reserves |  |  | 457 |  |  |  | 451 |
Accrued expenses |  |  | 935 |  |  |  | 2,643 |
Other |  |  | 66 |  |  |  | 147 |
Total current deferred tax assets |  |  | 1,894 |  |  |  | 4,101 |
Noncurrent: |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 1,508 |  |  |  | 1,539 |
Net operating loss(1) |  |  | 6,255 |  |  |  | 5,731 |
Deferred royalty |  |  | 119 |  |  |  | 482 |
Non-cash accounting charges related to stock options and warrants |  |  | 491 |  |  |  | 684 |
Accrued expenses |  |  | 409 |  |  |  | 79 |
Other |  |  | 1,117 |  |  |  | 1,176 |
Total noncurrent deferred tax assets |  |  | 9,899 |  |  |  | 9,691 |
Total deferred tax assets |  |  | 11,793 |  |  |  | 13,792 |
Valuation allowance |  |  | (8,519 | ) |  |  | (9,503 | )
Total deferred tax assets, net of valuation allowance |  | $ | 3,274 |  |  | $ | 4,289 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |
Prepaid expenses |  | $ | 576 |  |  | $ | 528 |
Other |  |  | 0 |  |  |  | 18 |
Total current deferred tax liabilities |  |  | 576 |  |  |  | 546 |
Noncurrent: |  |  |  |  |  |  |  |
Internally-developed software |  |  | 37 |  |  |  | 740 |
Depreciation and amortization |  |  | 2 |  |  |  | — |
Sub-Part F Income Deferred |  |  | 1,830 |  |  |  | 1,320 |
Other |  |  | (53 | ) |  |  | 161 |
Total noncurrent deferred tax liabilities |  |  | 1,816 |  |  |  | 2,221 |
Total deferred tax liabilities |  | $ | 2,392 |  |  | $ | 2,767 |
(1) | The Company's net operating loss will expire as follows (dollar amounts in thousands):
Jurisdiction |  | Gross NOL |  |  | Tax Effected NOL |  | Expiration Years |
Denmark |  | $ | 3 |  |  | $ | 1 |  | Indefinite |
Mexico |  |  | 7,587 |  |  |  | 2,276 |  | 2020-2021 |
Norway |  |  | 743 |  |  |  | 208 |  | Indefinite |
Singapore |  |  | 59 |  |  |  | 10 |  | Indefinite |
Sweden |  |  | 502 |  |  |  | 132 |  | Indefinite |
Switzerland |  |  | 12,448 |  |  |  | 1,144 |  | 2016-2018 |
Taiwan |  |  | 7,012 |  |  |  | 1,192 |  | 2016-2021 |
United States (federal) |  |  | 1,837 |  |  |  | 643 |  | 2030-2031 |
United States (states) |  |  | 25,960 |  |  |  | 649 |  | 2015-2031 |
At December 31, 2012 and 2011, the Company's valuation allowance was $8.5 million and $9.5 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, 2012 and 2011, 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 |  | 2012 |  |  | 2011 |
Mexico |  | $ | 2,276 |  |  | $ | 1,889 |
Norway |  |  | 208 |  |  |  | 198 |
Sweden |  |  | 132 |  |  |  | 122 |
Switzerland |  |  | 1,043 |  |  |  | 784 |
Taiwan |  |  | 1,192 |  |  |  | 1,074 |
United States |  |  | 3,668 |  |  |  | 5,436 |
Total |  | $ | 8,519 |  |  | $ | 9,503 |
At December 31, 2012 and 2011, 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, 2012, 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 thousands):
|  | 2012 |  | 2011 |
Current deferred tax assets |  | $ | 561 |  |  | $ | 936 |
Noncurrent deferred tax assets |  |  | 502 |  |  |  | 772 |
Current deferred tax liabilities |  |  | (179 | ) |  |  | (185 | )
Noncurrent deferred tax liabilities |  |  | (2 | ) |  |  | (1 | )
Net deferred tax assets (liabilities) |  | $ | 882 |  |  | $ | 1,522 |
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, 2012, the Company recorded $2.8 million in current liabilities and $0.2 million in other long-term liabilities related to uncertain income tax positions and income tax reserves associated with various audits. At December 31, 2012, the Company had gross tax-affected unrecognized tax benefits of $3.0 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, 2012 and 2011 (in thousands):
|  | 2012 |  |  | 2011 |
Balance as of January 1 |  | $ | 3,984 |  |  | $ | 2,114 |
Additions for tax positions related to the current year |  |  | 81 |  |  |  | 570 |
Additions for tax positions of prior years |  |  | 58 |  |  |  | 1,300 |
Reductions of tax positions of prior years |  |  | (1,084 | ) |  |  | — |
Balance as of December 31 |  | $ | 3,039 |  |  | $ | 3 ,984 |
The Company's 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, the Company filed a protest letter challenging the proposed adjustments contained in the RAR with the Appeals Division of the IRS. On July 26, 2012, the Company participated in a hearing with the Appeals Division of the IRS, and the Company believes the net tax deficiency should approximate amounts previously recorded as uncertain income tax positions for the tax years 2005-2009. Therefore, the Company has made a reduction in its tax positions for tax years after 2009 of approximately $1.1 million. The Company was able to recognize deferred tax assets due to this reduction of prior year tax positions. 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, 2012, 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 |  | 2008-2012 |
Canada |  | 2006-2012 |
Denmark |  | 2009-2012 |
Japan |  | 2007-2012 |
Mexico |  | 2010-2012 |
Norway |  | 2010-2012 |
Republic of Korea |  | 2007-2012 |
Singapore |  | 2009-2012 |
South Africa |  | 2009-2012 |
Sweden |  | 2010-2012 |
Switzerland |  | 2009-2012 |
Taiwan |  | 2007-2012 |
United Kingdom |  | 2006-2012 |
United States |  | 2006-2012 |

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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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