Note 18. Income Taxes

Income (loss) before income taxes are as follows:

	Years ended December 31,

	2012			2011		2010
	(in thousands)
United States	$	(37,682	)	$	2,622	$	(21,526	)
Foreign		5,294			4,849		4,265

Income (loss) before income taxes	$	(32,388	)	$	7,471	$	(17,261	)

Income taxes (credits) are as follows:

	Years ended December 31,

	2012		2011		2010
	(in thousands)
Current:
United States
Federal	$	—	$	—	$	—
State		82		163		309
Foreign		738		1,646		1,528

Total current		820		1,809		1,837

Deferred:
Foreign		826		585		(1,525	)

Total deferred		826		585		(1,525	)

Income taxes	$	1,646	$	2,394	$	312

Reconciliations of income taxes at the United States Federal statutory rate to the effective income tax rate are as follows:

	Years ended December 31,

	2012			2011			2010
	(in thousands)
Income (credit) at the United States statutory rate	$	(11,336	)	$	2,615		$	(6,041	)
State income taxes		53			31			309
Unrecognized tax benefits		(832	)		899			842
Effect of change in valuation allowance		12,662			(3,160	)		6,550
Foreign income tax rate differentials		(788	)		(365	)		(1,490	)
Restoration of foreign deferred tax assets		—			—			(1,329	)
Foreign dividend		383			—			—
Stock options		1,298			—			—
Deemed distribution from foreign subsidiaries		149			1,533			2,152
Other, net		57			841			(681	)

Income taxes	$	1,646		$	2,394		$	312

Significant components of current and long-term deferred income taxes are as follows:

	As of December 31,

	2012						2011
	Current			Long Term			Current			Long Term
	(in thousands)
Federal net operating loss carryforwards	$	—		$	88,088		$	—		$	79,163
State net operating loss carryforwards		—			1,181			—			2,685
Foreign net operating loss carryforwards		—			1,853			—			1,821
Federal tax credit carryforwards		—			17,814			—			15,505
State tax credit carryforwards		—			9,051			—			9,051
Unremitted earnings of foreign subsidiaries		—			(8,580	)		—			(10,370	)
Intangible assets		—			661			—			803
Property, plant and equipment		—			5,925			—			5,589
Accrued compensation		352			368			541			—
Inventories		22,582			(215	)		22,447			—
Stock compensation		—			4,378			—			3,970
Warranty		612			36			1,293			51
Other		1,820			917			1,243			(3,814	)

Deferred taxes, gross		25,366			121,477			25,524			104,454

Valuation allowance		(25,062	)		(119,605	)		(24,160	)		(102,814	)

Deferred taxes, net	$	304		$	1,872		$	1,364		$	1,640

At December 31, 2012, the Company had $146.8 million of deferred tax assets relating to net operating loss carryforwards, tax credit carryforwards and other temporary differences, which are available to reduce income taxes in future years. A valuation allowance must be established when it is "more likely than not" that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including a company's performance, the market environment in which the company operates, length of carryback and carryforward periods, existing sales backlog, and projections of future operating results. Where there are cumulative losses in recent years there is a strong presumption that a valuation allowance is needed. This presumption can be overcome in very limited circumstances.

The Company is in a three year cumulative loss position in the United States. As a result, the Company maintains a 100% valuation allowance for entities in those tax jurisdictions to reduce the carrying value of deferred tax assets to zero. The Company will continue to maintain a full valuation allowance for those tax assets until sustainable future levels of profitability are evident. Changes in the valuation allowance in 2012 and 2011 were attributable to changes in the composition of temporary differences and changes in net operating loss carryforwards.

At December 31, 2012, the Company has federal and state net operating loss carryforwards of approximately $89.3 million and foreign net operating loss carryforwards of approximately $1.9 million expiring principally between 2013 and 2032.

The Company has research and development and other tax credit carryforwards of approximately $21.8 million at December 31, 2012 that can be used to reduce future federal and state income tax liabilities. These tax credit carryforwards expire principally between 2022 and 2028. In addition, the Company has foreign tax credit carryforwards of approximately $5.0 million at December 31, 2012 that are available to reduce future U.S. income tax liabilities subject to certain limitations. These foreign tax credit carryforwards expire between 2013 and 2016.

It is Company policy to provide taxes for the total anticipated tax impact of the undistributed earnings of our wholly-owned foreign subsidiaries', as such earnings are not expected to be reinvested indefinitely. The Company anticipates that US tax resulting from remitting such earnings will be off-set by net operating loss or credit carryforwards to the extent available. In addition, the Company does not anticipate incurring a foreign withholding tax on remitting such earnings since it does not intend to remit the earnings as dividends.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company and most foreign subsidiaries are subject to income tax examinations by tax authorities for all years dating back to 2001. The Company's policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. The Company believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

At December 31, 2012, the Company had unrecognized tax benefits of approximately $7.7 million, of which approximately $5.1 million reduced the Company's deferred tax assets and the offsetting valuation allowance and $2.6 million was recorded in other long-term liabilities. The Company does not expect any significant changes in unrecognized tax benefits in 2013.

A reconciliation of the beginning and ending balance of unrecognized tax benefits are as follows:

	2012			2011

	(in thousands)
Balance at beginning of year	$	8,089		$	6,965
Increases in unrecognized tax benefits as a result of tax positions taken during a prior period		646			1,124
Decreases in unrecognized tax benefits related to settlements with tax authorities		(880	)		—
Increases in unrecognized tax benefits as a result of tax positions taken during the current period		663			—
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations		(799	)		—

Balance at end of year	$	7,719		$	8,089

Recorded as other long-term liability	$	2,646		$	3,244
Recorded as a decrease in deferred tax assets and offsetting valuation allowance		5,073			4,845

	$	7,719		$	8,089