Income Taxes

9 Months Ended

Sep. 30, 2012

Income Taxes [Abstract]

Income taxes

6. Income taxes

For all periods presented through December 31, 2011, our income (loss) before provision for income taxes was U.S. based; our income tax provision was insignificant and was reflected in other income (expense), net in the accompanying statement of operations. Effective January 1, 2012, our new international structure became operational. Our effective tax rate in the periods presented on or after January 1, 2012 is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax ranges. The rate at which the provision for income taxes is calculated also differs from the U.S. federal statutory income tax rate primarily due to the full valuation allowance on U.S. deferred tax assets and different tax rates in foreign jurisdictions where income is earned and considered to be indefinitely reinvested.

Our effective income tax rate was 3% for both the three and nine months ended September 30, 2012. We had zero effective income tax rates for both the three and nine months ended September 30, 2011. Our provision for income taxes was $167,000 and $432,000 for the three and nine months ended September 30, 2012, respectively, which was primarily related to income tax in foreign jurisdictions. Our provision for income taxes was immaterial for both the three and nine months ended September 30, 2011.

As of September 30, 2012, we had gross unrecognized tax benefits totaling $3.4 million, all of which were offset by a full valuation allowance. Approximately $2.5 million of our net unrecognized tax benefits, not including interest, if recognized, would affect our effective tax rate. One or more of these net unrecognized tax benefits could be subject to valuation allowance if and when recognized in a future period, which could impact the timing of any related effective tax rate benefit. We recognize interest and/or penalties related to income tax matters within the provision for income taxes. We had no accrued interest or penalties due to our net operating losses and tax credits available to offset any tax adjustments. We do not believe that it is reasonably possible that our unrecognized tax benefits would materially change in the next 12 months. We are subject to examination by U.S. federal and state tax authorities for all years since our inception in 2000 and are subject to examination by foreign tax authorities since the formation of our non-U.S. entities. We currently have no income tax examinations in progress nor have we had any income tax examinations since our inception.

We regularly assess the realizability of deferred tax assets based upon the weight of all available evidence, including such factors as the historical tax losses, recent earnings history and expected future taxable income, the amount and timing of which are uncertain. We believe that it is more likely than not that we will be unable to realize all of our deferred tax assets and, accordingly, full valuation allowance of $16.6 million was established for such amounts as of December 31, 2011. However, should there be a change in our ability to realize our deferred tax assets, the valuation allowance will be released, resulting in a decrease to the income tax provision in the period in which we determine that it is more likely than not that the benefit of our deferred tax assets will be realized. With our recent earnings and projected future income, we believe that it is reasonably possible that we may release a significant portion of the valuation allowance against our U.S. deferred income tax assets in the next 12 months.