Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

INCOME TAXES

8. INCOME TAXES

Components of income before income taxes and the income tax provision are as follows:

Income (loss) before income taxes

	Year ended December 31,
	2012			2011		2010
	(in thousands)
U.S.	$	(17,849	)	$	51,618	$	28,799
Foreign		5,263			3,015		241
Total	$	(12,586	)	$	54,633	$	29,040

Income taxes

	Year ended December 31,
	2012			2011		2010
	(in thousands)
Current
U.S.	$	(204	)	$	177	$	(79	)
State		(357	)		2,777		—
Foreign		(163	)		173		8
Total current income tax expense (benefit)		(724	)		3,127		(71	)
Deferred
U.S.		(5,536	)		13,223		—
State		(1,049	)		224		—
Foreign		261			—		—
Total deferred income tax expense		(6,324	)		13,447		—
Total income tax expense (benefit)	$	(7,048	)	$	16,574	$	(71	)

The reconciliation of income tax computed at the federal statutory rate to income before taxes is as follows:

	Year ended December 31,
	2012			2011			2010
U.S. Federal statutory rate		(34.0	)%		35.0	%		34.0	%
State taxes net of federal benefit		(8.9	)		5.2			5.3
Permanent differences		—			(0.6	)		0.3
Foreign rate differential and transactional tax		(3.8	)		(1.4	)		3.2
Impact of foreign tax holiday		(10.4	)		—			—
Valuation allowance		—			(5.9	)		(41.4	)
Other		1.1			(2.0	)		(1.6	)
		(56.0	)%		30.3	%		(0.2	)%

Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s net deferred income taxes are as follows at December 31:

	2012			2011
	(in thousands)
Deferred tax assets:
Allowance for doubtful accounts	$	115		$	156
Inventory reserves		1,697			400
Accrued liabilities		316			260
Warrant interest expense		277			283
Charitable contributions		—			10
Stock compensation expense		2,503			2,083
State net operating loss—net of tax		1,524			984
Net operating loss carryforward		4,537			—
Tax credits		297			206
Total deferred tax assets		11,266			4,382
Deferred tax liability:
Depreciation		(16,685	)		(16,310	)
Unrealized gain on securities held for sale		(340	)		—
Prepaid expenses		(140	)		(115	)
Net deferred tax liability	$	(5,899	)	$	(12,043	)

The Company’s deferred income tax assets and liabilities were reported on the consolidated balance sheets as follows.

	2012			2011
	(in thousands)
Current deferred income tax assets	$	4,427		$	3,078
Long term deferred income tax liabilities		(10,326	)		(15,121	)
Net deferred tax liability	$	(5,899	)	$	(12,043	)

A valuation allowance to reduce the deferred tax assets is reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. During the twelve months ended December 31, 2011, the Company concluded that based on the current level of sustainable profitability that generates taxable income, that it is more likely than not that the Company’s deferred tax assets will be realizable. The Company on June 30, 2011, recognized a tax benefit of $3.3 million to record current and long-term deferred tax assets and with the release of the valuation allowance began recording federal and certain state and non-U.S. income taxes attributable to the fiscal year’s pre-tax income. At December 31, 2012, the Company had separate federal and Illinois net operating loss carryforwards of $37.6 million and $58.4 million, respectively, which begin to expire in 2026 and 2018, respectively. The Illinois State Legislature has suspended the full use of net operating loss carryforwards for taxable years ending after December 31, 2010 and before December 31, 2011, and has limited the net operation loss deduction to $100,000 for the years ending December 31, 2012 through December 31, 2013. In addition, at December 31, 2012, the Company had Illinois investment tax credits and research and development credits of $83,400 and $53,900, respectively scheduled to expire in 2017.

The Company has completed an analysis of the utilization of net operating losses subject to limits based upon certain ownership changes. The results of this analysis indicated no ownership change limiting the utilization of net operating losses and tax credits. The results of a previous analysis indicated an ownership change limiting the utilization of net operating losses and tax credits. However, the unused prior year limitations allows the Company to fully utilize the net operating losses (“NOL”) and tax credits in the current year. Additionally, the Company has not recorded a deferred tax asset NOL attributable to stock option exercises in the amount of $21.6 million for federal purposes and $26.0 million for state purposes because the Company cannot record these excess tax benefit stock option deductions until the benefit has been realized by actually reducing taxes payable.

The Company prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. The following is a reconciliation of the unrecognized tax benefits taken or expected to be taken in a tax return that have been recorded on the Company’s financial statements for the years ended December 31, 2012.

	(in thousands)
Balance at December 31, 2010	$	—
Tax positions related to current year		159
Tax positions related to prior year		204
Balance at December 31, 2011		363
Decrease related to prior year		(363	)
Tax positions related to current year		1,140
	$	1,140

For the year ended December 31, 2011 the Company accrued $11,000 for potential penalties related to income taxes. There were no interest or penalties related to income taxes that have been accrued or recognized as of and for the years ended December 31, 2012 and 2010. Included in the balance of total unrecognized tax benefits at December 31, 2012, are potential benefits of $1.0 million that if recognized, would affect the effective tax rate in the year recognized.

The Company files income tax returns in the United States federal jurisdiction and in a state jurisdiction. During 2009, the Company began foreign operations in Malaysia and Japan and is subject to local income taxes in both jurisdictions. The Company is exempt from Malaysian income tax for a ten year period beginning in 2009. The impact of this tax holiday decreased foreign taxes for the years ended December 31, 2012, 2011 and 2010 by approximately $1.3 million, $535,000 and $54,000, respectively. The benefit of the tax holiday on net income per share (diluted) for the years ended December 31, 2012, 2011 and 2010 was $0.06, $0.02 and $0.00, respectively. All tax years in Malaysia are open to examination by tax authorities.

The Company’s federal tax return for the periods ended December 31, 2010, 2008 and 2007 have been audited by the Internal Revenue Service (IRS) with no changes made to the Company’s taxable losses for those years. The Company’s state tax returns for the periods ended December 31, 2010 and 2009 have been audited by the Illinois Department of Revenue with no changes made to the Company’s taxable losses for those years. Due to the existence of net operating loss carryforwards, all tax years except December 31, 2007 are open to examination by tax authorities.

U.S. income and foreign withholding taxes have not been provided on approximately $8.1 million of cumulative undistributed earnings of foreign subsidiaries. We intend to reinvest these earnings for the foreseeable future. If these amounts were distributed to the U.S., in the form of dividends or otherwise, we would be subject to additional U.S. income taxes, which could be material. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability, if any, is dependent on circumstances existing, if and when remittance occurs.