Income Taxes

Income before income taxes consisted of:



	Year Ended December 31, 2011		Year Ended December 31, 2010		Year Ended December 31, 2009
	(In thousands)
Domestic	$	12,043	$	13,694	$	14,501
Foreign	61,452		45,960		25,331
Total	$	73,495	$	59,654	$	39,832

The income tax provision (benefit) consisted of:



	Year Ended December 31, 2011			Year Ended December 31, 2010			Year Ended December 31, 2009
	(In thousands)
Current:
Federal	$	1,237		$	527		$	1,176
State	822			362			758
Foreign	2,990			1,409			3,992
	$	5,049		$	2,298		$	5,926
Deferred:
Federal	3,699			1,215			(126		)
State	44			(148		)	(444		)
Foreign	(1,755		)	(430		)	(1,546		)
	1,988			637			(2,116		)

Provision for income taxes from ongoing operations at effective tax rate	$	7,037		$	2,935		$	3,810
Discrete Items:
Release of valuation allowance	(6,625		)	(2,300		)	(2,800		)
Windfall expense related to stock compensation	1,938			—			—
Enhanced R&D deduction - foreign operations	(233		)	—			—
Provision for income taxes from discrete items	(4,920		)	(2,300		)	(2,800		)

Total provision for income taxes	$	2,117		$	635		$	1,010

The income tax provision at the Federal statutory rate differs from the effective rate because of the following items:



	Year Ended December 31, 2011		Year Ended December 31, 2010		Year Ended December 31, 2009
Statutory tax rate	35.0	%	35.0	%	34.0	%
Tax impact of foreign subsidiaries	(5.6	)%	(2.5	)%	(11.6	)%
State income taxes, net of federal benefit	0.8	%	0.6	%	1.2	%
Uncertain tax matters	0.2	%	—	%	5.1	%
Tax holiday - India (Permanent Difference)	(15.1	)%	(19.9	)%	(15.1	)%
Passive income exemption - Sweden (Permanent Difference)	(3.0	)%	(3.7	)%	(3.9	)%
Other permanent differences	(1.0	)%	(5.0	)%	(0.7	)%
Other	(1.8	)%	0.3	%	0.6	%
Effective tax rate from ongoing operations	9.5	%	4.8	%	9.6	%
Discrete Items:
Release of valuation allowance	(9.0	)%	(3.7	)%	(7.1	)%
Windfall expense related to stock compensation	2.6	%	—	%	—	%
Enhanced R&D deduction - foreign operations	(0.2	)%	—	%	—	%
Effective tax rate after discrete items	2.9	%	1.1	%	2.5	%

Current deferred income tax assets and liabilities and long-term deferred tax assets and liabilities are presented on a net basis separately in the December 31, 2011 and 2010 accompanying Consolidated Balance Sheets. The individual balances in current and long-term deferred tax assets and liabilities are as follows:



	2011			2010
	(In thousands)
Current deferred income tax assets	$	3,277		$	922
Long-term deferred income tax assets, net of valuation allowance	28,865			11,050
Total deferred income tax assets	32,142			11,972
Current deferred income tax liabilities	(297		)	(422		)
Long-term deferred income tax liabilities	(19,452		)	(14,591		)
Net deferred income tax asset/( liability)	$	12,393		$	(3,041	)

Deferred income taxes reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by the applicable local jurisdiction tax laws. Temporary differences and carry forwards which comprise the deferred tax assets and liabilities as of December 31, 2011 and 2010 were as follows:



	December 31, 2011				December 31, 2010
	Deferred				Deferred
	Assets		Liabilities		Assets			Liabilities
	(In thousands)
Depreciation and amortization	$	331	$	277	$	334		$	—
Share-based compensation	549		—		842			—
Accruals and prepaids	2,009		297		1,068			422
Bad debts	720		—		422			—
Discount on convertible debt	—		—		—			143
Acquired intangible assets	933		19,175		1,008			14,448
Net operating loss carryforwards	22,237		—		10,827			—
Tax credit carryforwards	5,363		—		4,097			—
	32,142		19,749		18,598			15,013
Valuation allowance	—		—		(6,626		)	—
Total deferred taxes	$	32,142	$	19,749	$	11,972		$	15,013

During the year ending December 31, 2011, the Company recognized certain discrete items that effected consolidated income tax expense. Specifically the Company released the remaining valuation allowances held against deferred tax assets associated with tax net operating losses carry forwards obtained from earlier business acquisitions. The valuation allowances were released based on analysis of the levels of taxable income being generated by these business units, available prudent and feasible tax planning strategies, and an analysis of the relevant income tax regulations. As a result of the release of the valuation allowances the Company recognized a tax benefit of $6.6 million. Also included in recognized discrete items was a $1.9 million income tax expense pertaining to charges associated with windfall gains realized from tax deductions in connection with exercised stock options and vested restricted stock grants, and a $233 thousand income tax benefit from certain enhanced research and development tax deductions realized in our foreign operations.

As of December 31, 2011, the Company has remaining available domestic net operating loss (“NOL”) carry-forwards of $57.5 million (net of $11.1 million utilized to offset domestic taxable income for 2011), which are available to offset future federal and certain state income taxes. Approximately $39.0 million of these these remaining NOL carry-forwards were obtained in connection with the recent acquisition of ADAM in February 2011. Portions of these remaining NOL's will expire in during the years 2020 through 2027.

The Company’s consolidated world-wide effective tax rate is relatively low because of the effect of conducting operating activities in certain foreign jurisdiction with low tax rates and where a significant portions of our taxable income resides. Furthermore, the Company’s world-wide product development operations and intellectual property ownership has been centralized into our India and Singapore subsidiaries, respectively. Our operations in India benefit from a tax holiday which will continue through 2015; as such local India taxable income, other than passive interest and rental income, is not taxed. After the tax holiday expires taxable income generated by our India operations will be taxed at 50% of the normal 33.99% corporate tax rate for a period of five years. This tax holiday had the effect of reducing tax expense by $11.1 million $0.27 per diluted share in 2011. The Company also has a relatively low income tax rate is in Singapore in which our operations are taxed at a 10% marginal tax rate as a result of concessions granted by the local Singapore Economic Development Board for the benefit of in-country intellectual property owners. The concessionary 10% income tax rate will expire after 2015, at which time our Singapore operations will be subject to the prevailing corporate tax rate in Singapore, which is currently 17%, unless the Company reaches a subsequent agreement to extend the incentive period and the then applicable concessionary rate. The concession granted by the EDB improved net income by $1.1 million or $0.027 per diluted share in 2011. The pre-tax income from and the applicable statutory tax rates in each jurisdiction in which the Company had operations for the year ending December 31, 2011 was as follows:



	United States			Canada			Latin America			Australia			Singapore			New Zealand			India			Sweden			Total
Pre-tax income	$	12,043		$	831		$	1,260		$	2,734		$	18,084		$	488		$	31,715		$	6,340		$	73,495
Statutory tax rate	35.0		%	30.5		%	34.0		%	30.0		%	10.0		%	30.0		%	—		%	—		%

The income from the Company’s operations in India are subject to a 19.94% Minimum Alternative Tax (“MAT”). The tax paid under the MAT provisions is carried forward for a period of seven years and set off against future tax liabilities computed under the regular corporate income tax provisions using the statutory 33.99% corporate income tax rate. During the year ended December 31, 2011, the Company paid $1.8 million in MAT. The accompanying Consolidated Balance Sheets as of December 31, 2011 includes a long-term deferred tax asset in the amount of $6.7 million associated with cumulative future MAT tax credit entitlement.

The Company has not recognized a deferred U.S. tax liability and associated income tax expense for the undistributed earnings of its foreign subsidiaries which we consider indefinitely invested because those foreign earnings will remain permanently reinvested in those subsidiaries to fund ongoing operations and growth. If those earnings were not considered indefinitely invested, approximately $48.2 million of deferred U.S. income taxes would have been provided.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With the exception of NOL carryforwards, the Company is no longer subject to U.S. federal or state tax examinations by tax authorities for years before 2007 due to the expiration of the statute of limitations. Regarding our foreign operations as of December 31, 2011, the tax years that remain open and possibly subject to examination by the tax authorities in those jurisdictions are Australia (2005 to 2011), Singapore and Brazil (2007 to 2011), New Zealand (2008 to 2011), and India (2009 to 2011).

The Company follows the provisions of FASB accounting guidance on accounting for uncertain income tax positions. Accordingly liabilities are recognized for a tax position, where based solely on its technical merits, it is believed to be more likely than not fully sustainable upon examination. This liability is included in other long-term liabilities in the accompanying Consolidated Balance Sheets. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:




	(in thousands)
Balance at January 1, 2011	$	2,980
Additions for tax positions related to current year	1,949
Additions for tax positions of prior years	307
Reductions for tax position of prior years	(2,056		)

Balance at December 31, 2011	$	3,180

The Company recognizes interest accrued and penalties related to unrecognized tax benefits as part of income tax expense. As of December 31, 2011 approximately $754 thousand of estimated interest and penalties is included in other long-term liabilities in the accompanying Consolidated Balance Sheets.