INCOME TAXES

Loss before income taxes and the components of the income tax provision (benefit) consisted of the following for the years ended December 31, 2011, 2010 and 2009 (in thousands):



	2011			2010			2009
Income (loss) before income taxes:
United States	$	(31,809	)	$	1,825		$	(91,090	)
Foreign	8,960			(38,383		)	21,083
Total loss before income taxes	$	(22,849	)	$	(36,558	)	$	(70,007	)
Provision for (benefit from) income taxes:
Current tax expense (benefit):
Federal	$	627		$	(56	)	$	(1,490	)
State	48			188			89
Foreign benefit of net operating losses	(629		)	(4,211		)	(636		)
Other foreign	2,890			6,161			1,940
Total current tax expense (benefit)	2,936			2,082			(97		)
Deferred tax benefit:
Federal	—			(767		)	(7		)
Other foreign	(1,994		)	(919		)	(1,548		)
Total deferred tax benefit	(1,994		)	(1,686		)	(1,555		)
Total provision for (benefit from) income taxes	$	942		$	396		$	(1,652	)

Net cash payments for income taxes in 2011, 2010 and 2009 were approximately $3.8 million, $2.3 million, and $4.3 million, respectively.

The cumulative amount of undistributed earnings of foreign subsidiaries, which is intended to be indefinitely reinvested and for which U.S. income taxes have not been provided, totaled approximately $46.7 million at December 31, 2011. At December 31, 2011, the cash available in the Company's foreign subsidiaries totaled $21.1 million. The Company does not have any plans to repatriate these earnings because the underlying cash is required to fund the ongoing operations of the foreign subsidiaries. The additional taxes that might be payable upon repatriation of foreign earnings are not significant.

Net deferred tax assets (liabilities) consisted of the following at December 31, 2011 and 2010 (in thousands):



	2011			2010
Deferred tax assets:
Tax credit and net operating loss carryforwards	$	137,981		$	129,832
Allowances for bad debts	1,309			1,564
Difference in accounting for:
Revenue	2,576			4,973
Costs and expenses	56,204			65,942
Inventories	9,989			7,186
Acquired intangible assets	18,522			24,344
Gross deferred tax assets	226,581			233,841
Valuation allowance	(215,317		)	(217,897		)
Deferred tax assets after valuation allowance	11,264			15,944
Deferred tax liabilities:
Difference in accounting for:
Costs and expenses	(729		)	(2,760		)
Acquired intangible assets	(6,864		)	(10,813		)
Other	—			(311		)
Gross deferred tax liabilities	(7,593		)	(13,884		)
Net deferred tax assets	$	3,671		$	2,060
Recorded as:
Current deferred tax assets, net	1,480			1,068
Long-term deferred tax assets, net (in other assets)	3,996			3,460
Current deferred tax liabilities, net (in accrued expenses and other current liabilities)	(51		)	(314		)
Long-term deferred tax liabilities, net	(1,754		)	(2,154		)
Net deferred tax assets	$	3,671		$	2,060

Deferred tax assets and liabilities reflect the net tax effects of the tax credits and net operating loss carryforwards and the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The ultimate realization of the net deferred tax assets is dependent upon the generation of sufficient future taxable income in the applicable tax jurisdictions.

For U.S. federal and state income tax purposes at December 31, 2011, the Company has tax credit carryforwards of approximately $69.7 million, which will expire between 2012 and 2031, and net operating loss carryforwards of approximately $362.0 million, which will expire between 2019 and 2031. The federal net operating loss and tax credit amounts are subject to annual limitations under Section 382 change of ownership rules of the Internal Revenue Code. The Company completed an assessment at December 31, 2011 regarding whether there may have been a Section 382 ownership change and concluded that it is more likely than not that none of the Company's net operating loss and tax credit amounts are subject to any Section 382 limitation. Based on the level of the deferred tax assets at December 31, 2011 and 2010 and the level of historical U.S. losses, management has determined that the uncertainty regarding the realization of these assets warranted a full valuation allowance at December 31, 2011 and 2010.

Additionally, the Company has foreign net operating loss carryforwards of $41.2 million and tax credit carryforwards of $3.4 million which begin to expire in 2019. The Company has determined there is uncertainty regarding the realization of a portion of these assets and has recorded a valuation allowance against $28.7 million of net operating losses and $3.4 million of tax credits at December 31, 2011.

The Company's assessment of the valuation allowance on the U.S. and foreign deferred tax assets could change in the future based on its levels of pre-tax income and other tax related adjustments. Removal of the valuation allowance in whole or in part would result in a non-cash reduction in income tax expense during the period of removal. As a result of a December 2011 tax law change in the Netherlands, the Company was able to remove $0.8 million of valuation allowance on previously existing deferred tax assets related to tax loss carryforwards. As a result of the 2010 acquisition of Euphonix, the Company was able to remove $0.5 million of valuation allowance on previously existing deferred tax assets. In addition during 2010, the Company removed $0.3 million of valuation allowance on previously existing alternative minimum tax deferred tax credits. As a result of the 2009 acquisition of MaxT, the Company was able to remove $0.6 million of valuation allowance on previously existing deferred tax assets during 2009.

Excluded from the above deferred tax schedule at December 31, 2011 are tax assets totaling $71.4 million resulting from the exercise of employee stock options. In accordance with ASC Topic 740, Income Taxes, and ASC Topic 718, Compensation - Stock Compensation, recognition of these assets would occur upon utilization of these deferred tax assets to reduce taxes payable and would result in a credit to additional paid-in capital within stockholders' equity rather than the provision for income taxes. In 2009, 2010 and 2011, no adjustment to additional paid-in-capital related to exercises of employee stock options was required.

The following table sets forth a reconciliation of the Company's income tax provision (benefit) to the statutory U.S. federal tax rate for the years ended December 31, 2011, 2010 and 2009:



	2011		2010		2009
Statutory rate	(35	)%	(35	)%	(35	)%
Tax credits	(9	)%	(9	)%	(7	)%
Foreign operations	1	%	32	%	5	%
Non-deductible expenses and other	10	%	3	%	2	%
Increase in valuation allowance	37	%	10	%	33	%
Effective tax rate	4	%	1	%	(2	)%

ASC Topic 740 requires that a tax position must be more likely than not to be sustained before being recognized in the financial statements. It also requires the accrual of interest and penalties as applicable on unrecognized tax positions. At January 1, 2009, the Company's unrecognized tax benefits and related accrued interest and penalties totaled $3.7 million, of which $1.4 million would affect the Company's effective tax rate if recognized. In 2009, there was a decrease in the previously unrecognized tax benefits, primarily related to the settlement of tax audits in Germany. At December 31, 2009, the Company's unrecognized tax benefits and related accrued interest and penalties totaled $2.3 million, all of which would affect the Company's effective tax rate if recognized. In 2010, there was a decrease in the previously unrecognized tax benefits, primarily related to the expiration of the statutes of limitations in various jurisdictions. At December 31, 2010, the Company's unrecognized tax benefits and related accrued interest and penalties totaled $1.7 million, all of which would affect the Company's effective tax rate if recognized. In 2011, the Company's unrecognized tax benefits increased, primarily as a result of tax positions taken in prior periods and included in the Company's tax loss carryforwards. The increase did not have an impact on the effective rate because the Company previously maintained a full valuation allowance on the related loss carryforwards. A portion of the unrecognized tax benefits also decreased in 2011, primarily as a result of the settlement of a tax position with a foreign tax authority in December 2011 and the expiration of the statutes of limitations in various jurisdictions. At December 31, 2011, the Company's unrecognized tax benefits and related accrued interest and penalties totaled $12.9 million, of which $0.9 million would affect the Company's effective tax rate if recognized. The Company anticipates that in the next twelve months the liability for unrecognized tax benefits for uncertain tax positions could decrease by as much as $0.1 million due to the expiration of statutes of limitations and other factors.

The following table sets forth a reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding the impact of interest and penalties, for the years ended December 31, 2011, 2010 and 2009 (in thousands):



Unrecognized tax benefits at January 1, 2009	$	3,100
Increases for tax positions taken during a prior period	2,000
Increases for tax positions taken during the current period	—
Decreases for tax positions taken during a prior period	(2,600		)
Decreases related to settlements	(200		)
Decreases related to the lapse of applicable statutes of limitations	(300		)
Unrecognized tax benefits at December 31, 2009	2,000
Increases for tax positions taken during a prior period	—
Increases for tax positions taken during the current period	—
Decreases for tax positions taken during a prior period	(100		)
Decreases related to settlements	(100		)
Decreases related to the lapse of applicable statutes of limitations	(400		)
Unrecognized tax benefits at December 31, 2010	1,400
Increases for tax positions taken during a prior period	13,400
Increases for tax positions taken during the current period	—
Decreases for tax positions taken during a prior period	(700		)
Decreases related to settlements	(900		)
Decreases related to the lapse of applicable statutes of limitations	(400		)
Unrecognized tax benefits at December 31, 2011	$	12,800

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. At December 31, 2011, 2010 and 2009, respectively, the Company had approximately $0.1 million, $0.3 million and $0.3 million of accrued interest related to uncertain tax positions.

The tax years 2004 through 2010 remain open to examination by taxing authorities in the jurisdictions in which the Company operates.