INCOME TAXES

12 Months Ended

Dec. 31, 2011

INCOME TAXES [Abstract]

INCOME TAXES

NOTE 15—INCOME TAXES

The following table presents the U.S. and foreign components of consolidated loss before income taxes and the provision (benefit) for income taxes (in thousands):

	Year Ended December 31,
	2011			2010			2009
(LOSS) INCOME BEFORE INCOME TAXES:
U.S.	$	(26,778	)	$	(15,722	)	$	(25,150	)
Foreign		22			7,659			1,083
Loss before income taxes	$	(26,756	)	$	(8,063	)	$	(24,067	)
PROVISION (BENEFIT) FOR INCOME TAXES:
Current:
Federal	$	-		$	-		$	(2,248	)
State		106			37			25
Foreign		1,038			2,222			2,123
Subtotal		1,144			2,259			(100	)
Deferred:
Federal		-			-			-
State		-			-			-
Foreign		261			(89	)		(58	)
Subtotal		261			(89	)		(58	)
Income tax provision (benefit)	$	1,405		$	2,170		$	(158	)

The difference between the provision (benefit) for income taxes and the amount computed by applying the federal statutory income tax rate (35%) to loss before taxes is explained as follows (in thousands):

	Year Ended December 31,
	2011			2010			2009
Tax at federal statutory rate	$	(9,364	)	$	(2,822	)	$	(8,423	)
State taxes, net		(1,740	)		(1,646	)		(2,315	)
Non-deductible stock compensation		453			626			659
Non-deductible acquisition costs		878			-			-
Foreign rate differential		1,274			(547	)		1,686
Research credits		(692	)		(991	)		(1,772	)
Change in valuation allowance		10,461			7,026			8,968
Other		135			524			1,039
	$	1,405		$	2,170		$	(158	)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s assets are as follows (in thousands):

	December 31,
	2011			2010
Deferred tax assets:
Net operating loss carryforwards	$	57,677		$	52,327
Tax credit carryforwards		47,513			40,047
Deferred revenue		1,632			1,717
Capitalized research and development costs		487			596
Intangibles		20,462			21,562
Share-based compensation		4,284			5,422
Accrued compensation		2,025			2,125
Accrued warranty		570			576
Inventory reserves		4,860			5,013
Reserves and other		10,928			11,236
Depreciation and amortization		21,323			21,569
Other, net		1,742			2,844
Total deferred tax assets		173,503			165,034
Valuation allowance for deferred tax assets		(154,107	)		(142,565	)
Net deferred tax assets		19,396			22,469
Net deferred tax liabilities:
Acquired intangibles		(2,459	)		(3,670	)
Cancellation of debt		(9,669	)		(9,653	)
Foreign earnings		(5,139	)		-
Other, net		(1,315	)		(3,181	)
Total deferred tax liabilities		(18,582	)		(16,504	)
Net deferred tax assets	$	814		$	5,965

As of December 31, 2011, the Company had total U.S. net operating loss carryforwards of $288.6 million, comprised of $162.0 million for U.S. federal purposes, which expire in the years 2021 through 2031 if not utilized, and $126.6 million for state purposes, the majority of which expire in the years 2012 through 2031 if not utilized. Additionally, the Company has federal research and development tax credit carryforwards of approximately $23.6 million, which expire in the years 2017 through 2031 if not utilized. The Company also has state research and development tax credit carryforwards and other various tax credit carryforwards of approximately $39.1 million. Substantially all of the state tax credits can be carried forward indefinitely. Utilization of net operating loss and tax credit carryforwards may be subject to substantial annual limitations due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation may result in the expiration of the net operating loss before utilization.

As of December 31, 2011, the Company has recorded a full valuation allowance against all U.S. and certain foreign deferred tax assets. The valuation allowance increased by $11.5 million and $3.2 million for the years ended December 31, 2011 and 2010, respectively. The increase during the year ended December 31, 2011 is attributable to U.S. losses and a release in reserves related to uncertain tax positions. Approximately $28.7 million of the valuation allowance as of December 31, 2011 is attributable to the income tax benefits of share-based compensation, the benefit of which will be credited to stockholders’ equity when, and if, realized.

Not included in the deferred tax assets as of December 31, 2011 is approximately $4.7 million of tax benefits related to share-based compensation. When realized, the tax benefit of these assets will be accounted for as a credit to stockholders’ equity, rather than a reduction of the income tax provision.

Of the total tax benefits realized from the share-based compensation the amounts recorded to stockholders’ equity were approximately less than $0.1 million and $0.1 million for the years ended December 31, 2011 and 2010, respectively.

During the year ended December 31, 2011, due to potential future transactions that would require cash outflows, the Company changed its assertion such that foreign earnings are no longer intended to be permanently reinvested. As a result, the Company recorded a net deferred tax liability of approximately $0.8 million related to foreign undistributed earnings, which was offset by a reduction in the Company’s valuation allowance against its deferred tax assets.

A portion of the Company’s operations in Singapore operate under various tax holidays and tax incentive programs, which expire in whole or in part at various dates through 2017. There was a minimal net impact of these tax holidays and tax incentive programs for the year ended December 31, 2011.

The following table presents the Company’s total amount of gross unrecognized tax benefits (in thousands):

	2011			2010
Unrecognized tax benefits, beginning of year	$	20,758		$	19,866
Gross increases - tax positions in prior period		517			167
Gross decreases - tax positions in prior period		(201	)		(361	)
Gross increases - current period tax positions		1,203			1,086
Settlements		(5,797	)		-
Unrecognized tax benefits, end of year	$	16,480		$	20,758

If recognized, the amount of unrecognized tax benefits that would impact income tax expense is $2.7 million. As of December 31, 2011, the Company does not anticipate any material changes to the amount of unrecognized tax benefits during the next 12 months. The Company classifies interest and penalties related to tax positions as components of income tax expense. For the year ended December 31, 2011, the amount of accrued interest and penalties related to tax uncertainties was approximately $0.2 million for a total cumulative amount included in non-current income taxes payable of $0.7 million as of December 31, 2011.

The Company files U.S. federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The Company’s major tax jurisdictions are the U.S., California, Singapore, and the U.K.

During November 2011, the U.S. Internal Revenue Service completed its field examination of the Company’s federal income tax returns for the 2004, 2005, 2006, 2008 and 2009 tax years and issued a Revenue Agent’s Report, or RAR, with no proposed adjustments. The Company considers all tax positions taken in the 2004, 2005, 2006, 2008 and 2009 tax years to be effectively settled, because the U.S. Internal Revenue Service has completed its examination procedures and the Company believes that there is a remote possibility that the U.S. Internal Revenue Service will re-examine the settled positions. As a result, the Company has released $5.8 million of reserves related to uncertain tax positions for those periods and recorded a full valuation allowance against these deferred tax assets. However, the federal and California statute of limitations on assessment still remain open for the tax years 1992 through 2011. The Company’s major foreign jurisdictions remain open for examination in general for tax years 2006 through 2011.