
	INCOME TAXES

The components of loss before income taxes for the years ended December 31, 2012, 2011 and 2010 are as follows (in thousands):



	Years Ended December 31,
	2012			2011			2010
Domestic loss	$	(20,522	)	$	(17,052	)	$	(32,620	)
Foreign income (loss)	1,687			772			(462		)
Loss before income taxes	$	(18,835	)	$	(16,280	)	$	(33,082	)

The provision for income taxes for the years ended December 31, 2012, 2011 and 2010 consists of the following (in thousands):



	Years Ended December 31,
	2012			2011			2010
Current:
Federal	$	(251	)	$	16		$	(451	)
State	3			4			4
Foreign	254			(1,949		)	77
Total current	6			(1,929		)	(370		)
Deferred:
Federal	—			—			—
State	—			—			—
Foreign	478			3,599			691
Total deferred	478			3,599			691
Provision for income taxes	$	484		$	1,670		$	321

The provision for income taxes reconciles to the amount computed by multiplying loss before income taxes by the U.S. statutory rate of 35 percent as follows (in thousands):



	Years Ended December 31,
	2012			2011			2010
Benefits at statutory rate	$	(6,593	)	$	(5,691	)	$	(11,579	)
Deferred tax asset valuation allowance	4,238			5,169			9,699
Foreign earnings taxed at U.S. rates	3,533			291			1,165
Foreign earnings taxed at different rates	417			4,531			1,096
State taxes, net of federal benefit	2			2			2
Nondeductible stock option expense	365			507			573
Uncertain tax position reserve release	(511		)	(3,151		)	(697		)
Foreign tax credits	(1,147		)	(144		)	(139		)
Other	180			156			201
Provision for income taxes	$	484		$	1,670		$	321

Deferred tax assets as of December 31, 2012 and 2011 are comprised of the following (in thousands):



	December 31,
	2012			2011
Net operating loss carryforwards (1)	$	159,859		$	154,953
Reserves not currently deductible	7,919			10,691
Tax credit carryforwards	2,043			985
Depreciation	3,866			4,969
Deferred revenue	927			751
Research and development capitalization	—			17
Other	770			1
Total deferred tax asset	175,384			172,367
Valuation allowance (1)	(175,300		)	(172,367		)
Net deferred tax asset	84			—
Deferred tax liability	(562		)	—
Net deferred tax asset (liability)	$	(478	)	$	—

(1) 2011 deferred tax balances have been revised to decrease the net operating loss carryforwards and valuation allowance by $1.7 million with no impact on net deferred tax assets. The revision was made to correct previously reported amounts and is not considered to be material.

The valuation allowance as of December 31, 2012 and 2011 is against all deferred tax for all jurisdictions except Korea. Our valuation allowance was determined in accordance with the applicable authoritative guidance, which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred assets are recoverable, with such assessment being required on a jurisdiction-by-jurisdiction basis. As of December 31, 2011, a full valuation allowance was set up against our German deferred tax assets. In assessing the need for a valuation allowance in the current year, management considered historical levels of income and losses, expectations and risks associated with estimate of future taxable income and ongoing prudent and feasible tax planning strategies. Factors considered in providing a valuation allowance include the lack of a significant history of consistent profits, the cyclical nature of the overall semiconductor market thereby negatively impacting our ability to sustain or grow revenues and earnings and the lack of carry-back capacity to realize these assets. Based on the absence of sufficient positive objective evidence, management is unable to assert that it is more likely than not that we will generate sufficient taxable income to realize these remaining net deferred assets. The amount of the deferred tax asset valuation allowance, however, could be reduced in future periods to the extent that future taxable income is realized.

As of December 31, 2012, we had Federal and state net operating loss carryforwards of approximately $441.2 million and $89.8 million, respectively, which will begin expiring in 2019 for Federal and 2013 for state. We also have foreign net operating loss carryforwards in Canada, Japan, and Germany of approximately $28.6 million, $1.4 million, and $27.6 million, respectively. Canada and Japan net operating loss carryforwards will begin expiring in 2013 and 2014, respectively. The German net operating loss carryforward has an indefinite carryover life.

Our net operating losses include those acquired as a result of our acquisitions of Vortek, STEAG Semiconductor Division, CFM and Concept Systems Design, Inc. The Federal and state net operating losses acquired from the STEAG Semiconductor Division, CFM and Concept are also subject to change in control limitations as defined in Section 382 of the Internal Revenue Code. If certain substantial changes in our ownership occur, there would be an additional annual limitation on the amount of the net operating loss carryforwards that can be utilized.

As of December 31, 2012, we had research credit carryforwards of approximately $3.4 million and $4.0 million for Federal and state income tax purposes, respectively. If not utilized, the Federal carryforward will expire in various amounts beginning in 2017. The California tax credit can be carried forward indefinitely.

We provide U.S. income taxes on the earnings of foreign subsidiaries unless the subsidiaries earnings are considered indefinitely reinvested outside the U.S. As of December 31, 2012, U.S. income taxes were not provided for on a cumulative total of $0.9 million of undistributed earnings for certain foreign subsidiaries. If these earnings were repatriated, we would be subject to additional U.S. income taxes (subject to an adjustment for foreign tax credits). It is not practical to determine the income tax liability that might be incurred if these earnings were to be repatriated. We intend to permanently reinvest all foreign unremitted earnings of foreign subsidiaries outside of the U.S., except for Germany and Korea. Our permanently reinvested non-U.S. earnings have been deployed in active business operations, and it is unlikely that we will repatriate any portion of its permanently reinvested non-U.S. earnings in the future.

As of December 31, 2012, our total unrecognized tax benefits were approximately $25.9 million exclusive of interest and penalties described below. Included in the $25.9 million is approximately $0.7 million of unrecognized tax benefits (net of Federal benefit), that if recognized, would favorably affect the effective tax rate in a future period before consideration of changes in the valuation allowance. We anticipate there will be a decrease of $0.4 million in our unrecognized tax benefits within the next twelve months.

Our practice is to recognize interest and/or penalties related to unrecognized tax benefits in income tax expense. Income tax expense included estimated interest of $0.1 million for 2012, $0.2 million for 2011, and $0.3 million for 2010. As of December 31, 2012 and 2011, we had $0.2 million and $0.3 million, respectively, accrued for estimated interest. As of December 31, 2012 and 2011, we had no accruals for estimated penalties.

We are subject to United States Federal income tax as well as to income taxes in Germany and various other foreign and U.S. state jurisdictions. Our Federal and state income tax returns are generally not subject to examination by tax authorities for years before 2009 and 2008, respectively. We had no tax audits in progress as of December 31, 2012.

A reconciliation of unrecognized tax benefits is as follows (in thousands):



	Years Ended December 31,
	2012			2011			2010
Balance at the beginning of the year (1)	$	26,200		$	28,600		$	29,100
Tax positions related to prior years:
Additions	100			—			—
Reductions	—			(100		)	—
Expiration of statutes of limitations	(400		)	(2,300		)	(500		)
Balance at the end of the year	$	25,900		$	26,200		$	28,600

(1) Unrecognized tax benefits have been revised to increase the 2010 beginning balance by $1.5 million and increase 2011 changes due to expiration of statues of limitations by $0.4 million. These revisions were made to correct previously reported amounts and are not considered material.