Income Taxes - Note 12

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes Disclosure

12. INCOME TAXES

The components of income (loss) before income taxes are as follows:

	Year Ended December 31,
	2011	2010	2009
	(thousands)
Domestic loss	$ (17,052)	$ (32,620)	$ (71,241)
Foreign income (loss)	772	(462)	(3,867)
Loss before income taxes	$ (16,280)	$ (33,082)	$ (75,108)

The provision for (benefit from) income taxes consists of the following:

	Year Ended December 31,
	2011	2010	2009
	(thousands)
Current:
Federal	$      16	$   (451)	$       66
State	4	4	(1)
Foreign	(1,949)	77	(8,787)
Total current	(1,929)	(370)	(8,722)
Deferred:
Federal	-	-	-
State	-	-	-
Foreign	3,599	691	656
Total deferred	3,599	691	656
Provision for (benefit from) income taxes	$ 1,670	$    321	$ (8,066)

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

	Year Ended December 31,
	2011	2010	2009
	(thousands)
Provision (benefit) at statutory rate	$ (5,691)	$ (11,579)	$ (26,286)
Deferred tax asset valuation allowance	5,169	9,699	24,060
Foreign earnings taxed at different rates	4,822	2,261	3,492
State taxes, net of federal benefit	2	2	(1)
Nondeductible stock option expense	507	573	512
Uncertain tax position reserve release	(3,151)	(697)	(9,319)
Other	12	62	(524)
Provision for (benefit from) income taxes	$   1,670	$       321	$   (8,066)

Deferred tax assets are comprised of the following:

	December 31,
	2011	2010
	(thousands)
Net operating loss carryforwards	$ 156,589	$ 149,246
Reserves not currently deductible	10,691	11,328
Tax credit carryforwards	985	1,242
Depreciation	4,969	4,604
Deferred revenue	751	513
Research and development capitalization	17	151
Other	1	1,119
Total deferred tax asset	174,003	168,203
Valuation allowance	(174,003)	(164,400)
Net deferred tax asset	$           -	$    3,803

The valuation allowance at December 31, 2011 is against all deferred tax and at December 31, 2010 is attributable to federal and state deferred tax assets, as well as certain foreign deferred tax assets. 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 on these German deferred tax assets, management considered historical levels of income and losses, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies. For our other tax assets, management believes that sufficient uncertainty exists with regard to the realizability of these tax assets such that a valuation allowance is necessary. 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, 2011, we had federal and state net operating loss carryforwards of $427.1 million and $100.1 million, respectively, which will begin expiring in 2018 for federal and 2012 for state. We also have foreign net operating loss carryforwards in Canada, Japan and Germany of $29.0 million, $1.6 million and $12.1 million, respectively. Canada and Japan net operating loss carryforwards will begin expiring in 2014. The German net operating loss carryforward has an indefinite carryover life.

We acquired $48.0 million of deferred tax assets 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. In addition, we had a change in control in April 2002, which limited our net operating losses generated prior to the date the ownership change occurred. 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, 2011, 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 2026. The California tax credit can be carried forward indefinitely.

We provide U.S. income taxes on the earnings of foreign subsidiaries unless subsidiary earnings are considered indefinitely reinvested outside the U.S. As of December 31, 2011, U.S. income taxes were not provided for on a cumulative total of $6.1 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. We permanently reinvested non-U.S. earnings that have been deployed in active business operations, and we do not intend to repatriate any portion of our permanently reinvested non-U.S. earnings in the future.

As of December 31, 2011, our total unrecognized tax benefits were $25.1 million exclusive of interest and penalties described below. Included in the $25.1 million is approximately $1.1 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 may be a decrease of $0.4 million in our unrecognized tax benefit 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 an estimated interest of $0.2 million for 2011, $0.3 million for 2010 and $0.3 million for 2009. As of December 31, 2011 and 2010, we had $0.3 million and $1.2 million, respectively, accrued for estimated interest. As of December 31, 2011 and 2010, we had zero and $0.1 million, respectively, accrued for estimated penalties.

We are subject to U.S. federal income tax as well as to income taxes in Germany and various other foreign and state jurisdictions. Our federal and state income tax returns are generally not subject to examination by tax authorities for years before 2008 and 2007, respectively. We had no tax audits in progress as of December 31, 2011.

A reconciliation of unrecognized tax benefits is as follows:

	Year Ended December 31,
	2011	2010	2009
	(millions)
Balance at the beginning of the year	$ 27.1	$ 27.6	$ 36.3
Tax positions related to current year:
Additions	-	-	0.4
Reductions	-	-	-
Tax positions related to prior years:
Additions	-	-	0.3
Reductions	(0.1)	-	-
Settlement with taxing authorities	-	-	(9.3)
Expiration of statutes of limitations	(1.9)	(0.5)	(0.1)
Balance at the end of the year	$ 25.1	$ 27.1	$ 27.6