Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

INCOME TAXES

15. INCOME TAXES

The income tax provision for the three and nine months ended September 30, 2011, as a percentage of income before taxes, was 27.2% and 30.9%, respectively, and included the release of approximately $769,000 of tax reserves from 2007 primarily due to the expiration of the federal statute of limitations in September 2011. The income tax provision for the three and nine months ended September 30, 2010, as a percentage of income before taxes, was 33.3% and 34.7%, respectively. The tax provision for these 2010 periods included $358,000 in prior year benefits recognized in the third quarter of 2010. The income tax provision for such interim periods differs from taxes computed at the federal statutory rate primarily due to the tax effects of share-based compensation, state income taxes, federal and state research and development credits and federal qualified production activity deductions.

As of September 30, 2011, the gross liability for uncertain tax positions was $12.6 million and the net liability, reduced for the federal effects of potential state tax exposures, was $9.5 million. If these uncertain tax positions are sustained upon tax authority audit, or otherwise become certain, the net $9.5 million would favorably affect the Company’s tax provision in such future periods. Included in the $9.4 million is $1.9 million which has not yet reduced income tax payments, and therefore, has been netted against non-current deferred tax assets. The remaining $7.6 million liability consists of $5.8 million included in long-term income taxes payable and $1.8 million has been netted against current income taxes receivable. The Company does not anticipate a significant change to the $6.3 million long-term uncertain income tax positions within the next 12 months. The Company believes that the uncertainties surrounding the $1.8 million in current uncertain income tax positions may be resolved within the next 12 months.

The Company continues to recognize interest and penalties related to income tax matters as part of the income tax provision. As of September 30, 2011 and December 31, 2010, the Company had $549,000 and $743,000, respectively, accrued for interest and $0 accrued for penalties for both periods. These accruals are included as a component of long-term income taxes payable.

The Company is required to file U.S. federal income tax returns as well as income tax returns in various states and foreign jurisdictions. The Company may be subject to examination by the Internal Revenue Service (“IRS”) for calendar years 2008 and forward. Significant state tax jurisdictions include California, New York and Texas, and generally, the Company is subject to routine examination for years 2005 and forward in these jurisdictions. In addition, any research and development credit carryforwards that were generated in prior years and utilized in these years may also be subject to examination by respective state taxing authorities. Generally, the Company is subject to routine examination for years 2003 and forward in various immaterial foreign tax jurisdictions in which it operates.

Deferred tax assets and liabilities result primarily from temporary differences between book and tax bases of assets and liabilities and state research and development credit carryforwards. The Company had net current deferred tax assets of $25.1 million and net long-term deferred tax assets of $8.2 million as of September 30, 2011. The Company must regularly assess the likelihood that future taxable income levels will be sufficient to ultimately realize the tax benefits of these deferred tax assets. The Company currently believes that future taxable income levels will be sufficient to realize the tax benefits of these deferred tax assets and has not established a valuation allowance. Should the Company determine that future realization of these tax benefits is not likely, a valuation allowance would be established, which would increase the Company’s tax provision in the period of such determination.