Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

INCOME TAXES

8. INCOME TAXES

The income tax provisions for the years ended December 31, 2011, 2010 and 2009, as a percentage of income before taxes, were 29%, 33% and 34%, respectively. The income tax provision for such periods differs from taxes computed at the federal statutory rate primarily due to the effect of non-deductible share-based compensation expense, state income taxes, federal and state research and development credits and federal qualified production activity deductions.

A reconciliation of the statutory federal income tax rate to the effective tax rate for the years ended December 31 was as follows:

	2011			2010			2009
Statutory federal income tax rate		35	%		35	%		35	%
Research and development credit		(4	)		(1	)		(3	)
Qualified production activities credit		(2	)		(3	)		(1	)
State income taxes (net of federal income tax benefit)		1			2			(1	)
Non-deductible stock compensation		0			0			2
Other		(1	)		0			2
Effective tax rate		29	%		33	%		34	%

The provision for income taxes for the years ended December 31 consisted of the following (in thousands):

	2011			2010			2009
Current:
Federal	$	9,653		$	29,086		$	7,241
State		682			2,584			54
Total current		10,335			31,670			7,295
Deferred:
Federal		3,514			(6,439	)		1,544
State		(263	)		(477	)		(503	)
Total deferred		3,251			(6,916	)		1,041
Total provision	$	13,586		$	24,754		$	8,336

Pre-tax income from non-U.S. jurisdictions was not material in all periods presented.

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 $22.9 million and net long-term deferred tax assets of $8.7 million as of December 31, 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 except for net operating losses generated in China. Should the Company determine that future realization of these tax benefits is not likely, additional valuation allowance would be established, which would increase the Company’s tax provision in the period of such determination.

Deferred tax assets and liabilities at December 31 were as follows (in thousands):

	2011			2010
Deferred tax assets:
Accruals and reserves not currently deductible	$	10,857		$	9,793
Deferred income		11,831			14,908
Tax net operating loss and credit carryforwards		10,876			10,679
Non-qualified stock compensation		3,017			3,178
Capitalized research and development		73			213
Unrealized impairment of auction rate securities		371			707
Gross deferred tax assets		37,025			39,478
Valuation allowance		(279	)		(279	)
Total deferred tax assets		36,746			39,199
Deferred tax liabilities:
Depreciation		(5,147	)		(4,349	)
State income taxes		(88	)		(88	)
Total deferred tax liability		(5,235	)		(4,437	)
Net deferred tax assets (current and non-current)	$	31,511		$	34,762

Included in net deferred tax assets are net operating loss and credit carryforwards. Due to the Company’s acquisition of Synergy in 1998, the Company has available pre-ownership change federal net operating loss carryforwards of approximately $2.0 million which will expire in the years 2012 through 2018 if not utilized. Under Section 382 of the Internal Revenue Code, these pre-ownership changes in net operating loss carryforwards are subject to an annual limitation. The Company believes that it is more likely than not that these net operating loss carryforwards will be utilized before expiration. In addition, the Company has available state research and development credit carryforwards of approximately $18.2 million, of which approximately $2.3 million represents pre-ownership change carryforwards subject to the Section 383 annual limitation. The state research credit carryforwards are not subject to expiration and may be carried forward indefinitely until utilized.

As of December 31, 2011, the gross liability for uncertain tax positions was $11.6 million and the net liability, reduced for the federal effects of potential state tax exposures, was $8.4 million. If these uncertain tax positions are sustained upon tax authority audit, or otherwise become certain, the net $8.4 million would favorably affect the Company’s tax provision in such future periods. Included in the $8.4 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 $6.5 million liability is included in long-term income taxes payable. The Company does not anticipate a significant change to the $6.5 million long-term uncertain income tax positions within the next 12 months. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Balance at January 1, 2011	$	9,599
Additions based on tax positions related to the current year		1,451
Additions for tax positions related to prior years		87
Subtractions for tax positions related to prior years		(2,767	)
Balance at December 31, 2011	$	8,370

During 2011, the Company recognized $999,000 of previously unrecognized tax benefits due to expiration of statutes of limitations and $1,768,000 of previously unrecognized tax benefits due to tax claims granted by the tax authorities.

The Company continues to recognize interest and penalties related to income tax matters as part of the income tax provision. As of December 31, 2011 and 2010, the Company had $655,000 and $743,000, respectively, accrued for interest and none accrued for penalties for both years. The interest 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, Massachusetts 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 2004 and forward in various immaterial foreign tax jurisdictions in which it operates.