Income Taxes

3 Months Ended

Mar. 31, 2012

Income Taxes [Abstract]

INCOME TAXES

14. INCOME TAXES

The income tax provision for the three months ended March 31, 2012, as a percentage of income before taxes, was 39.1%. The tax provision for this period includes an out-of-period charge of $491,000 related to the write-offs of deferred tax assets associated with the net operating losses of two previously acquired companies. This charge is immaterial for the first quarter of 2012 and immaterial to any applicable prior periods that could have been affected. The tax provision for this period excludes any benefits from the Federal research and development credit which expired on December 31, 2011 and has not been reinstated as of the first quarter of 2012. The income tax provision for the three months ended March 31, 2011, as a percentage of income before taxes, was 32.6%.

As of March 31, 2012, the liability for uncertain tax positions was $11.8 million (including interest and penalties) and the net liability, reduced for the federal effects of potential state tax exposures, was $8.5 million. If these uncertain tax positions are sustained upon tax authority audit, or otherwise become certain, the net $8.5 million would favorably affect the Company’s tax provision in such future periods. Included in the $8.5 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 $6.6 million liability is included in long-term income taxes payable. The Company does not anticipate a significant change to the $6.6 million long-term uncertain income tax positions 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 March 31, 2012 and December 31, 2011, the Company had $717,000 and $655,000, respectively, accrued for interest and none 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, 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.

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 $22.0 million and net long-term deferred tax assets of $9.4 million as of March 31, 2012. 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.