|12 Months Ended|
Dec. 31, 2012
|Income Tax Disclosure [Abstract]|
Our loss before provision for income taxes was as follows (in thousands):
The tax provision for the years ended December 31, 2012, 2011 and 2010 consists primarily of taxes attributable to foreign operations. The components of the provision for income taxes are as follows (in thousands):
Reconciliation of the provision for income taxes calculated at the statutory rate to our provision for income taxes is as follows (in thousands):
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.
Significant components of our deferred tax assets and liabilities are as follows (in thousands):
The tax benefit of NOL, temporary differences and credit carryforwards are recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on our ability to generate sufficient taxable income within the carryforward period. Because of our history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not more likely than not to be realized and, accordingly, has provided a valuation allowance. Accordingly, the net deferred tax assets in the United States, Hungary and Singapore have been fully reserved by a valuation allowance. The net valuation allowance increased by $8.6 million, $5.8 million and $1.6 million during the years ended December 31, 2012, 2011 and 2010, respectively. At such time as it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance will be reduced.
The following table sets forth our federal, state and foreign NOL carryforwards and federal research and development tax credits as of December 31, 2012 (in thousands):
On January 2, 2013, the President signed into law The American Taxpayer Relief Act of 2012. Under prior law, a taxpayer was entitled to a research tax credit for qualifying amounts paid or incurred on or before December 31, 2011. The 2012 Taxpayer Relief Act extends the research credit for two years to December 31, 2013. The extension of the research credit is retroactive and includes amounts paid or incurred after December 31, 2011. As a result of the retroactive extension, we expect to recognize a deferred tax asset of approximately $0.4 million for qualifying amounts incurred in 2012 which will be fully offset by a valuation allowance. The deferred tax asset and corresponding valuation allowance will be recognized in the period of enactment, which is the first quarter of 2013.
Current federal and California tax laws include substantial restrictions on the utilization of NOLs and tax credit carryforwards in the event of an ownership change of a corporation. Accordingly, our ability to utilize NOLs and tax credit carryforwards may be limited as a result of such ownership changes. Such a limitation could result in the expiration of carryforwards before they are utilized.
Income tax expense or benefit from continuing operations is generally determined without regard to other categories of earnings, such as discontinued operations and other comprehensive income. An exception is provided in ASC Topic 740, Income Taxes, when there is aggregate income from categories other than continuing operations and a loss from continuing operations in the current year. In this case, the tax benefit allocated to continuing operations is the amount by which the loss from continuing operations reduces the tax expenses recorded with respect to the other categories of earnings, even when a valuation allowance has been established against the deferred tax assets. In instances where a valuation allowance is established against current year losses, income from other sources, including gain from available-for-sale securities recorded as a component of other comprehensive income, is considered when determining whether sufficient future taxable income exists to realize the deferred tax assets. As a result, for the year ended December 31, 2012, the Company recorded a tax expense of $69,000 in other comprehensive income related to the gain on available-for-sale securities, and recorded a corresponding tax benefit of $69,000 in continuing operations.
The Company has not provided for United States federal and state income taxes on all of the non-United States subsidiaries’ undistributed earnings as of December 31, 2012, because such earnings are intended to be indefinitely reinvested. As of December 31, 2012, cumulative un-remitted foreign earnings that are considered to be permanently invested outside the United States and on which no United States taxes have been provided were approximately $1.0 million. The residual United States tax liability, if such amounts were remitted, would be nominal.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
We recognize interest and penalties in income tax expense. Total interest and penalties recognized in the consolidated statement of operations was $11,000, $39,000 and $75,000 respectively in 2012, 2011 and 2010. Total penalties and interest recognized in the balance sheet was $250,000 and $239,000 respectively in 2012 and 2011. The total unrecognized tax benefits that, if recognized currently, would impact our effective tax rate were $1.5 million and $1.4 million as of December 31, 2012 and 2011, respectively. We expect $54,000 of unrecognized tax benefits to be recognized within the next 12 months. We are not subject to examination by United States federal or state tax authorities for years prior to 2002 and foreign tax authorities for years prior to 2006.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef