Note 15 - Income Taxes

12 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Text Block]

Note 15.    Income Taxes

The components of income (loss) from continuing operations before benefit from (provision for) income taxes for all periods presented are as follows:

	Fiscal Year Ended December 31,					Nine-Month Transition Period Ended December 31,
	2012		2011			2010
	(in thousands)
Income (loss) from continuing operations before income taxes:
Domestic	$	6,326	$	(2,717	)	$	(12,220	)
Foreign		141		2,559			2,436
	$	6,467	$	(158	)	$	(9,784	)

The components of the benefit from (provision) for income taxes from continuing operations for all periods presented are as follows:

	Fiscal Year Ended December 31,						Nine-Month Transition Period Ended December 31,
	2012			2011			2010
	(in thousands)
Federal:
Current	$	34		$	(2,666	)	$	76
Deferred		15,066			-			-
		15,100			(2,666	)		76
Foreign:
Current		1,373			1,979			(7,961	)
Deferred		-			921			276
		1,373			2,900			(7,685	)
State
Current		(979	)		(8	)		7
Deferred		218			-			-
		(761	)		(8	)		7
Benefit from (provision for) income taxes	$	15,712		$	226		$	(7,602	)

The Company’s effective tax rate differed from the federal statutory rate for all periods presented as follows:

	Fiscal Year Ended December 31,						Nine-Month Transition Period Ended December 31,
	2012			2011			2010
Federal statutory rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal benefit		15.1	%		-1.9	%		0.0	%
Foreign losses not benefited		-0.6	%		-19.6	%		1.2	%
Changes in tax reserves		0.0	%		640.3	%		-78.2	%
Change in valuation allowance		-297.8	%		5852.1	%		-33.6	%
Distributions from foreign subsidiaries		-4.9	%		-6599.8	%		-3.8	%
Other permanent differences		24.6	%		143.2	%		1.7	%
		-228.6	%		49.3	%		-77.7	%

The Company recorded a benefit from income taxes of $15.7 million for the year ended December 31, 2012, primarily due to the release of a portion of the valuation allowance and a refund received as a result of a tax settlement in Singapore. The valuation allowance release was related to deferred tax liabilities recognized for the difference between the fair value and carrying basis of certain tangible and intangible assets obtained as part of the business combination, which can be used as a source of income to support realization of certain domestic deferred tax assets. Under generally accepted accounting principles, changes in an acquirer's valuation allowance that stem from a business combination should be recognized as an element of the acquirer's deferred income tax expense (benefit) in the reporting period that includes the business combination. For income tax purposes, amounts assigned to particular assets acquired and liabilities assumed may be different than amounts used for financial reporting. The differences in assigned values for financial reporting and tax purposes result in temporary differences. In applying ASC 740, companies are required to recognize the tax effects of temporary differences related to all assets and liabilities. The Company paid $3.5 million in taxes in Singapore during fiscal 2012 for prior year assessments on a liability that was part of its FIN 48 reserve. The Singapore IRAS subsequently refunded $1.4 million of that assessment based on information the Company provided.

The Company recorded a benefit from income taxes of $0.2 million for the fiscal year ended December 31, 2011, primarily due to the reversal of reserves for foreign taxes as a result of a favorable settlement in Singapore. During fiscal 2011, the Company made significant changes to its historic investment portfolio to move to primarily low-risk interest-bearing government securities. These changes were significant enough, in the Company’s judgment, to consider the legacy portfolio to have been disposed of for the purpose of tracking a disproportionate tax effect that arose in fiscal 2008. Fiscal 2011 also included the Company realizing certain currency translation gains due to substantial liquidation of certain of its foreign subsidiaries and the receipt of dividends from foreign subsidiaries. These taxes were partially offset by income tax benefits from losses incurred in the Company’s foreign jurisdictions and the reversal of reserves for certain foreign taxes.

In the Transition Period, the Company’s tax provision was associated with losses incurred from continuing operations being offset by state minimum taxes and taxes related to foreign subsidiaries. The tax provision included tax expenses of $7.9 million primarily due to changes in judgment related to the ongoing audits in its foreign jurisdictions.

The significant components of the Company’s deferred tax assets and liabilities at December 31, 2012 and 2011 are as follows:

	December 31,
	2012			2011
	(in thousands)
Deferred tax assets:
NOL carryover	$	40,771		$	58,870
Research and development credits		29,659			29,659
Compensatory and other accruals		1,200			688
Foreign tax credits		7,528			10,035
Fixed assets		-			155
Other, net		2,901			2,693
Gross deferred tax assets		82,059			102,100
Deferred tax liabilities:
Unremitted earnings		(29,425	)		(30,667	)
Unrealized loss on investments		(321	)		(229	)
Intangible assets		(8,886	)		-
Fixed assets		(4,403	)		-
Other, net		-			(30	)
Gross deferred tax liabilities		(43,035	)		(30,926	)
Valuation allowance		(37,173	)		(69,508	)
Deferred tax assets, net	$	1,851		$	1,666

The significant components of the Company’s deferred tax assets and liabilities at December 31, 2012 and 2011 were classified in the Consolidated Balance Sheets as follows:

	December 31,
	2012			2011
	(in thousands)
Deferred tax assets:
Other current assets	$	188		$	-
Other long-term assets		1,696			1,711
Total deferred tax assets		1,884			1,711
Deferred tax liabilities:
Other current liabilities		-			(15	)
Other long-term liabilities		(33	)		(30	)
Total deferred tax liabilities		(33	)		(45	)
	$	1,851		$	1,666

The Company continues to provide United States deferred income taxes and foreign withholding taxes on its undistributed earnings. At December 31, 2012 and 2011, the Company recorded a deferred tax liability of $29.6 million and $30.7 million, respectively related to the foreign undistributed earnings, which was offset by a reduction in the Company’s valuation allowance against its deferred tax assets.

The Company continuously monitors the circumstances impacting the expected realization of its deferred tax assets on a jurisdiction by jurisdiction basis. At December 31, 2012 and 2011, the Company’s analysis of its deferred tax assets demonstrated that it was more likely than not that all of its net U.S. deferred tax assets will not be realized, resulting in a valuation allowance for deferred tax assets of $37.2 million and $69.5 million, which included immaterial out-of-period adjustments that had no impact to net loss, respectively. This resulted in a decrease to the valuation allowance by $32.3 million in the fiscal year ended December 31, 2012 and by $0.9 million in the fiscal year ended December 31, 2011. Factors that led to this conclusion included, but were not limited to, the Company’s past operating results, cumulative tax losses in the United States, worthless securities, multiple acquisitions and uncertain future income on a jurisdiction by jurisdiction basis.

The Company continues to monitor the status of its NOLs, which may be used to offset future taxable income. If the Company underwent an ownership change, the NOLs would be subject to an annual limit on the amount of the taxable income that may be offset by its NOLs generated prior to the ownership change and additionally, the Company may be unable to use a significant portion of its NOLs to offset taxable income. At December 31, 2012, the Company had net operating loss carryforwards of $126.0 million for federal and $150.4 million for state purposes that expire in various years beginning in 2019 for federal and are currently expiring for state purposes. At December 31, 2012, the Company had research and development credits of $30.3 million for federal purposes that expire in various years beginning in 2019 and credits of $17.7 million for state purposes that carry forward indefinitely until fully exhausted. At December 31, 2012, the Company had foreign tax credits of $1.6 million that expire in various years beginning in 2013. Of the federal net operating loss carryforwards, $10.2 million were related to stock option deductions, the tax benefit of which will be credited to additional paid-in capital when realized.

Uncertainty in Income Taxes

The Company recognizes interest and/or penalties related to uncertain tax positions within “Benefit from (provision for) income taxes” in its Consolidated Statements of Operations. To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision in the period that such determination is made. The amount of interest and penalties accrued during fiscal year 2012 and 2011, and the Transition Period was immaterial.

A reconciliation of the changes to the Company’s gross unrecognized tax benefits for all periods presented is as follows:

	Fiscal Year Ended December 31,						Nine-Month Transition Period Ended December 31,
	2012			2011			2010
	(in thousands)
Balance at beginning of period	$	29,903		$	31,818		$	23,925
Tax positions related to current year:
Additions		-			-			84
Tax positions related to prior years:
Additions		-			951			7,809
Settlements		(3,484	)		(2,866	)		-
Balance at end of period	$	26,419		$	29,903		$	31,818

The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of complex global tax regulations. Management regularly assesses the Company’s tax positions in light of legislative, bilateral tax treaty, regulatory and judicial developments in the countries in which the Company conducts or formerly conducted business. Management believes that it is not reasonably possible that the gross unrecognized tax benefits will change significantly within the next 12 months; however, tax audits remain open and the outcome of any tax audits are inherently uncertain, which could change this judgment in any given quarter.

As of December 31, 2012, the Company’s total gross unrecognized tax benefits were $26.4 million, of which $7.4 million, if recognized, would affect the effective tax rate. There was an overall decrease of $3.5 million in the Company’s gross unrealized tax benefits from fiscal 2011 to fiscal 2012, primarily due to the reversal of reserves for foreign taxes as a result of an assessment with the Singapore taxing authorities. The Company recorded a benefit from income taxes of $1.4 million for the year ended December 31, 2012, due to a refund received as a result of a settlement in Singapore.

The Company is subject to U.S. federal income tax as well as income taxes in many U.S. states and foreign jurisdictions in which the Company operates or formerly operated. As of December 31, 2012, fiscal years 2005 onward remained open to examination by the U.S. taxing authorities and fiscal years 2000 onward remained open to examination in various foreign jurisdictions. U.S. tax attributes generated in fiscal years 2000 onward also remain subject to adjustment in subsequent audits when they are utilized.