Income Taxes

6 Months Ended

Jun. 29, 2012

Income Taxes [Abstract]

INCOME TAXES

NOTE 11: INCOME TAXES

The income tax provision includes U.S. federal, state and local, and foreign income taxes and is based on the application of a forecasted annual income tax rate applied to the current quarter’s year-to-date pre-tax income (loss). In determining the estimated annual effective income tax rate, the Company analyzes various factors, including projections of the Company’s annual earnings, taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the Company’s ability to use tax credits and net operating loss carryforwards, and available tax planning alternatives. Discrete items, including the effect of changes in tax laws, tax rates, and certain circumstances with respect to valuation allowances or other unusual or non-recurring tax adjustments are reflected in the period in which they occur as an addition to, or reduction from, the income tax provision, rather than being included in the estimated annual effective income tax rate.

For the three months ended June 29, 2012, the Company recorded a benefit from income taxes of $2.4 million, compared to a provision of $0.8 million for the same period a year ago, inclusive of discrete items. The benefit from income taxes in the three months ended June 29, 2012, compared to the provision for income taxes in the same period in 2011, was primarily attributable to the benefit associated with the reversal of previously provided foreign income taxes due to statute of limitation expirations, partially offset by an increase in the valuation allowance on California research and development tax credits.

For the six months ended June 29, 2012, the Company recorded a benefit from income taxes of $3.0 million, compared to a provision of $0.2 million for the same period a year ago, inclusive of discrete items. The benefit from income taxes in the six months ended June 29, 2012, compared to the provision for income taxes in the same period in 2011, was primarily attributable to the benefits associated with the reversal of previously provided foreign income taxes due to statute of limitation expirations and foreign currency translation adjustments, partially offset by accrued interest on uncertain tax provisions and an increase in the valuation allowance on California research and development tax credits.

For the six months ended June 29, 2012, the difference between the recorded benefit from income taxes and the tax provision, based on the federal statutory rate of 35%, was primarily attributable to the net of various discrete items, the differential in foreign tax rates, non-deductible stock-based compensation expense and non-deductible amortization on foreign intangibles. The discrete items recorded in the first six months of 2012 primarily related to the increase in the valuation allowance on California research and development tax credits, a benefit associated with the reversal of previously provided foreign income taxes due to statute of limitation expirations and accrued interest on uncertain tax positions.

For the six months ended July 1, 2011, the difference between the recorded benefit from income taxes and the tax provision, based on the federal statutory rate of 35%, was primarily attributable to the net of various discrete items, the differential in foreign tax rates, non-deductible stock-based compensation expense, non-deductible amortization on foreign intangibles, and federal research and development credits. The discrete items recorded in the first six months of 2011 related to accrued interest on uncertain tax positions, a benefit associated with the reversal of previously provided foreign income taxes due to statute of limitation expirations and other immaterial items.

In compliance with applicable guidance for accounting for uncertainty in income taxes, the Company had gross unrecognized tax benefits, which include interest and penalties, of approximately $52.5 million as of December 31, 2011, and approximately $51.6 million as of June 29, 2012. If all of these unrecognized tax benefits were recognized, the entire amount would impact the provision for income taxes. We anticipate the unrecognized tax benefits to decrease by $0.7 million in the 12 months beginning June 30, 2012, due to statute of limitation expirations, except to the extent the IRS may challenge the Company’s position with respect to such benefits.

The Company recognizes interest and possible penalties related to uncertain tax positions in income tax expense. During the six months ended June 29, 2012, the Company recorded a net increase of $0.1 million for interest and possible penalties related to uncertain tax positions, resulting in a balance at June 29, 2012 of $5.3 million.

The Company files U.S., state and foreign income tax returns in jurisdictions with varying statute of limitations periods, during which such tax returns may be audited and adjusted by the relevant tax authorities. The Company’s 2007 through 2011 tax years generally remain subject to examination by federal and most state tax authorities. In significant foreign jurisdictions, the Company’s 2005 through 2011 tax years generally remain subject to examination by their respective tax authorities. A subsidiary of the Company is under audit by the Israel tax authority for the years 2007 through 2010. The Company is currently under audit by the US Internal Revenue Service for the 2007, 2008, 2009 and 2010 tax years. In addition, the statute of limitations on the Company’s 2007 and 2008 U.S. corporate income tax returns has been extended to 2013.