|12 Months Ended|
Dec. 31, 2012
7. Income Taxes
The domestic and international components of income (loss) before provision (benefit) from income taxes are presented as follows:
Income tax provision (benefit) consists of the following:
The actual income tax provision (benefit) differs from the amount computed using the federal statutory rate as follows:
The components of the deferred income tax assets are as follows:
At December 31, 2012, the Company had federal and state tax net operating loss carryforwards of approximately $24.6 million and $26.7 million, respectively. These amounts include share-based compensation for federal and state of $6.4 million and $3.8 million, that will be recorded to contributed capital when realized. The federal and state tax loss carryforwards will begin to expire in 2026 and 2018, respectively, unless previously utilized.
At December 31, 2012, the Company had federal and state tax credit carryforwards of approximately $5.2 million and $6.8 million, respectively. The federal tax credit carryforward will begin to expire in 2024, unless previously utilized. The state tax credits do not expire. In addition, the Company has federal alternative minimum tax credit carryforwards of $0.2 million that can be carried forward indefinitely.
Pursuant to Internal Revenue Code Section 382 and 383, use of the Company’s net operating loss and credit carryforwards may be limited if a cumulative change in ownership of more than 50% occurs within a three-year period. The Company has had two changes of ownership in April and November of 2004 resulting in an annual net operating loss and credit limitation. The annual limitations will not cause a loss of net operating loss or credit carryforwards. Additional limitations on the use of these tax attributes could occur in the event of possible disputes arising in examinations from various taxing authorities.
The Company evaluated its net deferred income taxes, which included an assessment of the cumulative income or loss over the prior three-year period and future periods, to determine if a valuation allowance is required. After considering its recent history of losses and management’s expectations of additional near-term losses, the Company recorded a valuation allowance on its net federal deferred tax assets, with a corresponding charge to its income tax provision of approximately $6.7 million during 2011. During 2012, the Company maintained a valuation allowance against all of its federal and state deferred tax assets as realization of such assets does not meet the more-likely-than-not threshold required under accounting guidelines. The Company will continue to assess the need for a valuation allowance on the deferred tax assets by evaluating positive and negative evidence that may exist.
At December 31, 2012, the Company’s unrecognized tax benefits totaled $3.8 million, $3.1 million of which, if recognized at a time when the valuation allowance no longer exists, would affect the effective tax rate. The Company will recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. At December 31, 2012, the Company had no accrual for interest and penalties. The Company does not expect any significant increases or decreases to its unrecognized tax benefits within twelve months.
The following table summarizes the changes to the unrecognized tax benefits during 2012, 2011 and 2010:
The Company is subject to federal and California income tax in the United States and is also subject to income tax in certain other foreign tax jurisdictions. At December 31, 2012, the Company is no longer subject to federal, California or foreign income tax examinations for the years before 2009, 2008 and 2007, respectively. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating loss or credit carryforward amount.
The Company is currently under examination by the tax authorities in California for the tax years 2008 and 2009.
On January 2, 2013, the American Taxpayer Relief Act of 2012 was enacted. The Act included several provisions related to corporate income tax including the reinstatement of the credit for qualified research and development. The credit was reinstated for years beginning after January 1, 2012.
The Company is benefitting from a tax holiday in China and is subject to a tax rate of 15% in China, compared to the statutory rate of 25%. This reduced rate is scheduled to increase to the statutory tax rate in 2014. This tax holiday may be extended if certain conditions are met.
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