Annual report pursuant to Section 13 and 15(d)

Income Taxes (Note)

v2.4.0.8
Income Taxes (Note)
 12 Months Ended
Dec. 31, 2013
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
The domestic and international components of loss before provision from income taxes are presented as follows:
 
Years Ended December 31,
 
2013
 
2012
 
2011
Domestic
$
(12,770
)
 
$
(11,918
)
 
$
(13,775
)
Foreign
439

 
(993
)
 
(1,256
)
Loss before income taxes
$
(12,331
)
 
$
(12,911
)
 
$
(15,031
)

Income tax provision consists of the following:
 
Years Ended December 31,
 
2013
 
2012
 
2011
Current:
 
 
 
 
 
Federal
$
—

 
$
—

 
$
236

State
—

 
—

 
20

Foreign
574

 
351

 
69

Total current
574

 
351

 
325

Deferred:
 
 
 
 
 
Federal
(5,217
)
 
(4,162
)
 
(5,183
)
State
(1,174
)
 
(2,062
)
 
(1,731
)
Foreign
(166
)
 
—

 
685

Change in valuation allowance
6,385

 
6,214

 
12,897

Total deferred
(172
)
 
(10
)
 
6,668

Total income tax provision
$
402

 
$
341

 
$
6,993


The actual income tax provision differs from the amount computed using the federal statutory rate as follows:
 
Years Ended December 31,
 
2013
 
2012
 
2011
Benefit at statutory rate
$
(4,191
)
 
$
(4,390
)
 
$
(5,111
)
State income taxes (net of federal benefit)
1

 
(1,247
)
 
24

Research and development credits
(3,630
)
 
(858
)
 
(3,320
)
Foreign rate differential
(80
)
 
445

 
1,182

Stock compensation
460

 
278

 
974

Foreign deemed dividend
835

 
—

 
94

Estimated export compliance fines and penalties
—

 
(255
)
 
255

Foreign tax credit
—

 
—

 
(236
)
Uncertain tax positions
266

 
199

 
236

Permanent and other
356

 
(45
)
 
24

Valuation allowance
6,385

 
6,214

 
12,871

Total provision for income taxes
$
402

 
$
341

 
$
6,993


The components of the deferred income tax assets are as follows:
 
December 31,
 
2013
 
2012
Deferred tax assets:
 
 
 
Net operating loss carryforwards
$
8,545

 
$
8,216

Research and development credits
12,718

 
9,088

Accrued expenses and other
476

 
403

Accrued compensation
1,686

 
1,567

Stock-based compensation
2,732

 
3,184

Depreciation and amortization
2,637

 
—

 
28,794

 
22,458

Less valuation allowance
(28,628
)
 
(22,243
)
 
166

 
215

Deferred tax liability:
 
 
 
Depreciation and amortization
—

 
(215
)
Net deferred tax assets
$
166

 
$
—


At December 31, 2013, the Company had federal and state tax net operating loss carryforwards of approximately $27.7 million and $24.0 million, respectively. These amounts include share-based compensation for federal and state of $7.8 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 2019, respectively, unless previously utilized.
At December 31, 2013, the Company had federal and state tax credit carryforwards of approximately $8.3 million and $8.7 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 2013 and 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, 2013, the Company’s unrecognized tax benefits totaled $5.5 million, $4.6 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, 2013, 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 2013, 2012 and 2011:
Balance as of December 31, 2010
$
1,184

Additions based on tax positions related to the current year
1,018

Additions based on tax positions of prior year
818

Balance as of December 31, 2011
3,020

Additions based on tax positions related to the current year
725

Additions based on tax positions of prior years
132

Decreases based on tax positions of prior year
(127
)
Balance as of December 31, 2012
3,750

Additions based on tax positions related to the current year
1,689

Additions based on tax positions of prior years
23

Balance as of December 31, 2013
$
5,462


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, 2013, the Company is no longer subject to federal, California or foreign income tax examinations for the years before 2010, 2009, 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.
At December 31, 2013, the Company was under examination by the federal tax authorities for the tax years 2010 and 2011. This examination closed in January 2014. The impact of any adjustments has been reflected in 2013. At December 31, 2012, the Company was under examination by the California tax authorities for the tax years 2008 and 2009. This examination closed during the three months ended March 31, 2013 with no adjustment to taxable income.
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.