13. Income Taxes

Components of our income (loss) from continuing operations are as follows (in thousands):


	2012			2011			2010
Income (loss) from continuing operations before income taxes:
Canadian	$	(5,199	)	$	(871	)	$	1,302
U.S.		12,132			7,455			(29,646	)
Other		4,601			17,636			20,371

Total	$	11,534		$	24,220		$	(7,973	)

Components of the Company’s income tax provision (benefit) are as follows (in thousands):


	2012			2011			2010
Current
Canadian	$	—		$	—		$	629
U.S.		3,625			388			1,589
Other		2,277			1,664			4,194

		5,902			2,052			6,412
Deferred
Canadian		—			—			(40	)
U.S.		(13,882	)		(150	)		4,929
Other		(2,960	)		642			651

		(16,842	)		492			5,540

Total	$	(10,940	)	$	2,544		$	11,952

The Company is incorporated in Canada and therefore uses the Canadian statutory rate. The reconciliation of the statutory Canadian income tax rate related to income from continuing operations before income taxes to the effective rate is as follows (in thousands, except percentage data):


	2012			2011			2010
Statutory Canadian tax rate		25.00	%		27.00	%		28.00	%
Expected income tax provision (benefit)	$	2,884		$	6,539		$	(2,232	)
Permanent differences		241			5			9,581
International tax rate differences		1,419			641			(1,962	)
Change in valuation allowance		(15,086	)		(5,598	)		3,862
Prior year provision to return differences		37			69			136
NOL expirations		—			—			877
Statutory tax rate change		316			357			371
Uncertain tax positions		(4,093	)		423			972
Tax credits		—			(144	)		(68	)
State income tax, net		375			577			519
IRS audit		1,846			(268	)		(318	)
Withholding and other taxes		488			—			—
Other		633			(57	)		214

Reported income tax provision (benefit)	$	(10,940	)	$	2,544		$	11,952

Effective tax rate		(94.9	%)		10.5	%		149.9	%

Deferred income taxes result principally from temporary differences in the recognition of certain revenue and expense items and operating loss carryforwards and credit carryforwards for financial and tax reporting purposes. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2012 and 2011 are as follows (in thousands):


	2012			2011
Deferred tax assets
Losses & IRC Section 163(j) carryforwards	$	24,372		$	26,164
Compensation related deductions		4,737			3,507
Tax credits		5,101			6,395
Restructuring related liabilities		510			581
Inventory		6,493			6,613
Depreciation		194			—
Warranty		680			761
Unrealized gain/loss		—			727
Other		598			679

Total deferred tax assets		42,685			45,427
Valuation allowance for deferred tax assets		(15,481	)		(28,507	)

Net deferred income tax assets	$	27,204		$	16,920

Deferred tax liabilities
Equity investment	$	(807	)	$	(699	)
Depreciation		—			(2,633	)
Amortization		(14,254	)		(15,510	)
Unrealized gain/loss		(1,132	)		—
Other		(201	)		(760	)

Total deferred tax liabilities	$	(16,394	)	$	(19,602	)

Net deferred income tax asset (liability)	$	10,810		$	(2,682	)

In determining its fiscal 2012, 2011, and 2010 tax provisions, the Company calculated deferred tax assets and liabilities for each separate jurisdiction. The Company then considered a number of factors, including positive and negative evidence related to the realization of its deferred tax assets to determine whether a valuation allowance should be recognized with respect to its deferred tax assets.

In 2012, the Company recognized a tax benefit of $15.3 million due to the release of a portion of the valuation allowance on deferred tax assets which the Company believes are more likely than not to be realized. Our effective income tax rate benefited from the availability of previously unrealized deferred tax assets which the Company utilized to reduce tax expense for the U.S., U.K., France, and Japan for income tax purposes.

Valuation allowance continues to be provided on certain state net operating loss and state tax credit carryforwards and on certain foreign tax attributes that the Company has determined that it is more likely than not that they will not be realized. In conjunction with the Company’s ongoing review of its actual results and anticipated future earnings, the Company continuously reassesses the possibility of releasing the valuation allowance currently in place on its deferred tax assets.

As of December 31, 2012, the Company had loss carryforwards of $14.1 million (tax effected) available to reduce future years’ income for tax purposes. Of this amount, approximately $1.5 million relates to the U.S. and expires through 2032; $10.5 million relates to Canada and expires starting in 2015; $1.7 million relates to the U.K. and can be carried forward indefinitely; and the remaining $0.4 million relates to various foreign jurisdictions.

As of December 31, 2012, the Company had tax credits of approximately $5.1 million available to reduce future years’ income taxes. Approximately $2.7 million relates to the U.S., both federal and state, and expires through 2032. The remaining $2.4 million relates to Canada, of which $1.6 million expires through 2022 and $0.8 million can be carried forward indefinitely.

As of December 31, 2012, the amount of non-Canadian earnings that are expected to remain indefinitely reinvested in the business as defined in the provisions of ASC 740, “Income Taxes,” and for which the Company has not provided any tax costs of repatriation, is $18.7 million. In general, the determination of the amount of the unrecognized deferred tax liability related to the reinvested earnings is not practical because of the complexities associated with its hypothetical calculation.

As of December 31, 2011, the amount of gross unrecognized tax benefits totaled approximately $7.3 million, all of which would favorably affect the Company’s effective tax rate, if recognized. As of December 31, 2012, the Company’s total amount of gross unrecognized tax benefits was $7.6 million, of which $4.3 million would favorably affect its effective tax rate, if recognized. As a result of settling a U.S. federal tax examination, the Company released $3.0 million of unrecognized tax benefits during the year ended December 31, 2012. Over the next twelve months, the Company may need to record up to $0.8 million of previously unrecognized tax benefits in the event of statute of limitations closures. The Company believes there are no other jurisdictions in which the outcome of unresolved issues or claims is likely to be material to its results of operations, financial position or cash flows. Furthermore, the Company believes it has adequately provided for all income tax uncertainties. The reconciliation of the total amounts of unrecognized tax benefits is as follows (in thousands):


Balance at December 31, 2009	$	5,333
Additions based on tax positions related to the current year		241
Reductions for tax positions of prior years		(486	)

Balance at December 31, 2010		5,088
Additions based on tax positions related to the current year		2,318
Additions for tax positions of prior years		55
Reductions to tax positions resulting from a lapse of the applicable statute of limitations		(177	)

Balance at December 31, 2011		7,284
Additions based on tax positions related to the current year		2,618
Additions for tax positions of prior years		1,422
Reductions for tax positions of prior years		(481	)
Reductions to tax positions resulting from a lapse of the applicable statute of limitations		(254	)
Settlements with taxation authorities		(3,035	)

Balance at December 31, 2012	$	7,554

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2012 and 2011, the Company had approximately $0.6 million and $1.2 million, respectively, of accrued interest and penalties related to uncertain tax positions. During the years ended December 31, 2012 and 2011, the Company recognized approximately $0.6 million and $0.3 million, respectively, of benefits from lower interest and penalties related to uncertain tax positions.

The Company files income tax returns in Canada, the U.S., various states, and foreign jurisdictions. Generally, the Company is no longer subject to U.S. or foreign income tax examinations by tax authorities for the years before 2000. The Company settled a tax audit with the IRS for years 2000 through 2008. However, these tax years remain open for audit until the IRS statute of limitations expires.

The Company’s income tax returns may be reviewed in the following countries for the following periods under the appropriate statute of limitations:


United States		2000 - Present
Canada		2006 - Present
United Kingdom		2009 - Present
China		2009 - Present
Japan		2007 - Present
Germany		2006 - Present