14. Income Taxes

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


	Year Ended December 31,
	2013			2012			2011
Income (loss) from continuing operations before income taxes:
Canadian	$	(5,366	)	$	(5,199	)	$	(871	)
U.S.		11,061			12,132			7,455
Other		8,835			4,601			17,636

Total	$	14,530		$	11,534		$	24,220

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


	Year Ended December 31,
	2013		2012			2011
Current
Canadian	$	—	$	—		$	—
U.S.		1,082		3,625			388
Other		652		2,277			1,664

		1,734		5,902			2,052
Deferred
Canadian		—		—			—
U.S.		2,206		(13,882	)		(150	)
Other		1,740		(2,960	)		642

		3,946		(16,842	)		492

Total	$	5,680	$	(10,940	)	$	2,544

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


	Year Ended December 31,
	2013			2012			2011
Statutory Canadian tax rate		26.00	%		25.00	%		27.00	%
Expected income tax provision at statutory Canadian tax rate	$	3,778		$	2,884		$	6,539
International tax rate differences		14			1,419			641
Permanent differences		121			241			5
Change in valuation allowance		(3,052	)		(15,086	)		(5,598	)
Prior year provision to return differences		(296	)		37			69
Net operating loss expirations		4,538			—			—
Statutory tax rate change		379			316			357
Uncertain tax positions		259			(4,093	)		423
Tax credits		(938	)		—			(144	)
State income taxes, net		118			375			577
IRS audit		680			1,846			(268	)
Withholding and other taxes		321			488			—
Other		(242	)		633			(57	)

Reported income tax provision (benefit)	$	5,680		$	(10,940	)	$	2,544

Effective tax rate		39.1	%		(94.9%	)		10.5	%

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, 2013 and 2012 are as follows (in thousands):


	December 31,
	2013			2012
Deferred tax assets
Losses & IRC Section 163(j) carryforwards	$	16,218		$	24,372
Compensation related deductions		2,725			4,737
Tax credits		3,817			5,101
Restructuring related liabilities		406			510
Inventory		5,680			6,493
Depreciation		938			194
Amortization		163			—
Warranty		1,007			680
Other		854			598

Total deferred tax assets		31,808			42,685
Valuation allowance for deferred tax assets		(11,534	)		(15,481	)

Net deferred income tax assets	$	20,274		$	27,204

Deferred tax liabilities
Equity investment	$	(1,025	)	$	(807	)
Depreciation		(471	)		—
Amortization		(11,283	)		(14,254	)
Unrealized gain/loss		(985	)		(1,132	)
Other		(581	)		(201	)

Total deferred tax liabilities	$	(14,345	)	$	(16,394	)

Net deferred income tax assets (liabilities)	$	5,929		$	10,810

In determining its 2013, 2012, and 2011 income 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 2013, the Company adjusted a portion of its Canadian loss carryforward and the related valuation allowance of $4.8 million. The Company also recorded valuation allowances against its current year net operating losses in certain tax jurisdictions of $1.3 million and released valuation allowance previously recorded on certain U.S. state tax credits of $0.3 million. Additionally, the Company adjusted the carrying value of deferred tax assets on net operating losses and tax credits and their related valuation allowance in Canada and the U.K. as a result of changes in statutory tax rates amounting to $0.7 million in 2013.

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 U.S. capital loss, certain state net operating loss and 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, 2013, the Company had loss carryforwards of $10.0 million (tax effected) available to reduce future taxable income. Of this amount, approximately $1.8 million relates to the U.S. and expires through 2033; $7.1 million relates to Canada and expires starting in 2015; $0.7 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, 2013, the Company had tax credits of approximately $3.8 million available to reduce income taxes in future years. Approximately $1.6 million relates to the U.S., both federal and state, and expires through 2033. The remaining $2.2 million relates to Canada, of which $1.4 million expires through 2022 and $0.8 million can be carried forward indefinitely.

Income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting purposes over the tax basis of investments in foreign subsidiaries that are essentially permanent in nature. This amount becomes taxable upon a repatriation of assets from a subsidiary or a sale or liquidation of a subsidiary. The amount of undistributed earnings of foreign subsidiaries totaled $13.9 million as of December 31, 2013. Determination of the amount of any unrecognized deferred income tax liabilities on this temporary difference is not practicable because of the complexities of the 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. As of December 31, 2013, the Company’s total amount of gross unrecognized tax benefits was $7.1 million, of which $4.9 million would favorably affect its effective tax rate, if recognized. Over the next twelve months, the Company may need to record up to $2.1 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, 2010	$	5,088
Additions based on tax positions related to the current year		2,318
Additions for tax positions of prior years		55
Reductions for tax positions of prior years		(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
Additions based on tax positions related to the current year		508
Additions for tax positions of prior years		1,475
Reductions for tax positions of current years		(1,888	)
Reductions to tax positions resulting from a lapse of the applicable statute of limitations		(575	)

Balance at December 31, 2013	$	7,074

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2013 and 2012, the Company had approximately $0.3 million and $0.6 million, respectively, of accrued interest and penalties related to uncertain tax positions. During the years ended December 31, 2013 and 2012, the Company recognized approximately $0.3 million and $0.6 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., and 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 2006.

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			2009 - Present
Canada			2006 - Present
United Kingdom			2009 - Present
China			2010 - Present
Japan			2008 - Present
Germany			2008 - Present
Netherlands			2009 - Present