Income Taxes

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income before income taxes consisted of:

	Year Ended December 31, 2013		Year Ended December 31, 2012		Year Ended December 31, 2011
	(In thousands)
Domestic	$	5,497	$	6,604	$	12,043
Foreign	64,655		71,425		61,452
Total	$	70,152	$	78,029	$	73,495

The income tax provision consisted of:

	Year Ended December 31, 2013			Year Ended December 31, 2012			Year Ended December 31, 2011
	(In thousands)
Current:
Federal	$	266		$	342		$	1,237
State	167			320			822
Foreign	5,371			4,497			2,990
	$	5,804		$	5,159		$	5,049
Deferred:
Federal	6,185			3,827			3,699
State	(351		)	31			44
Foreign	(760		)	(1,557		)	(1,755		)
	5,074			2,301			1,988
Provision for income taxes from ongoing operations at effective tax rate	$	10,878		$	7,460		$	7,037
Discrete Items:
Release of valuation allowance	—			—			(6,625		)
Windfall expense related to stock compensation	—			—			1,938
Enhanced R&D deduction - foreign operations	—			—			(233		)
Provision for income taxes from discrete items	—			—			(4,920		)
Total provision for income taxes	$	10,878		$	7,460		$	2,117

The income tax provision at the Federal statutory rate differs from the effective rate because of the following items:

	Year Ended December 31, 2013		Year Ended December 31, 2012		Year Ended December 31, 2011
Statutory tax rate	35.0	%	35.0	%	35.0	%
Tax impact of foreign subsidiaries (primarily in Singapore)	(6.9	)%	(8.1	)%	(5.6	)%
State income taxes, net of federal benefit	(0.3	)%	0.4	%	0.8	%
Uncertain tax matters	9.7	%	3.5	%	0.2	%
Tax holiday - India (Permanent Difference)	(15.2	)%	(15.6	)%	(15.1	)%
Passive income exemption - Sweden (Permanent Difference)	(3.5	)%	(3.1	)%	(3.0	)%
Acquisition contingent earnout liability adjustments	(5.0	)%	(0.4	)%	(1.0	)%
Other	1.7	%	(2.1	)%	(1.8	)%
Effective tax rate from ongoing operations	15.5	%	9.6	%	9.5	%
Discrete Items:
Release of valuation allowance	—	%	—	%	(9.0	)%
Windfall expense related to stock compensation	—	%	—	%	2.6	%
Enhanced R&D deduction - foreign operations	—	%	—	%	(0.2	)%
Effective tax rate after discrete items	15.5	%	9.6	%	2.9	%

Current deferred income tax assets and liabilities and long-term deferred tax assets and liabilities are presented on a net basis separately in the December 31, 2013 and 2012 accompanying Consolidated Balance Sheets. The individual balances in current and long-term deferred tax assets and liabilities are as follows:

	2013			2012
	(In thousands)
Current deferred income tax assets	$	961		$	2,074
Long-term deferred income tax assets	44,924			35,140
Total deferred income tax assets	45,885			37,214
Current deferred income tax liabilities	(705		)	(239		)
Long-term deferred income tax liabilities	(24,308		)	(23,895		)
Net deferred income tax asset	$	20,872		$	13,080

Deferred income taxes reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by the applicable local jurisdiction tax laws. Temporary differences and carry forwards which comprise the deferred tax assets and liabilities as of December 31, 2013 and 2012 were as follows:

	December 31, 2013				December 31, 2012
	Deferred				Deferred
	Assets		Liabilities		Assets		Liabilities
	(In thousands)
Depreciation and amortization	$	580	$	—	$	102	$	—
Share-based compensation	781		—		721		—
Accruals and prepaids	3,415		788		1,627		239
Bad debts	394		—		446		—
Acquired intangible assets	—		24,225		—		23,895
Net operating loss carryforwards	19,698		—		20,573		—
Tax credit carryforwards	21,017		—		13,745		—
	45,885		25,013		37,214		24,134
Valuation allowance	—		—		—		—
Total deferred taxes	$	45,885	$	25,013	$	37,214	$	24,134

No significant discrete events occurred in 2013.

As of December 31, 2013, the Company has remaining available domestic net operating loss (“NOL”) carry-forwards of $51.0 million (net of $5.7 millionutilized to offset domestic taxable income for 2013), which are available to offset future federal and certain state income taxes. The Company reviews its NOL positions to validate that all NOL carry-forwards will be utilized before they begin to expire. Portions of these remaining NOL's will expire during the years 2020 through 2027.

The Company's consolidated worldwide effective tax rate is relatively low because of the effect of conducting significant operating activities in certain foreign jurisdiction with low tax rates and where a large portion of its taxable income is generated. Furthermore, the Company's worldwide product development operations and intellectual property ownership is centralized in its India and Singapore subsidiaries, respectively. Our operations in India benefit from a tax holiday, which will continue through the year 2015; as such the Company's local India taxable income derived from export activities in support of our operating divisions around the world is not taxed. After the tax holiday expires taxable income generated by our India operations will be taxed at 50% of the normal 33.99% corporate tax rate for a period of five years. This tax holiday had the effect of reducing tax expense by $10.5 million or approximately $0.270 per diluted share in 2013 with $7.16 million of Minimum Alternative Tax ("MAT") tax prepaid/accrued against 2013 income during the year ended December 31, 2013, for future taxes to be paid in India.

The Company also has a relatively low income tax rate in Singapore in which our operations are taxed at a 10% marginal tax rate as a result of concessions granted by the local Singapore Economic Development Board ("EDB") for the benefit of in-country intellectual property owners. The concessionary 10% income tax rate will expire after 2015, at which time our Singapore operations will be subject to the prevailing corporate tax rate in Singapore, which is currently 17%, unless the Company reaches a subsequent agreement to extend the incentive period and the then applicable concessionary rate. The concessionary tax rate granted by the EDB as compared to the statutory tax in effect in Singapore reduces income tax expense by $1.3 million or approximately $0.033 per diluted share in 2013.

The pre-tax income from the applicable statutory tax rates in each jurisdiction in which the Company had operations for the year ending December 31, 2013 were as follows:

(dollar amounts in thousands)	United States			Canada			Latin America			Australia			Singapore			New Zealand			India			Europe(United Kingdom)			Sweden			Total
Pre-tax income	$	5,497		$	1,344		$	966		$	4,579		$	17,523		$	485		$	31,387		$	1,360		$	7,011		$	70,152
Statutory tax rate	35.0		%	30.5		%	34.0		%	30.0		%	10.0		%	28.0		%	—		%	24.0		%	—		%

The income from the Company's operations in India is subject to a 19.94% MAT. The tax paid under the MAT provisions is carried forward for a period of up to ten years following the end of the year in which the MAT tax has been paid as aset off against future tax liabilities computed under the regular corporate income tax provisions using the statutory 33.99% corporate income tax rate. During the year ended December 31, 2013, the Company paid/accrued $7.16 millionin MAT tax. The accompanying Consolidated Balance Sheets as of December 31, 2013 and 2012 includes a long-term deferred tax asset in the amount of $18.64 million and $11.54 million , respectively, associated with cumulative future MAT tax credit entitlement.

The Company has not recognized a deferred U.S. tax liability and associated income tax expense for the undistributed earnings of its foreign subsidiaries which we consider indefinitely invested because those foreign earnings will remain permanently reinvested in those subsidiaries to fund ongoing operations and growth. Hypothetically if those earnings were to be not considered indefinitely invested, approximately $91.8 million of deferred U.S. income taxes would had to have been provided as of December 31, 2013.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With the exception of NOL carryforwards, the Company is no longer subject to U.S. federal or state tax examinations by tax authorities for years before 2007 due to the expiration of the statute of limitations. There is an open federal income tax audit in progress for taxable years 2008 through 2011. In connection with this open audit, the Company has responded to a number of information requests from the IRS, but there has been no formal identification of potential deficiencies or assessments to date. Regarding our foreign operations as of December 31, 2013, the tax years that remain open and possibly subject to examination by the tax authorities in those jurisdictions are Australia (2007 to 2013), Singapore and Brazil (2008 to 2013), New Zealand (2009 to 2013), and India (2008 to 2013).

The Company follows the provisions of FASB accounting guidance on accounting for uncertain income tax positions. Accordingly liabilities are recognized for a tax position, where based solely on its technical merits, it is believed to be more likely than not fully sustainable upon examination. This liability is included in other long-term liabilities in the accompanying consolidated balance sheets. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	December 31, 2013		December 31, 2012		December 31, 2011
	(in thousands)
Beginning Balance	$	5,925	$	3,180	$	2,980
Additions for tax positions related to current year	6,546		2,482		1,949
Additions for tax positions of prior years	271		263		307
Reductions for tax position of prior years	—		—		(2,056		)
Ending Balance	$	12,742	$	5,925	$	3,180

The Company recognizes interest accrued and penalties related to unrecognized tax benefits as part of income tax expense. As of December 31, 2013 approximately $1.05 million of estimated interest and penalties, which is part of the $12.74 million ending balance in the preceding table, is included in other long-term liabilities in the accompanying Consolidated Balance Sheet.