Income Taxes

The income tax provision consists of the following (in thousands):



	For the Years Ended December 31,
	2013			2012			2011
Current provision:
Federal	$	—		$	—		$	—
State	(70		)	122			38
Foreign	2,299			1,252			271
Total current provision	2,229			1,374			309
Deferred provision (benefit):
Federal	—			(65		)	(9,451		)
State	—			(3		)	(74		)
Foreign	12,726			1,284			(1,916		)
Total deferred provision (benefit)	12,726			1,216			(11,441		)
Total income tax provision (benefit)	$	14,955		$	2,590		$	(11,132	)

The income tax provision (benefit) differs from the amount computed by applying the statutory federal income tax rate to pretax income as a result of the following differences (dollar amounts in thousands):



	For the Years Ended December 31,
	2013					2012					2011
	$			%		$			%		$			%
Statutory federal tax (benefit) rate	$	(12,057	)	35.0	%	$	(14,309	)	35.0	%	$	(4,431	)	35.0	%
Increase (decrease) in rates resulting from:
State taxes	(347		)	1.0		(266		)	0.7		(131		)	1.0
Foreign dividend	1,938			(5.6	)	6,754			(16.5	)	—			—
Goodwill impairment expense and (benefit) from acquisitions	—			—		9,377			(22.9	)	(81		)	0.6
Valuation allowance	32,784			(95.2	)	3,725			(9.1	)	(5,524		)	43.6
Taxes on foreign income that differ from U.S. tax rate	(8,507		)	24.7		(2,796		)	6.8		(2,888		)	22.8
Tax credits	(252		)	0.7		(304		)	0.7		(737		)	5.8
Non-deductible stock-based compensation expense	1,596			(4.6	)	1,812			(4.4	)	1,275			(10.1	)
Earnout liability fair value adjustment	(596		)	1.7		(1,768		)	4.3		—			—
Transaction costs	—			—		—			—		1,183			(9.3	)
Other	396			(1.2	)	365			(0.9	)	202			(1.5	)
Effective tax rate	$	14,955		(43.5	)%	$	2,590		(6.3	)%	$	(11,132	)	87.9	%

The components of deferred taxes consist of the following (in thousands):



	December 31, 2013			December 31, 2012
Deferred tax assets:
Accrued warranty	$	1,166		$	1,136
Inventory	2,952			1,734
Restructuring accrual	317			119
Net operating loss carryforwards	52,248			40,547
Tax credit carryforwards	24,692			25,256
Stock-based compensation	2,490			2,696
Capitalized research and development	144			556
Fixed assets	2,437			2,179
Goodwill	3,358			4,464
Other	5,005			5,723
Total deferred tax assets	94,809			84,410
Less: valuation allowance	(82,995		)	(50,200		)
Net deferred tax assets	11,814			34,210
Deferred tax liabilities:
Intangible assets	(7,514		)	(17,286		)
Other	(493		)	(387		)
Total deferred tax liabilities	(8,007		)	(17,673		)
Total net deferred tax assets	$	3,807		$	16,537

At December 31, 2013, the Company's unrecognized tax benefits associated with uncertain tax positions were $3.4 million, of which $3.0 million, if recognized, would favorably affect the effective tax rate.

The Company's ongoing practice is to recognize potential accrued interest and penalties related to unrecognized tax benefits within its global operations in income tax expense. During 2013, the Company recognized a net increase of approximately $22,000 in potential interest and penalties associated with uncertain tax positions in the Consolidated Statements of Operations. The Company had approximately $0.4 million and $0.3 million of interest and penalties associated with uncertain tax positions at December 31, 2013, which are excluded from the unrecognized tax benefits table below.

The Company’s total amounts of unrecognized tax benefits at the beginning and end of the period are as follows (in thousands):



	Total
Balance as of December 31, 2011	$	2,878
Additions based on tax positions related to the current year	42
Additions for tax positions of prior years	260
Reductions for tax positions of prior years	(169		)
Reductions as a result of a lapse of applicable statute of limitations	—
Other	—
Balance as of December 31, 2012	$	3,011
Additions based on tax positions related to the current year	532
Additions for tax positions of prior years	281
Reductions for tax positions of prior years	(102		)
Reductions as a result of a lapse of applicable statute of limitations	(70		)
Other	(206		)
Balance as of December 31, 2013	$	3,446

The Company and its subsidiaries are subject to federal income tax as well as income tax of multiple state and foreign jurisdictions. The Company's statutes of limitations are closed for all federal and state income tax years before 2010 and 2009. The statutes of limitations for the Company's other foreign subsidiaries are closed for all income tax years before 2006. However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods where net operating losses and credits were generated and carried forward, and make adjustments up to the net operating loss and credit carryforward amounts. It is reasonably possible that the Company's uncertain tax positions, including interest and penalties, could decrease by approximately $0.4 million in the next twelve months.

During 2011 a Canada Revenue Agency (“CRA”) examination was effectively settled when the Company agreed to the proposed adjustments issued by that CRA. The effective settlement did not have a significant impact on the Company's financial statements.

The Company is currently under examination in India. The periods covered by the examination are the Company's assessment years 2006 through 2008 and 2010. The examination is in various stages of appellate proceedings and all material uncertain tax positions associated with the examination have been taken into account in the ending balance of the unrecognized tax benefits at December 31, 2013.

The Company has recorded valuation allowances of $83.0 million and $50.2 million as of December 31, 2013 and 2012. This represents a full valuation allowance against the Company's U.S. net deferred tax assets as well as a partial valuation allowance against the Company's Canadian net deferred tax assets. During 2013 the Company recognized the partial valuation allowance against Company's Canadian net deferred tax assets in the amount of $12.5 million due to expected changes in the nature of the Company's operations in Canada. In evaluating its valuation allowance, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance.

At December 31, 2013 the Company had total available federal and state net operating loss carryforwards of approximately $144.8 million and $84.0 million. The federal and state net operating loss carryforwards expire between 2017 and 2033. The net operating losses from acquisitions are stated net of limitations pursuant to Section 382 of the Internal Revenue Code. The Company also had net operating loss carryforwards of approximately $3.6 million from the United Kingdom (“U.K.”) and China. The U.K. tax losses may be carried forward indefinitely provided certain requirements are met. The Chinese tax losses may be carried forward 5 years.

The Company had federal and state research and development tax credit and other federal credit carryforwards of approximately $17.6 million at December 31, 2013, to reduce future income tax liabilities. The federal and Oregon credits expire between 2014 and 2013. The California research and development credits do not expire. The credits from acquisitions are stated net of limitations pursuant to Section 383 of the Internal Revenue Code. The Company's Canadian subsidiary also had approximately $5.5 million in investment tax credit, $15.3 million of unclaimed scientific research and experimental expenditures to be carried forward and applied against future income in Canada.

Realization of the Company's foreign deferred tax assets is dependent on generating sufficient taxable income prior to the expiration of the net operating loss and tax credit carryforwards. Although realization is not assured, management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the balance of the deferred tax assets, net of the valuation allowance, as of December 31, 2013. The amount of the net deferred tax assets that is considered realizable, however, could be reduced if estimates of future taxable income during the carryforward periods are reduced. Should management determine that the Company would not be able to realize all or part of the net deferred tax assets in the future, adjustments to the valuation allowance for deferred tax assets may be required.

During 2013, the Company repatriated $0.8 million in cash from certain foreign subsidiaries. The company has provided a deferred tax liability of $0.8 million related to $2.2 million of unremitted earnings of certain foreign subsidiaries. The Company plans to indefinitely reinvest the earnings of certain foreign subsidiaries. Should the Company repatriate any foreign earnings from the remaining subsidiaries in the future, it may be required to establish an income tax liability and recognize additional income tax expense related to such earnings. The Company has indefinitely reinvested approximately $13.2 million of undistributed earnings from the foreign subsidiaries at December 31, 2013. Such earnings would be subject to U.S. taxation if repatriated to the U.S.

Pretax book loss from domestic operations for the fiscal years 2013, 2012, and 2011 was $46.5 million, $55.8 million, and $23.2 million. Pretax book income from foreign operations for the fiscal years 2013, 2012, and 2011 was $12.0 million, $14.9 million, and $10.5 million.