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Income Taxes
12 Months Ended
Dec. 31, 2013
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes:

The components of our provision (benefit) for income taxes on income from continuing operations for the year ended December 31, 2013, the successor period from September 29, 2012 through December 31, 2012, the predecessor period from January 1, 2012 through September 28, 2012, and the year ended December 31 2011 are as follows ($ amounts in thousands):


 
For the Year Ended
 
For the Period
 
For the Year Ended
 
December 31, 2013
 
September 29, 2012 to
December 31, 2012
January 1, 2012 to
September 28, 2012
 
December 31, 2011
 
(Successor)
 
(Successor)
(Predecessor)
 
(Predecessor)
Current income tax provision (benefit):
 
 
 
 
 
 
Federal

$19,505

 

$3,502


$21,795

 

$3,522

State
187

 
176

(5,284
)
 
(6,261
)
Foreign
973

 
230

833

 

 
20,665

 
3,908

17,344

 
(2,739
)
Deferred income tax (benefit) provision:
 
 
 
 
 
 
Federal
(79,996
)
 
(20,660
)
12,982

 
(7,813
)
State
(1,851
)
 
(930
)
(829
)
 
4,556

Foreign

 

(50
)
 

 
(81,847
)
 
(21,590
)
12,103

 
(3,257
)
 

($61,182
)
 

($17,682
)

$29,447

 

($5,996
)



Deferred tax assets and (liabilities) as of December 31, 2013, and 2012 are as follows ($ amounts in thousands):
 
December 31,
2013
 
December 31,
2012
 
(Successor)
 
(Successor)
Deferred tax assets:
 
 
 
Accounts receivable

$35,298

 

$31,877

Inventories
12,670

 
8,063

Litigation settlements and contingencies
12,241

 
8,257

Accrued and prepaid expenses
8,219

 
8,638

Net operating losses and credit carryforwards
14,019

 
18,539

Asset impairments
996

 
1,400

Stock options and restricted shares
4,097

 
801

Other
4,790

 
2,560

Total deferred tax assets
92,330

 
80,135

 
 
 
 
Deferred tax liabilities:
 
 
 
Fixed assets
(20,621
)
 
(23,173
)
Deferred financing cost
(15,463
)
 

Intangible assets
(275,399
)
 
(365,495
)
Other
(1,376
)
 
(1,096
)
Total deferred tax liabilities
(312,859
)
 
(389,764
)
 
 
 
 
Less valuation allowance
(12,322
)
 
(6,803
)
Net deferred tax (liability) asset

($232,851
)
 

($316,432
)


Management believes it is more likely than not that the deferred tax asset balance of $92.3 million as of December 31, 2013 will be realized.

We have gross net operating loss (“NOL”) carryforwards at December 31, 2013 of approximately $179.6 million for state income tax purposes. State NOL carryforwards will begin expiring in 2014. A gross valuation allowance on the deferred tax assets at December 31, 2013, primarily relates to certain state NOL’s and credit and capital loss carryforwards of approximately $137.1 million which represents $12.3 million of net valuation allowance. This valuation allowance has been established due to the uncertainty of realizing those deferred tax assets in the future. This valuation allowance increased in 2013 by $5.5 million, primarily due to an increase of certain state NOL’s principally driven by our debt service costs.

On January 2, 2013, the American Taxpayer Relief Act of 2012 was enacted and the law extended several provisions, including a two year extension of the U.S. tax credit for research and experimental expenses. Under accounting rules, a tax law change is taken into account in calculating the income tax provision in the period in which enacted.  Because the extension was enacted into law in 2013, tax expense for 2013 reflects retroactive extension of these provisions. The entire benefit of the 2012 R&D Tax Credit is reflected in the 2013 fiscal year financial results.

The table below provides reconciliation between the statutory federal income tax rate and the effective rate of income tax expense for each of the periods shown as follows:

 
For the Year Ended
 
For the Period
 
For the Year Ended
 
December 31, 2013
 
September 29, 2012 to
December 31, 2012
January 1, 2012 to
September 28, 2012
 
December 31, 2011
 
(Successor)
 
(Successor)
(Predecessor)
 
(Predecessor)
Federal statutory tax rate
35%
 
35%
35%
 
35%
State tax – net of federal benefit
1
 
1
2
 
2
Change in valuation of deferred tax assets
 
 
(9)
Tax contingencies
 
(1)
(6)
 
8
Non-deductible legal settlements
 
17
 
(14)
Non-deductible annual pharmaceutical manufacturers' fee
(2)
 
 
(5)
Non-deductible transaction costs
 
8
 
(4)
R&D Credit
2
 
 
Other
1
 
2
 
(2)
Effective tax rate
37%
 
35%
58%
 
11%


Tax Contingencies
Significant judgment is required in evaluating our tax positions and determining its provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate. Accruals for tax contingencies are provided for in accordance with the requirements of ASC 740-10. We reflect interest and penalties attributable to income taxes, to the extent they arise, as a component of its income tax provision or benefit.
At December 31, 2013 the amount of gross unrecognized tax benefits (excluding the federal benefit received from state positions) was $18.0 million. Of this total, $13.3 million (net of the federal benefit on state issues) represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective rate related to continuing income in the future periods. The total amount of accrued interest and penalties resulting from such unrecognized tax benefits was $2.5 million at December 31, 2013 and $2.2 million at December 31, 2012. During the year ended December 31, 2013, the period from September 29, 2012 to December 31, 2012 (Successor), the period from January 1, 2012 to September 28, 2012 (Predecessor), and for the year ended December 31, 2011 (Predecessor), we recognized approximately $0.5 million, $0.04 million, $0.4 million, and $0.4 million, respectively, in interest and penalties.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for the year ended December 31, 2013 (Successor), the period from September 29, 2012 to December 31, 2012 (Successor), the period from January 1, 2012 to September 28, 2012 (Predecessor) and the year ended December 31, 2011 (Predecessor) are as follows ($ amounts in thousands):
 
For the Year Ended
 
For the Period
 
For the Year Ended
 
December 31, 2013
 
September 29, 2012 to
December 31, 2012
January 1, 2012 to
September 28, 2012
 
December 31, 2011
 
(Successor)
 
(Successor)
(Predecessor)
 
(Predecessor)
Balance at the beginning of period

$12,538

 

$12,119


$14,409

 

$31,571

Additions based on tax positions related to the current year
2,577

 
419

2,337

 
1,779

Additions for tax positions of prior years
3,708

 

634

 
3,217

Reductions for tax positions of prior years
(842
)
 

(5,261
)
 
(5,013
)
Reductions due to lapse of applicable statute of limitations

 


 
(16,720
)
Settlements paid

 


 
(425
)
Balance at the end of the period

$17,981

 

$12,538


$12,119

 

$14,409


 
We believe it is reasonably possible that approximately $6 million of our current unrecognized tax positions may be recognized within the next twelve months as a result of settlements or a lapse of the statute of limitations.

The Company is currently under audit by the IRS for the tax years 2009 to 2011. A Company subsidiary is currently under audit by the IRS for the periods 2007 through November 16, 2011. Periods prior to 2007 are no longer subject to IRS audit. We are currently under audit in several state jurisdictions for the years 2005 through 2011. In most other state jurisdictions, we are no longer subject to examination by tax authorities for years prior to 2009.