INCOME TAXES

Income from continuing operations before income taxes and the components of the income tax provision consisted of the following for the years ended December 31, 2013, 2012 and 2011 (Restated) (in thousands):



	Year Ended December 31,
							2011
	2013			2012			(Restated)
Income (loss) from continuing operations before income taxes:
United States	$	(16,414	)	$	19,198		$	121,632
Foreign	40,506			31,938			41,463
Total income from continuing operations before income taxes	$	24,092		$	51,136		$	163,095
Provision for (benefit from) income taxes:
Current tax expense (benefit):
Federal	$	(104	)	$	(750	)	$	406
State	114			102			48
Foreign benefit of net operating losses	(170		)	(154		)	(629		)
Other foreign	2,369			5,251			2,804
Total current tax expense	2,209			4,449			2,629
Deferred tax expense (benefit):
Other foreign	730			(400		)	(1,994		)
Total deferred tax expense (benefit)	730			(400		)	(1,994		)
Total provision for income taxes	$	2,939		$	4,049		$	635

The cumulative amount of undistributed earnings of foreign subsidiaries, which is intended to be indefinitely reinvested and for which U.S. income taxes have not been provided, totaled approximately $35 million at December 31, 2013. The Company does not have any plans to repatriate these earnings because the underlying cash will be used to fund the ongoing operations of the foreign subsidiaries. The additional taxes that might be payable upon repatriation of foreign earnings are not significant.

Net deferred tax assets (liabilities) consisted of the following at December 31, 2013 and 2012 (in thousands):



	December 31,
	2013			2012
Deferred tax assets:
Tax credit and net operating loss carryforwards	$	244,379		$	217,549
Allowances for bad debts	277			1,010
Difference in accounting for:
Revenues	98,838			116,725
Costs and expenses	29,784			33,066
Inventories	9,209			9,774
Acquired intangible assets	17,726			24,090
Gross deferred tax assets	400,213			402,214
Valuation allowance	(396,143		)	(395,645		)
Deferred tax assets after valuation allowance	4,070			6,569
Deferred tax liabilities:
Difference in accounting for:
Revenues	—			(2,959		)
Costs and expenses	(1,712		)	(623		)
Acquired intangible assets	—			(492		)
Gross deferred tax liabilities	(1,712		)	(4,074		)
Net deferred tax assets	$	2,358		$	2,495
Recorded as:
Current deferred tax assets, net	522			586
Long-term deferred tax assets, net	2,415			2,825
Current deferred tax liabilities, net	(14		)	(203		)
Long-term deferred tax liabilities, net	(565		)	(713		)
Net deferred tax assets	$	2,358		$	2,495

Deferred tax assets and liabilities reflect the net tax effects of the tax credits and net operating loss carryforwards and the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The ultimate realization of the net deferred tax assets is dependent upon the generation of sufficient future taxable income in the applicable tax jurisdictions. Based on the level of the deferred tax assets at December 31, 2013 and 2012 and the level of historical U.S. losses, management has determined that the uncertainty regarding the realization of these assets warranted a full valuation allowance at December 31, 2013 and 2012. The change in the valuation allowance totaled $0.5 million and $(35.3) million and $(29.6) million for the years ended December 31, 2013, 2012 and 2011, respectively.

For U.S. federal and state income tax purposes at December 31, 2013, the Company had tax credit carryforwards of $48.1 million, which will expire between 2016 and 2033, and net operating loss carryforwards of $573.6 million, which will expire between 2019 and 2033. The federal net operating loss and tax credit amounts are subject to annual limitations under Section 382 change of ownership rules of the Internal Revenue Code. The Company completed an assessment at December 31, 2013 regarding whether there may have been a Section 382 ownership change and concluded that it is more likely than not that none of the Company’s net operating loss and tax credit amounts are subject to any Section 382 limitation.

Additionally, the Company has foreign net operating loss carryforwards of $41.4 million and tax credit carryforwards of $3.9 million that begin to expire in 2019. The Company has determined there is uncertainty regarding the realization of a portion of these assets and has recorded a valuation allowance against $36.5 million of net operating losses and $3.9 million of tax credits at December 31, 2013.

The Company’s assessment of the valuation allowance on the U.S. and foreign deferred tax assets could change in the future based on its levels of pre-tax income and other tax related adjustments. Removal of the valuation allowance in whole or in part would result in a non-cash reduction in income tax expense during the period of removal.

Excluded from the above deferred tax schedule at December 31, 2013 are tax assets totaling $33.0 million resulting from the exercise of employee stock options, because recognition of these assets will occur upon utilization of these deferred tax assets to reduce taxes payable and will result in a credit to additional paid-in capital within stockholders’ equity rather than the provision for income taxes.

The following table sets forth a reconciliation of the Company’s income tax provision (benefit) to the statutory U.S. federal tax rate for the years ended December 31, 2013, 2012 and 2011 (Restated):



	Year Ended December 31,
					2011
	2013		2012		(Restated)
Statutory rate	35.0	%	35.0	%	35.0	%
Tax credits	(6.2	)%	(1.2	)%	(0.6	)%
Foreign operations	(43.8	)%	(12.7	)%	(8.8	)%
Non-deductible expenses and other	2.1	%	1.4	%	0.9	%
Increase (decrease) in valuation allowance	25.1	%	(14.6	)%	(26.1	)%
Effective tax rate	12.2	%	7.9	%	0.4	%

A tax position must be more likely than not to be sustained before being recognized in the financial statements. It also requires the accrual of interest and penalties as applicable on unrecognized tax positions. The Company is disclosing unrecognized tax benefits primarily related to the foreign tax implications of the restatement adjustments. The unrecognized tax benefits did not have an impact on the effective tax rate because the Company maintains a full valuation allowance on the related loss carryforwards. At December 31, 2011 (Restated), the Company’s unrecognized tax benefits and related accrued interest and penalties totaled $20.2 million, of which $0.9 million would affect the Company’s income tax provision and effective tax rate if recognized. At December 31, 2012, the Company’s unrecognized tax benefits and related accrued interest and penalties totaled $22.6 million, of which $0.9 million would affect the Company’s effective tax rate if recognized. At December 31, 2013, the Company’s unrecognized tax benefits and related accrued interest and penalties totaled $24.7 million, of which $0.8 million would affect the Company’s income tax provision and effective tax rate if recognized. The foreign tax authorities are aware of the uncertain tax position related to the restatement adjustments and the Company believes that it is reasonably possible that the foreign tax authorities will conclude on this matter by December 31, 2014 resulting in a decrease of up to $23.9 million in unrecognized tax benefits and a change in deferred tax assets that carry a full valuation allowance.

The following table sets forth a reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding the impact of interest and penalties, for the years ended December 31, 2013, 2012 and 2011 (Restated) (in thousands):



Unrecognized tax benefits at January 1, 2011 (Restated)	$	18,424
Increases for tax positions taken during a prior period	3,056
Decreases related to settlements	(900		)
Decreases related to the lapse of applicable statutes of limitations	(400		)
Unrecognized tax benefits at December 31, 2011 (Restated)	20,180
Increases for tax positions taken during a prior period	3,198
Decreases related to the lapse of applicable statutes of limitations	(749		)
Unrecognized tax benefits at December 31, 2012	22,629
Increases for tax positions taken during a prior period	2,205
Decreases related to the lapse of applicable statutes of limitations	(105		)
Unrecognized tax benefits at December 31, 2013	$	24,729

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. Accrued interest and penalties related to uncertain tax positions at December 31, 2013 and 2012 were not material.

The tax years 2006 through 2013 remain open to examination by taxing authorities in the jurisdictions in which the Company operates.

On September 13, 2013, the U.S. Treasury Department released final income tax regulations on the deduction and capitalization of expenditures related to tangible property. These final regulations apply to tax years beginning on or after January 1, 2014. The tangible property regulations will require the Company to make tax accounting method changes as of January 1, 2014; however, management does not anticipate the impact of these changes to be material to the Company’s consolidated financial position or results of operations.