Income Taxes

Income tax expense from continuing operations consists of the following:



	Year Ended December 31,
	2013			2012			2011
	(In thousands)
Current:
Federal	$	(496	)	$	36		$	(1,054	)
State and local	70			280			250
Foreign	4,148			5,816			6,224
	3,722			6,132			5,420
Deferred:
Federal	3,396			4,528			22,713
State and local	611			647			3,247
Foreign	(1,301		)	(283		)	940
	2,706			4,892			26,900
Income tax expense	$	6,428		$	11,024		$	32,320

U.S. and foreign income (loss) from continuing operations before income taxes are as follows:



	Year Ended December 31,
	2013			2012			2011
	(In thousands)
United States	$	(3,487	)	$	(5,058	)	$	(49,104	)
Foreign	2,308			12,009			29,073
Income (loss) before income taxes	$	(1,179	)	$	6,951		$	(20,031	)

U.S. and foreign income tax expense are as follows:



	Year Ended December 31,
	2013		2012		2011
	(In thousands)
United States	$	3,581	$	5,491	$	25,156
Foreign	2,847		5,533		7,164
Income tax expense	$	6,428	$	11,024	$	32,320

Income tax expense differs from the amounts computed by applying the statutory U.S. Federal income tax rate to income (loss) before income taxes as a result of the following:



	Year Ended December 31,
	2013			2012			2011
	(In thousands)
Income tax expense (benefit) at the federal statutory rate of 35%	$	(413	)	$	2,433		$	(7,011	)
Increase (decrease) resulting from:
State income taxes, net of federal income tax benefit	443			927			3,497
Non-deductible other costs	1,329			1,678			1,489
Goodwill impairment	—			—			1,811
Valuation allowance	6,752			8,039			27,028
Foreign cash repatriation	(2,783		)	—			10,500
Impact of foreign tax	(1,002		)	(2,347		)	(3,425		)
Provision for uncertain tax position	2,208			1,064			(880		)
Other	(106		)	(770		)	(689		)
Income tax expense	$	6,428		$	11,024		$	32,320

The components of the net deferred tax asset or liability are as follows:



	December 31,
	2013			2012
	(In thousands)
Deferred tax assets:
Accrued expenses	$	9,904		$	9,637
Federal tax credit carryforwards	15,837			6,884
U.S. net operating loss ("NOL") carryforwards	13,206			15,967
Foreign NOL carryforwards	7,500			10,198
Other	6,445			4,154
Total gross deferred tax assets	52,892			46,840
Less valuation allowance	(51,160		)	(44,296		)
Deferred tax assets, net	1,732			2,544
Deferred tax liabilities:
Goodwill	(23,914		)	(19,906		)
Other	(883		)	(2,937		)
Total gross deferred tax liabilities	(24,797		)	(22,843		)
Net deferred tax liability	$	(23,065	)	$	(20,299	)
Balance sheet classification of deferred taxes:
Deferred tax asset — current	$	818		$	1,890
Deferred tax asset — long-term	913			122
Deferred tax liability — current	(886		)	(463		)
Deferred tax liability — long-term	(23,910		)	(21,848		)
Net deferred tax liability	$	(23,065	)	$	(20,299	)

Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against net deferred tax assets. We are required to estimate income taxes in each jurisdiction where we operate. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items. These differences result in deferred tax assets and liabilities, which are included in the Consolidated Balance Sheets. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent recovery is believed unlikely, we establish a valuation allowance. Changes in the valuation allowance for deferred tax assets impact our income tax expense during the period.

As a result of domestic losses, in 2011 we recorded a non-cash charge of approximately $29.1 million to provide a valuation allowance for all of our domestic deferred tax assets. In addition, we have not recorded any deferred tax benefit for any domestic tax operating losses since then. The establishment of a valuation allowance does not impair our ability to utilize the deferred tax assets, such as net operating loss and tax credit carryforwards, upon achieving sufficient profitability. As we generate domestic taxable income in future periods, we do not expect to record significant related domestic income tax expense until the valuation allowance is significantly reduced. As we are able to determine that it is more likely than not that we will be able to utilize the deferred tax assets, we will reduce our valuation allowance. At December 31, 2013, we have Federal net operating loss ("NOL") and Federal tax credit carryforwards of approximately $34 million and $19 million, respectively. U.S. NOL carryforwards of $2 million begin to expire in 2022 while the remaining NOL carryforwards do not begin to expire until 2031. Our Federal tax credit carryforwards are subject to certain annual usage limits, but do not begin to expire until 2025. At December 31, 2013, we also have approximately $30 million of foreign NOL carryforwards. We have recorded a valuation allowance for most all of our foreign NOL carryforwards, as we do not believe it is more likely than not that we will utilize them. Approximately 21% of the foreign NOL carryforwards may expire.

In January 2012, we repatriated $30 million of foreign cash to the U.S. in connection with payments due under our prior credit facility. Due to our available U.S. net operating losses carryforwards and the related full valuation allowance, the repatriation did not have a material tax impact on our reported tax expense. At December 31, 2013, we estimate the undistributed earnings and profits of our foreign subsidiaries that would be subject to U.S. taxes totaled approximately $69 million. Quantification of the U.S. deferred tax liability associated with indefinitely reinvested earnings and profits is not practicable.

We account for uncertain tax positions by recognizing the financial statement effects of a tax position only when based upon the technical merits, it is "more-likely-than-not" that the tax position will be sustained upon examination. The changes in the balance of our unrecognized tax benefits were as follows:



	Unrecognized Tax Benefits
	(In thousands)
Balance at January 1, 2012	$	6,528
Increases related to prior year tax positions	108
Increases related to current year tax positions	1,103
Decreases related to settlements with tax authorities	(2,118		)
Lapse of statute of limitations	(147		)
Balance at December 31, 2012	5,474
Increases related to prior year tax positions (net)	51
Increases related to current year tax positions	2,157
Balance at December 31, 2013	$	7,682

Our unrecognized tax benefits totaled $7.7 million at December 31, 2013. If recognized, all of these benefits would affect our future income tax expense, prior to the impact of any related valuation allowance. We believe that it is not reasonably possible that any significant unrecognized tax benefits will be released in the next twelve months. Note that the amounts recorded for our unrecognized tax benefits represent management estimates, and actual results could differ which would impact our effective tax rate. Interest and penalties related to income tax liabilities are included in income tax expense in the consolidated statements of operations. We have not recorded a material amount of interest and penalties during 2013, 2012, and 2011.

We file a U.S. Federal income tax return and tax returns in nearly all U.S. states, as well as in numerous foreign jurisdictions. We are routinely subject to examination by various domestic and foreign tax authorities. The outcome of tax audits is always uncertain and could result in cash tax payments that could be material. Additionally, tax audits may take long periods of time to ultimately resolve. We do not believe the outcome of any tax audits at December 31, 2013, will have a material adverse effect on our consolidated financial position or results of operations. With limited exception, we are no longer subject to U.S. Federal and state income tax audits for years through 2009. Our most significant foreign operations and the most recent year for which they are no longer subject to tax examination are as follows: Germany-2008; India-2008; Netherlands-2009; Norway-2002; and the UK-2011.