Income Taxes

Components of the income tax (benefit) expense are as follows (in thousands):



	Year ended December 31,
	2012			2011		2010
Current:
Federal	$	12,072		$	4,550	$	(2,729	)
State	1,450			1,211		137
Foreign	891			883		658
Total current	14,413			6,644		(1,934		)
Deferred:
Federal	(18,836		)	1,107		(3,499		)
State	90			111		(112		)
Total deferred	(18,746		)	1,218		(3,611		)
Income tax (benefit) expense	$	(4,333	)	$	7,862	$	(5,545	)

A reconciliation of the effective tax rate to the U.S. federal statutory tax rate is as follows:



	Year ended December 31,
	2012		2011		2010
Federal statutory tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	2.3		2.3		0.1
Change in valuation allowance	(41.0	)	(8.5	)	(8.4	)
Warrant liability fair value adjustment	(2.0	)	(8.5	)	(15.3	)
Other	(3.8	)	(0.3	)	(0.1	)
Effective income tax rate	(9.5	)%	20.0	%	11.3	%

Deferred income taxes reflect the tax effect of temporary differences between the carrying value of assets and liabilities for financial reporting purposes and the value reported for income tax purposes, at the enacted tax rates expected to be in effect when the differences reverse. The components of deferred tax assets and liabilities are as follows (in thousands):



	December 31,
	2012			2011
Deferred tax assets:
Net operating loss carryforwards	$	12,285		$	12,218
Allowance for doubtful accounts	262			212
Inventory valuation reserves	1,109			1,185
Equity compensation	4,216			1,769
Intangible assets and goodwill	13,061			15,228
Foreign tax credit carryforwards	—			841
Other	2			32
Total gross deferred tax assets	30,935			31,485
Valuation allowance	(835		)	(19,460		)
Total deferred tax assets, net	30,100			12,025
Deferred tax liabilities:
Property and equipment	(8,227		)	(5,327		)
Convertible debt	(4,785		)	(8,559		)
Prepaid insurance and other	(520		)	(78		)
Total gross deferred tax liabilities	(13,532		)	(13,964		)
Net deferred tax assets (liabilities)	$	16,568		$	(1,939	)

Deferred taxes are presented in the balance sheets as follows (in thousands):



	December 31,
	2012			2011
Current deferred tax assets	$	1,274		$	841
Non-current deferred tax assets	16,045			—
Non-current deferred tax liabilities	(751		)	(2,780		)
Net deferred tax assets (liabilities)	$	16,568		$	(1,939	)

As of December 31, 2012, the Company had U.S. net operating loss carryforwards of $32.3 million, expiring in various amounts in 2029 through 2031. The ability to utilize net operating losses and other tax attributes could be subject to a significant limitation if the Company were to undergo an “ownership change” for purposes of Section 382 of the Tax Code.

The Company’s corporate organizational structure requires the filing of two separate consolidated U.S. Federal income tax returns. Taxable income of one group ("Group A") cannot be offset by tax attributes, including net operating losses of the other group ("Group B"). The Company considers all available evidence, both positive and negative, to determine whether a valuation allowance is necessary. The Company considers cumulative losses in recent years as significant negative evidence. The Company considers recent years to mean the current year plus the two preceding years.

Prior to December 31, 2012, the Company has not had sufficient positive evidence to overcome the existence of a cumulative loss in Group B and thus has, prior to December 31, 2012, maintained a full valuation allowance against deferred tax assets of that group. As of December 31, 2012, Group B was no longer in a cumulative loss position. Accordingly, the Company considered the objectively verifiable positive evidence for projecting future income, which included primarily determining the average of the pre-tax income of the current and prior two years after adjusting for certain items not indicative of future performance. Based on this analysis, the Company determined a valuation allowance was no longer necessary for the group's U.S. federal deferred tax assets. Accordingly, the Company decreased its valuation allowance by $16.5 million at December 31, 2012 and recognized a reduction of deferred federal income tax expense. As Group B continues to be in a cumulative loss position as of December 31, 2012 for certain state jurisdictions, the Company has determined that a valuation allowance of $0.8 million is required for certain state deferred tax assets.

The Company has not calculated U.S. taxes on unremitted earnings of certain non-U.S. subsidiaries due to the Company’s intent to reinvest the unremitted earnings of the non-U.S. subsidiaries. At December 31, 2012, the Company had approximately $2.8 million in unremitted earnings outside the U.S. which were not included for U.S. tax purposes. U.S. income tax liability would be incurred if these funds were remitted to the U.S. It is not practicable to estimate the amount of the deferred tax liability on such unremitted earnings.

The Company has performed an evaluation and concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. The evaluation was performed for the tax years which remain subject to examination by tax jurisdictions as of December 31, 2012 which are the years ended December 31, 2007 through December 31, 2012 for U.S. federal taxes and the years ended December 31, 2008 through December 31, 2012 for state tax jurisdictions.

The Company’s policy is to record penalties and interest related to income tax matters as income tax expense.