Note 22. Income Taxes

The income from continuing operations before income taxes includes the following components (in thousands):


	Years Ended December 31,
	2013		2012			2011
Domestic (U.S., state and local)	$	5,544	$	(10,430	)	$	(14,170	)
Foreign		45,781		55,587			77,826

Total income from continuing operations before income taxes	$	51,325	$	45,157		$	63,656

Significant components of the income tax provision are as follows (in thousands):


	Years Ended December 31,
	2013			2012			2011
Current:
U.S. federal	$	881		$	236		$	(3,446	)
State and local		82			(61	)		—
Foreign		13,464			9,899			18,743

Total current provision for income taxes		14,427			10,074			15,297

Deferred:
U.S. federal		866			(2,846	)		148
State and local		—			—			143
Foreign		(1,228	)		(2,021	)		(4,246	)

Total deferred provision (benefit) for income taxes		(362	)		(4,867	)		(3,955	)

Total provision for income taxes	$	14,065		$	5,207		$	11,342

The temporary differences that give rise to significant portions of the deferred income tax provision (benefit) are as follows (in thousands):


	Years Ended December 31,
	2013			2012			2011
Accrued expenses/liabilities	$	954		$	(1,274	)	$	(31,111	)
Net operating loss and tax credit carryforwards		8,029			(4,113	)		47,849
Depreciation and amortization		(5,030	)		(5,684	)		(2,083	)
Deferred statutory income		(2,425	)		2,084			(839	)
Valuation allowance		(1,887	)		4,120			(17,779	)
Other		(3	)		—			8

Total deferred provision (benefit) for income taxes	$	(362	)	$	(4,867	)	$	(3,955	)

The reconciliation of the income tax provision computed at the U.S. federal statutory tax rate to the Company’s effective income tax provision is as follows (in thousands):


	Years Ended December 31,
	2013			2012			2011
Tax at U.S. federal statutory tax rate	$	17,964		$	15,805		$	22,280
State income taxes, net of federal tax benefit		82			(61	)		143
Tax holidays		(4,686	)		(6,450	)		(7,532	)
Change in valuation allowance, net of related adjustments		1,354			(538	)		610
Foreign rate differential		(9,319	)		(7,078	)		(5,765	)
Changes in uncertain tax positions		(4	)		(613	)		(2,748	)
Permanent differences		9,051			3,531			915
Foreign withholding and other taxes		4,643			1,263			4,546
Change of assertion related to foreign earnings distribution		—			47			(255	)
Tax credits		(5,020	)		(699	)		(852	)

Total provision for income taxes	$	14,065		$	5,207		$	11,342

The Company changed its intent to distribute current earnings from various foreign operations to their foreign parents to take advantage of the December 2011 extension of tax provisions of Internal Revenue Code Section 954(c)(6). These tax provisions permit continued tax deferral on such distributions that would otherwise be taxable immediately in the United States. While the distributions are not taxable in the United States, related withholding taxes of $2.7 million are included in the provision for income taxes in the Consolidated Statement of Operations for 2011.

In 2013, the Company executed offshore cash movements to take advantage of The American Taxpayer Relief Act of 2012 (the “Act”) enacted on January 2, 2013, with retroactive application to January 1, 2012. This Act, which extended the tax provisions of the Internal Revenue Code Section 954(c)(6) through the end of 2013, permits continued tax deferral on such movements that would otherwise be taxable immediately in the U.S. While these cash movements are not taxable in the U.S., related foreign withholding taxes of $3.5 million were included in the provision for income taxes in the accompanying Consolidated Statements of Operations for the year ended December 31, 2013.

In 2010, the Company changed its intent to distribute all of the current year and future years’ earnings of a certain non-U.S. subsidiary to its foreign parent. Withholding taxes of $0.6 million, $0.8 million and $0.9 million are included in the provision for income taxes in the Consolidated Statements of Operations for 2013, 2012 and 2011, respectively.

Except as previously mentioned, a provision for income taxes has not been made for the undistributed earnings of foreign subsidiaries of approximately $376.8 million at December 31, 2013, as the earnings are permanently reinvested in foreign business operations. Determination of any unrecognized deferred tax liability for temporary differences related to investments in foreign subsidiaries that are essentially permanent in nature is not practicable.

The Company has been granted tax holidays in The Philippines, Colombia, Costa Rica and El Salvador. The tax holidays have various expiration dates ranging from 2014 through 2028. In some cases, the tax holidays expire without possibility of renewal. In other cases, the Company expects to renew these tax holidays, but there are no assurances from the respective foreign governments that they will renew them. This could potentially result in future adverse tax consequences. The Company’s tax holidays decreased the provision for income taxes by $4.7 million ($0.11 per diluted share), $6.5 million ($0.15 per diluted share) and $7.5 million ($0.17 per diluted share) for the years ended December 31, 2013, 2012 and 2011, respectively.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income taxes. The temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below (in thousands):


	December 31,
	2013			2012
Deferred tax assets:
Accrued expenses	$	21,305		$	22,773
Net operating loss and tax credit carryforwards		61,626			68,586
Depreciation and amortization		559			735
Deferred revenue		4,045			2,809
Valuation allowance		(42,664	)		(43,298	)
Other		104			5

		44,975			51,610

Deferred tax liabilities:
Accrued liabilities		(79	)		(164	)
Depreciation and amortization		(26,379	)		(31,815	)
Deferred statutory income		(241	)		(2,219	)
Other		(114	)		(117	)

		(26,813	)		(34,315	)

Net deferred tax assets	$	18,162		$	17,295


	December 31,
	2013			2012
Classified as follows:
Other current assets (Note 10)	$	7,961		$	8,143
Deferred charges and other assets (Note 15)		13,048			13,923
Current deferred income tax liabilities		(84	)		(92	)
Other long-term liabilities		(2,763	)		(4,679	)

Net deferred tax assets	$	18,162		$	17,295

There are approximately $344.1 million of income tax loss carryforwards as of December 31, 2013, with varying expiration dates, approximately $160.1 million relating to foreign operations, $8.9 million relating to U.S. federal operations and $175.1 million relating to U.S. state operations. For U.S. federal purposes, $13.1 million of tax credits are available for carryforward as of December 31, 2013, with the latest expiration date ending December 2034. With respect to foreign operations, $135.4 million of the net operating loss carryforwards have an indefinite expiration date and the remaining $24.7 million net operating loss carryforwards have varying expiration dates through December 2022. Regarding the U.S. state and foreign aforementioned tax loss carryforwards, no benefit has been recognized for $175.1 million and $146.2 million, respectively, as it is more likely than not that these losses will expire without realization of tax benefits.

As of December 31, 2013, the Company had $15.0 million of unrecognized tax benefits, a net decrease of $1.9 million from $16.9 million as of December 31, 2012. Had the Company recognized these tax benefits, approximately $15.0 million and $16.9 million and the related interest and penalties would favorably impact the effective tax rate in 2013 and 2012, respectively. The Company does not anticipate that its unrecognized tax benefits will change in the next twelve months.

The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. The Company had $10.5 million and $10.1 million accrued for interest and penalties as of December 31, 2013 and 2012, respectively. Of the accrued interest and penalties at December 31, 2013 and 2012, $3.8 million and $3.7 million, respectively, relate to statutory penalties. The amount of interest and penalties, net, recognized in the accompanying Consolidated Statement of Operations for 2013 and 2012 was $(0.4) million and $(0.1) million, respectively (none in 2011).

The tabular reconciliation of the amounts of unrecognized net tax benefits is presented below (in thousands):


	Years Ended December 31,
	2013			2012			2011
Gross unrecognized tax benefits as of January 1,	$	16,897		$	17,136		$	21,036
Prior period tax position increases (decreases) ⁽¹⁾		—			321			—
Decreases from settlements with tax authorities		—			(426	)		(3,076	)
Decreases due to lapse in applicable statute of limitations		(390	)		(561	)		(346	)
Foreign currency translation increases (decreases)		(1,516	)		427			(478	)

Gross unrecognized tax benefits as of December 31,	$	14,991		$	16,897		$	17,136

⁽¹⁾	Includes amounts assumed upon acquisition of Alpine on August 20, 2012.

The U.S. Department of the Treasury released the “General Explanations of the Administration’s Fiscal Year 2014 Revenue Proposals” in April 2013. These proposals represent a significant shift in international tax policy, which may materially impact U.S. taxation of international earnings. The Company continues to monitor these proposals and is currently evaluating the potential impact on its financial condition, results of operations and cash flows.

The Company is currently under audit in several tax jurisdictions. In April 2012, the Company received an assessment for the Canadian 2003-2006 audit for which the Company filed a Notice of Objection in July 2012 and paid a mandatory security deposit. Requests for Competent Authority Assistance were filed with both the Canadian Revenue Agency and the U.S. Internal Revenue Service for this audit cycle. In July and October 2013, the Company received reassessments for the 2007-2009 audit, which resulted in additional payments. These payments bring the total amount of deposits for both audit cycles to $17.3 million and $15.0 million as of December 31, 2013 and 2012, respectively, and are included in “Deferred charges and other assets” in the accompanying Consolidated Balance Sheets. In December 2013, the Company filed a Notice of Objection to the 2007-2009 reassessment. Although the outcome of examinations by taxing authorities is always uncertain, the Company believes it is adequately reserved for these audits and that resolution is not expected to have a material impact on its financial condition and results of operations.

The significant tax jurisdictions currently under audit are as follows:


Tax Jurisdiction		Tax Year Ended
Canada		2003 to 2009
The Philippines		2007, 2009 and 2010
United States		2011

The Company and its subsidiaries file federal, state and local income tax returns as required in the U.S. and in various foreign tax jurisdictions. The following table presents the major tax jurisdictions and tax years that are open and subject to examination by the respective tax authorities as of December 31, 2013:


Tax Jurisdiction		Tax Year Ended
Canada		2003 to present
The Philippines		2007, 2009 to present
United States		1997 to 1999 ⁽¹⁾, 2002-2009 ⁽¹⁾and 2010 to present

⁽¹⁾	These tax years are open to the extent of the net operating loss and tax credit carryforward amounts.