Income Taxes

The sources of income (loss) before income taxes for the years ended December 31, 2013, 2012 and 2011 are presented as follows:



	Year Ended December 31,
(in thousands)	2013		2012			2011
Income (loss) before taxes:
United States	$	18,560	$	(3,002	)	$	(9,300	)
Foreign	96,525		50,336			72,092
Total income before income taxes	$	115,085	$	47,334		$	62,792

The Company's income tax expense for the years ended December 31, 2013, 2012 and 2011 consisted of the following:



	Year Ended December 31,
(in thousands)	2013			2012			2011
Current tax expense (benefit):
U.S.	$	2,114		$	6,363		$	1,367
Foreign	31,791			26,579			23,679
Total current	33,905			32,942			25,046
Deferred tax expense (benefit):
U.S.	(1,470		)	369			1,206
Foreign	(4,703		)	(6,374		)	(1,548		)
Total deferred	(6,173		)	(6,005		)	(342		)
Total tax expense	$	27,732		$	26,937		$	24,704

The following is a reconciliation of the federal statutory income tax rate of 35% to the effective income tax rate for 2013, 2012 and 2011:



	Year Ended December 31,
(dollar amounts in thousands)	2013			2012			2011
U.S. federal income tax expense at applicable statutory rate	$	40,280		$	16,567		$	21,977
Tax effect of:
State income tax expense at statutory rates	1,756			1,514			238
Non-deductible expenses	4,926			426			2,838
Share-based compensation	(733		)	(89		)	(76		)
Other permanent differences	(1,442		)	1,096			(1,771		)
Difference between U.S. federal and foreign tax rates	(9,519		)	(8,407		)	(5,140		)
Provision in excess of statutory rates	1,180			(965		)	1,285
Change in federal and foreign valuation allowance	(9,038		)	6,882			5,900
Impairment of goodwill and acquired intangible assets	4,460			8,149			—
Acquisition-related contingent consideration gain	(6,762		)	—			—
Other	2,624			1,764			(547		)
Total income tax expense	$	27,732		$	26,937		$	24,704
Effective tax rate	24.1		%	56.9		%	39.3		%

The tax effect of temporary differences and carryforwards that give rise to deferred tax assets and liabilities from continuing operations are as follows:



	As of December 31,
(in thousands)	2013			2012
Deferred tax assets:
Tax loss carryforwards	$	27,602		$	28,285
Share-based compensation	6,950			6,344
Accrued expenses	12,855			7,109
Property and equipment	5,764			5,221
Goodwill and intangible amortization	37,221			37,265
Intercompany notes	7,750			9,532
Other	12,338			14,945
Gross deferred tax assets	110,480			108,701
Valuation allowance	(80,995		)	(89,863		)
Net deferred tax assets	29,485			18,838
Deferred tax liabilities:
Intangibles related to purchase accounting	(10,993		)	(11,365		)
Goodwill and intangible amortization	(7,385		)	(4,735		)
Accrued expenses	(8,266		)	(7,707		)
Intercompany notes	(1,129		)	(915		)
Capitalized research and development	(3,940		)	(1,863		)
Property and equipment	(2,866		)	(2,632		)
Other	(4,622		)	(5,899		)
Total deferred tax liabilities	(39,201		)	(35,116		)
Net deferred tax liabilities	$	(9,716	)	$	(16,278	)

Subsequently recognized tax benefits relating to the valuation allowance for deferred tax assets as of December 31, 2013 are expected to be allocated to income taxes in the Consolidated Statements of Income with the following exception. The tax benefit of net operating losses generated from share-based compensation have been excluded from the amounts disclosed for tax loss carryforwards and valuation allowance to the extent the benefit will be recognized in equity if realized. The excluded tax benefit of $22.8 million will be allocated to additional paid-in capital when utilized to offset taxable income.

As of December 31, 2013, and 2012, the Company's U.S. federal and foreign tax loss carryforwards were $155.8 million and $152.1 million, respectively, and U.S. state tax loss carryforwards were $56.4 million and $50.3 million, respectively.

In assessing the Company's ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will only realize the benefits of these deductible differences, net of the existing valuation allowances, at December 31, 2013.

At December 31, 2013, the Company had U.S. federal and foreign tax net operating loss carryforwards of $155.8 million, which will expire as follows:



(in thousands)	Gross		Tax Effected
Year ending December 31,
2014	$	1,135	$	140
2015	2,931		635
2016	5,317		1,200
2017	3,630		709
2018	3,926		641
Thereafter	111,905		36,499
Unlimited	26,969		5,726
Total	$	155,813	$	45,550

In addition, the Company's state tax net operating loss carryforwards of $56.4 million will expire periodically from 2014 through 2033.

No provision has been made in the accounts as of December 31, 2013 for U.S. federal and state income taxes which would be payable if the gross undistributed earnings of the foreign subsidiaries were distributed to the Company since management has determined that the earnings are permanently reinvested. Gross undistributed earnings reinvested indefinitely in foreign subsidiaries aggregated $542.3 million as of December 31, 2013. The determination of the amount of unrecognized deferred U.S. income tax liabilities and foreign tax credits, if any, is not practicable to calculate at this time.

Accounting for uncertainty in income taxes

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2013 and 2012 is as follows:



	Year Ended December 31,
(in thousands)	2013			2012
Beginning balance	$	11,370		$	12,045
Additions based on tax positions related to the current year	5,570			1,293
Additions for tax positions of prior years	—			355
Reductions for tax positions of prior years	(427		)	(1,208		)
Settlements	(2,271		)	(1,115		)
Ending balance	$	14,242		$	11,370

As of December 31, 2013 and 2012, approximately $9.2 million and $5.7 million, respectively, of the unrecognized tax benefits would impact the Company's provision for income taxes and effective income tax rate, if recognized. Total estimated accrued interest and penalties related to the underpayment of income taxes was $2.2 million and $2.4 million as of December 31, 2013 and 2012, respectively. The following income tax years remain open in the Company's major jurisdictions as of December 31, 2013:



Jurisdictions	Periods
U.S. (Federal)	2000 through 2002, 2004 through 2006, and 2010 through 2013
Spain	2005 through 2013
Australia	2009 through 2013
U.K.	2008 through 2013
Germany	2007 through 2013

The application of ASC 740-10-25 and -30 requires significant judgment in assessing the outcome of future income tax examinations and their potential impact on the Company's estimated effective income tax rate and the value of deferred tax assets, such as those related to the Company's net operating loss carryforwards. It is reasonably possible that the balance of gross unrecognized tax benefits could significantly change within the next twelve months as a result of the resolution of audit examinations and expirations of certain statutes of limitations and, accordingly, materially affect our operating results. At this time, it is not possible to estimate the range of change due to the uncertainty of potential outcomes.