INCOME TAXES

The domestic and foreign source component of income (loss) from continuing operations before income taxes was:



	Year Ended December 31,
	2012			2011
U.S.	$	(21,244	)	$	(31,711	)
Foreign	10,872			5,123
Total	$	(10,372	)	$	(26,588	)

Significant components of the provision for income taxes from continuing operations were:



	Year Ended December 31,
	2012			2011
Current:
Federal	$	(548	)	$	—
State	(77		)	(26		)
Foreign	499			3
Total current (benefit)	$	(126	)	$	(23	)

Deferred:
Federal	$	(10	)	$	—
State	(1		)	—
Foreign	253			(103		)
Total deferred expense (benefit)	$	242		$	(103	)

Income tax expense (benefit)	$	116		$	(126	)

Generally accepted accounting principles, or GAAP, requires all items be considered, including items recorded in other comprehensive income, in determining the amount of tax benefit that results from a loss from continuing operations that should be allocated to continuing operations. In accordance with GAAP, the Company recorded a tax benefit on its loss from continuing operations, which was exactly offset by income tax expense recorded in other comprehensive income. For the year ended December 31, 2012, the Company recorded an income tax benefit of $634 related to gains recorded within other comprehensive income.

Significant components of deferred tax assets and deferred tax liabilities included in the accompanying Consolidated Balance Sheets as of December 31, 2012 and 2011 were:



	Year Ended December 31,
	2012			2011
Current deferred tax assets (liabilities):
Accrued restructuring costs	$	218		$	351
Other accrued liabilities	90			765
Derivative instruments	(176		)	201
Prepaid expenses	(480		)	(352		)
Cumulative translation adjustment	(1,760		)	(1,505		)
Other	438			—
Total current net deferred tax liabilities	$	(1,670	)	$	(540	)

Long-term deferred tax assets (liabilities):
Fixed assets	$	3,385		$	3,165
Accrued stock compensation	2,556			2,201
Accrued restructuring costs	89			149
Foreign tax credit carryforward	525			529
Work opportunity credit carryforward	4,988			4,988
Operating loss carryforward	8,443			11,642
Other	114			189
Total long-term net deferred tax assets	$	20,100		$	22,863

Subtotal	$	18,430		$	22,323
Valuation allowance	(16,602		)	(20,138		)

Total net deferred tax asset	$	1,828		$	2,185

We consider all available evidence to determine whether it is more likely than not that some portion or all of the deferred tax assets will 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 realizable. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), and projected taxable income in assessing the realizability of deferred tax assets. In making such judgments, significant weight is given to evidence that can be objectively verified. In order to fully realize the U.S. deferred tax assets, we will need to generate sufficient taxable income in future periods before the expiration of the deferred tax assets governed by the tax code. As of December 31, 2012, $631 of our valuation allowance related to deferred tax assets for which subsequently recognized tax benefits will be credited directly to equity.

We do not provide for deferred taxes on the excess of the financial reporting basis over the tax basis in our investments in foreign subsidiaries that are essentially permanent in duration. In general, it is our practice and intention to reinvest the earnings of our foreign subsidiaries in those operations. Generally, the earnings of our foreign subsidiaries become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. Exceptions may be made on a year-by-year basis to repatriate current year earnings of certain foreign subsidiaries based on cash needs in the U.S. As of December 31, 2012, we have provided for deferred U.S. income tax of $1,840 on $4,891 of foreign subsidiary earnings.

At December 31, 2012 and 2011, U.S. income and foreign withholding taxes have not been provided for on approximately $244 and $28,582, respectively, of unremitted earnings of subsidiaries operating outside of the U.S. These earnings are estimated to represent the excess of the financial reporting over the tax basis in our investments in those subsidiaries. These earnings, which are considered to be indefinitely reinvested, would become subject to U.S. income tax if they were remitted to the U.S. The amount of unrecognized deferred U.S. income tax liability on the unremitted earnings has not been determined because the hypothetical calculation is not practicable.

Differences between U.S. federal statutory income tax rates and our effective tax rates for the years ended December 31, 2012 and 2011 for continuing operations were:



	Year Ended December 31,
	2012		2011
U.S. statutory tax rate	35.0	%	35.0	%
Effect of state taxes (net of federal benefit)	5.8	%	2.7	%
Effect of change in Canadian tax rate	-0.3	%	—	%
Work opportunity tax credits	—	%	0.7	%
Other permanent differences (including meals and entertainment)	-0.4	%	-0.2	%
Stock based compensation	-0.8	%	-0.5	%
Rate differential on foreign earnings	29.5	%	7.2	%
Foreign income taxed in the U.S.	-43.2	%	-8.2	%
Uncertain tax positions	-45.4	%	—	%
Unremitted foreign earnings of subsidiary	-16.5	%	—	%
Tax expense allocation to other comprehensive income	6.1	%	—	%
Valuation allowance	28.0	%	-37.5	%
Other, net	1.1	%	1.3	%
Total	-1.1	%	0.5	%

As of December 31, 2012, we had gross foreign tax credit carry forwards of $525, which expire in 2013. A valuation allowance was established against these carry forwards due to the fact that it is more likely than not that these credits will not be used prior to their expiration date. As of December 31, 2012, we had gross federal net operating loss carry forwards of approximately $36,473 expiring through 2032 and gross state net operating loss carry forwards of approximately $53,123 expiring through 2032.

We have been granted “Tax Holidays” as an incentive to attract foreign investment by the governments of the Philippines, Costa Rica and Honduras. Generally, a Tax Holiday is an agreement between us and a foreign government under which we receive certain tax benefits in that country, such as exemption from taxation on profits derived from export-related activities. In the Philippines, we had been granted approval for a Tax Holiday, whereby we had an exemption from income tax until late 2012 after which time the tax rate will be 5%; however, we have applied for an extension and are awaiting approval. In Costa Rica, we have been granted approval for an exemption equal to 100% of income tax through 2018, and for 50% of income tax for the four years thereafter. In Honduras, we have been granted approval for an indefinite exemption from income taxes. The exemption could be lifted at any time if the Honduran government approves legislation to appeal the exemption. The aggregate reduction in income tax expense for the years ended December 31, 2012 and 2011 was $2,383 and $922, respectively, which had a favorable impact on net income of $0.16 per share and $0.06 per share, respectively.

Under accounting standards for uncertainty in income taxes (ASC 740-10), a company recognizes a tax benefit in the financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” in the accounting standards for income taxes refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods.

The following table indicates the changes to the company’s unrecognized tax benefits for the years ended December 31, 2012 and 2011. The term “unrecognized tax benefits” in the accounting standards for income taxes refers to the differences between a tax position taken or expected to be taken in a tax return and the benefit measured and recognized in the financial statements.



	2012		2011
Unrecognized, January 1,	$	—	$	—
Additions based on tax positions taken in current year	4,705		—
Unrecognized, December 31,	$	4,705	$	—

We file numerous consolidated and separate income tax returns in the U.S. federal jurisdiction and in many state jurisdictions, as well as in Canada, the Philippines, Costa Rica and Honduras. Our U.S. federal returns and most state returns for tax years 2008 and forward are subject to examination. Canadian returns for tax years 2007 and forward are subject to examination. Our returns since our commencement of operations in the Philippines in 2008, Costa Rica in 2010 and Honduras in 2011 are subject to examination.