INCOME TAXES

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



	Year Ended December 31,
	2013			2012
U.S.	$	(15,452	)	$	(21,244	)
Foreign	9,276			10,872
Total	$	(6,176	)	$	(10,372	)

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



	Year Ended December 31,
	2013			2012
Current:
Federal	$	—		$	(548	)
State	—			(77		)
Foreign	(29		)	499
Total current (benefit)	$	(29	)	$	(126	)

Deferred:
Federal	$	25		$	(10	)
State	2			(1		)
Foreign	232			253
Total deferred expense	$	259		$	242

Income tax expense	$	230		$	116

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.

Significant components of deferred tax assets and deferred tax liabilities included in the accompanying consolidated balance sheets as of December 31, 2013 and 2012 were:



	Year Ended December 31,
	2013			2012
Current deferred tax assets (liabilities):
Accrued restructuring costs	$	(41	)	$	218
Other accrued liabilities	15			90
Derivative instruments	816			(176		)
Prepaid expenses	(209		)	(480		)
Cumulative translation adjustment	(1,397		)	(1,760		)
Other	373			438
Total current net deferred tax liabilities	$	(443	)	$	(1,670	)

Long-term deferred tax assets (liabilities):
Fixed assets	$	2,969		$	3,385
Accrued stock compensation	3,085			2,556
Accrued restructuring costs	47			89
Foreign tax credit carryforward	—			525
Work opportunity credit carryforward	4,988			4,988
Operating loss carryforward	10,653			8,443
Intangibles and goodwill	22			—
Other	221			114
Total long-term net deferred tax assets	$	21,985		$	20,100

Subtotal	$	21,542		$	18,430
Valuation allowance	(20,000		)	(16,602		)

Total net deferred tax asset	$	1,542		$	1,828

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.

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, 2013, we have not provided for U.S. income taxes on undistributed earnings of our foreign subsidiaries, since such earnings are considered indefinitely reinvested.

At December 31, 2013 and 2012, U.S. income and foreign withholding taxes have not been provided for on approximately $1,300 and $244, 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 and would become subject to U.S. income tax if they were remitted to the U.S. If we had not intended to utilize the undistributed earnings in our foreign operations for an indefinite period of time, the deferred tax liability as of December 31, 2013 would have been approximately $455.

Differences between U.S. federal statutory income tax rates and our effective tax rates for the years ended December 31, 2013 and 2012 for continuing operations were:



	Year Ended December 31,
	2013		2012
U.S. statutory tax rate	35.0	%	35.0	%
Effect of state taxes (net of federal benefit)	-1.0	%	5.8	%
Effect of change in Canadian tax rate	1.5	%	-0.3	%
Other permanent differences (including meals and entertainment)	1.8	%	-0.4	%
Stock based compensation	-0.9	%	-0.8	%
Rate differential on foreign earnings	48.5	%	29.5	%
Foreign income taxed in the U.S.	-95.0	%	-43.2	%
Uncertain tax positions	19.5	%	-45.4	%
Unremitted foreign earnings of subsidiary	27.7	%	-16.5	%
Tax expense allocation to other comprehensive income	—	%	6.1	%
Valuation allowance	-33.5	%	28.0	%
Expiration of foreign tax credit carryforward	-8.5	%	—	%
Other, net	1.1	%	1.1	%
Total	-3.8	%	-1.1	%

As of December 31, 2013, we had gross federal net operating loss carry forwards of approximately $34,560 expiring beginning in 2030 and gross state net operating loss carry forwards of approximately $60,435 expiring beginning in 2014.

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, 2013 and 2012 was $2,620 and $2,383, respectively, which had a favorable impact on net loss of $0.17 per share and $0.16 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 our unrecognized tax benefits for the years ended December 31, 2013 and 2012. 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. If recognized, all of these benefits would impact our income tax expense, before consideration of any related valuation allowance.



	Year Ended December 31,
	2013			2012
Unrecognized, January 1,	$	4,705		$	—
Additions based on tax positions taken in current year	1,090			4,705
Reductions based on tax positions taken in prior year	(2,293		)	—
Unrecognized, December 31,	$	3,502		$	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.