9.	Income Taxes

Pre-tax income (loss) consisted of the following for the years ended December 31 (in thousands):


	2013			2012		2011
Domestic	$	(20,863	)	$	13,315	$	12,135
Foreign		6,075			9,767		9,550

Total	$	(14,788	)	$	23,082	$	21,685

A reconciliation of income taxes computed at the statutory rates to the reported income tax (benefit) provision for the years ended December 31 is as follows (in thousands):


	2013			2012			2011
Federal provision at statutory rate	$	(5,176	)	$	8,079		$	7,590
U.S./foreign tax rate differential		(809	)		665			555
Foreign non-deductible expenses		1,174			1,557			—
Foreign tax provision		114			83			582
State taxes, net of federal benefit		1,009			1,194			37
Change in uncertain tax positions		(253	)		(359	)		184
Change in valuation allowance		856			(43,804	)		(3,951	)
Tax credits		(326	)		(37	)		(259	)
Share-based compensation		636			539			325
Reduction of prior year’s tax attributes		—			255			(1,424	)
Permanent goodwill		—			—			(412	)
Entity reclassification gain		—			4,167			—
Other		438			713			(132	)

(Benefit) provision for income taxes	$	(2,337	)	$	(26,948	)	$	3,095

The (benefit) provision for income taxes for the years ended December 31 is as follows (in thousands):


	2013									2012									2011
	Current Provision			Deferred Provision			Total Provision			Current Provision			Deferred Provision			Total Provision			Current Provision			Deferred Provision			Total Provision
Federal	$	(2,689	)	$	(1,837	)	$	(4,526	)	$	(6,295	)	$	(31,676	)	$	(37,971	)	$	(240	)	$	(817	)	$	(1,057	)
State and local		17			994			1,011			854			1,023			1,877			857			(533	)		324
Foreign		731			447			1,178			9,281			(135	)		9,146			3,482			346			3,828

Total	$	(1,941	)	$	(396	)	$	(2,337	)	$	3,840		$	(30,788	)	$	(26,948	)	$	4,099		$	(1,004	)	$	3,095

A summary of deferred income tax assets and liabilities as of December 31 is as follows (in thousands):


	2013			2012
Current deferred tax assets (liabilities):
Accounts receivable	$	202		$	306
Inventories		3,265			3,318
Warranty costs		2,302			1,874
Foreign exchange contracts		(58	)		(157	)
Accrued benefits		1,993			1,945
Other accruals not currently deductible for tax purposes		1,044			1,453

		8,748			8,739

Valuation allowance		(568	)		(532	)

Net current deferred tax assets	$	8,180		$	8,207

Noncurrent deferred tax (liabilities) assets:
Amortization and fixed assets	$	8,516		$	13,620
Pension obligation		4,913			8,828
Net operating loss carryforwards		27,613			18,365
Tax credit carryforwards		1,823			1,631
Stock options		410			608
Other temporary differences not currently available for tax purposes		(2,617	)		(2,478	)

		40,658			40,574

Valuation allowance		(16,621	)		(16,960	)

Net noncurrent deferred tax assets	$	24,037		$	23,614

Total deferred tax asset	$	32,217		$	31,821

As of December 31, 2013, we had total deferred assets of $60.9 million, which was offset by $17.2 million of valuation allowances. Our total deferred tax liabilities were $11.5 million. Our overall deferred tax position was a net deferred tax asset of $32.2 million.

As a result of certain realization requirements, the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets at December 31, 2013, that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Equity will be increased by $2.1 million if and when such deferred tax assets are ultimately realized. We use tax law ordering for purposes of determining when excess tax benefits have been realized.

We assess whether valuation allowances should be established against deferred tax assets based on consideration of all available evidence, both positive and negative, using a “more likely than not” standard. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carryforward periods, our experience with tax attributes expiring unused and tax planning alternatives. In making such judgments, significant weight is given to evidence that can be objectively verified.

During 2012, we generated sufficient earnings to support a three-year cumulative history of domestic pre-tax book earnings. When combined with the review of other positive and negative evidence, we determined that it was appropriate to release the entire $53.5 million of valuation allowances associated with all federal and state deferred tax assets existing at December 31, 2011. We continued to carry a valuation allowance of $17.5 million related to net deferred assets in international jurisdictions that have a multiple year cumulative loss at December 31, 2012. As of December 31, 2013, we determined that a valuation allowance of $17.2 million was needed against certain foreign deferred tax assets. This amount represents our total net deferred assets in international jurisdictions that have a multiple year cumulative loss. In the event that our actual results differ from our estimates or we adjust these estimates in future periods, the effects of these adjustments could materially impact our financial position and results of operations. As of December 31, 2013 and 2012, our net deferred tax asset position in our financials was $32.2 million and $31.8 million, respectively.

As of December 31, 2013, we had $59.8 million of foreign, $25.9 million of federal and $80.0 million of state net operating loss carryforwards available to offset future taxable income. Utilization of these losses is subject to the tax laws of the applicable tax jurisdiction and may be limited by the ability of certain subsidiaries to generate taxable income in the associated tax jurisdiction. Our net operating loss carryforwards expire beginning in 2014 and continue through 2033, except for certain tax jurisdictions with no expiration dates.

As of December 31, 2013, we had $1.3 million of research and development tax credits being carried forward related to our U.S. operations. Utilization of these credits may be limited by the ability to generate federal taxable income in future years and will expire beginning in 2027 and continue through 2033. We also had $0.5 million of alternative minimum tax credit carryforward that do not expire.

As of December 31, 2013, undistributed earnings from our foreign affiliates were $37.7 million. We do not intend to repatriate these funds and consider these funds to be permanently reinvested in accordance with ASC 740-30. Deferred taxes have not been provided on these unremitted earnings as determination of the liability is not practical because the liability would be dependent on circumstances existing if and when remittance occurs.

As of December 31, 2013 cash of $19.6 million was held by foreign subsidiaries. If we were to repatriate any portion of these funds back to the U.S., we would need to accrue and pay the appropriate withholding and income taxes on amounts repatriated. We do not intend to repatriate funds held by our foreign affiliates, but intend to use the cash to fund the growth of our foreign operations.

We operate in multiple jurisdictions and are routinely under audit by federal, state and international tax authorities. Exposures exist related to various filing positions which may require an extended period of time to resolve and may result in income tax adjustments by the taxing authorities. Reserves for these potential exposures have been established which represent management’s best estimate of the probable adjustments. On a quarterly basis, management evaluates the reserve amounts in light of any additional information and adjusts the reserve balances as necessary to reflect the best estimate of the probable outcomes. However, actual results may differ from these estimates. The resolution of these matters in a particular future period could have an impact on our consolidated statement of operations and provision for income taxes.

We file federal income tax returns in the U.S. and income tax returns in various states and foreign jurisdictions. With few exceptions, we are no longer subject to income tax examinations by any of the taxing authorities for years before 2008. We currently have no tax examinations in process.

As of December 31, 2013 and 2012, we provided a liability of $0.2 million and $0.4 million, respectively, of unrecognized tax benefits related to various federal and state income tax positions, all of which would impact our effective tax rate, if recognized.

We accrue interest and penalties related to unrecognized tax benefits through income tax expense. We had $0.1 million and $0.2 million accrued for the payment of interest and penalties at December 31, 2013 and December 31, 2012, respectively. Accrued interest and penalties are included in the $0.2 million of unrecognized tax benefits.

Approximately $0.2 million of unrecognized tax reserves, interest and penalties will be released within the next 12 months due to the statute of limitations.

A reconciliation of the beginning and ending amount of unrecognized tax benefits (including interest and penalties) at December 31 is as follows (in thousands):


	2013			2012			2011
Balance — Beginning of the year	$	444		$	851		$	666
Gross increase — tax positions in prior periods		—			162			235
Gross decreases — tax positions in prior periods		(257	)		(523	)		(48	)
Gross increases — current period tax positions		2			20			—
Lapse of statute of limitations		—			(66	)		(2	)

Balance — End of the year	$	189		$	444		$	851