NOTE 13—INCOME TAXES

Loss from continuing operations before income tax (benefit) expense is as follows:

	Year Ended December 31, 2013			Year Ended December 31, 2012			Year Ended December 31, 2011

Domestic	$	(14,611	)	$	(262,451	)	$	(49,867	)
Foreign		(11,024	)		(15,388	)		21,112


Total	$	(25,635	)	$	(277,839	)	$	(28,755	)

The (benefit) provision for income taxes from continuing operations consists of the following components:

	Year Ended December 31, 2013			Year Ended December 31, 2012			Year Ended December 31, 2011

Current income tax (benefit) expense from continuing operations
U.S. federal	$	(5,610	)	$	(8,825	)	$	3,393
Foreign		122			3,405			10,075
State and local		(12	)		(650	)		1,906


Total current income tax (benefit) expense from continuing operations		(5,500	)		(6,070	)		15,374
Deferred income tax benefit from continuing operations
U.S. federal		(741	)		(58,015	)		(3,517	)
Foreign		(1,134	)		(1,722	)		—
State and local		26			(457	)		(1,184	)


Total deferred income tax benefit from continuing operations		(1,849	)		(60,194	)		(4,701	)


Total income tax (benefit) expense from continuing operations	$	(7,349	)	$	(66,264	)	$	10,673

Tax benefits of $0, $0, $4 for the years ended December 31, 2013, 2012 and 2011, respectively, associated with the exercise of stock options were recorded to additional paid-in capital. Tax benefits associated with the "Windfall" for stock options exercised are determined on a "with and without" basis.

During 2012, vested non-qualified stock options (NQSO) were cancelled resulting in a reversal of the related deferred tax asset. As a result, the Company's additional paid-in capital "windfall" account has been reduced to zero and an additional deferred tax expense of $113 is reflected in tax expense. For 2013, a deferred tax expense of $11 is reflected in tax expense related to cancelled vested non-qualified stock options. Refer to Note 19.

A deferred tax expense of $244, deferred tax expense of $70 and a tax benefit of $846 relating to the cumulative translation adjustment of the Company's foreign subsidiaries financial statements is recorded in other comprehensive income (loss) for the years ended December 31, 2013, 2012 and 2011, respectively.

During the years ended December 31, 2013, 2012 and 2011, the Company recorded adjustments to income tax and deferred income taxes related to a change in state taxable income apportionment percent. Amounts recorded in 2013, 2012, and 2011 were to recognize a deferred income tax expense of $26, a state deferred income tax benefit of $331 and a deferred income tax benefit of $1,138, respectively.

Following is a reconciliation of the Company's effective income tax rate from continuing operations to the United States federal statutory tax rate:



Expected tax at U.S. statutory income tax rate	35.0	%	35.0	%	35.0	%
U.S. state and local income taxes net of federal income tax effect	(0.1	)%	0.3	%	(0.2	)%
Foreign rate differential	(5.9	)%	(1.1	)%	10.7	%
Foreign unremitted earnings	1.1	%	0.4	%	(2.6	)%
Goodwill impairment	0.0	%	(10.4	)%	(77.8	)%
Other non-deductible fees and expenses	(0.5	)%	(0.1	)%	(0.3	)%
Unrecognized tax benefits	(0.6	)%	0.3	%	1.4	%
Other	(0.3	)%	(0.5	)%	(3.3	)%


Effective tax rate	28.7	%	23.9	%	(37.1	)%

The effect of temporary differences is included in deferred tax accounts as follows:

	Year Ended December 31, 2013			Year Ended December 31, 2012

Deferred tax assets:
Current deferred tax assets:
Accrued salaries and benefits	$	67		$	—
Deferred compensation		221			—
Bad debt reserves		49			15
Inventories		236			250
Product performance accrual		1,483			1,533
Other		25			25


Total current deferred tax assets	$	2,081		$	1,823




Long-term deferred tax assets:
Deferred compensation	$	70		$	409
Non-qualified stock option compensation		4,223			3,888
Restricted stock compensation		537			208
Operating loss carryforwards		4,225			2,214
Fixed assets		4,998			5,798
Other		392			210


Total long-term deferred tax assets before valuation allowance	$	14,445		$	12,727
Valuation allowance		(1,247	)		(491	)


Long term-deferred tax assets		13,198			12,236


Total deferred tax assets	$	15,279		$	14,059




Deferred tax liabilities:
Foreign unremitted earnings	$	—		$	508


Total deferred tax liabilities	$	—		$	508


Total net deferred tax assets	$	15,279		$	13,551

A valuation allowance is recorded on certain deferred tax assets if it has been determined it is more likely than not that all or a portion of these assets will not be realized. We have recorded a valuation allowance of $1,247 and $491 for deferred tax assets existing as of December 31, 2013 and December 31, 2012, respectively. The valuation allowance is primarily attributable to net operating loss carryforwards in China and Hong Kong.

The Company recognizes interest accrued related to its liability for unrecognized tax benefits and penalties in income tax expense. The Company recorded interest and penalties related to unrecognized tax benefits as a component of income tax expense from continuing operations in the amount of approximately $214, $5 and $(914) for the years ended December 31, 2013, 2012 and 2011, respectively. The Company had approximately $1,154 and $939 for the payments of interest and penalties accrued at December 31, 2013 and December 31, 2012, respectively.

A reconciliation of the beginning and ending amount of the Company's liability for unrecognized tax benefits, excluding interest and penalties, is as follows (includes continuing and discontinued operations):


Balance at December 31, 2010	$	3,695


Additions for tax positions of prior years		2,527
Reductions for tax positions of prior years		(1,480	)


Balance at December 31, 2011	$	4,742


Additions for tax positions of prior years		375
Reductions for tax positions of prior years		(1,805	)


Balance at December 31, 2012		3,312


Additions for tax positions of prior years		—
Reductions for tax positions of prior years		—


Balance at December 31, 2013	$	3,312

The amount of unrecognized tax benefit that would potentially impact the Company's effective tax rate from continuing operations was $3,274 and $3,274 and $4,704 (excluding interest and penalties) as of December 31, 2013, 2012 and 2011, respectively.

The Company conducts its business globally and as a result, the Company and one or more of its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is subject to examination by taxing authorities in each of these jurisdictions.

The Company has open tax years from 2010-2013 for U.S. federal tax purposes. The Company has open tax years from 2008-2013 with various state tax jurisdictions. The Company has open tax years from 2003-2013 with various foreign tax jurisdictions. The Company believes that no material unrecognized tax benefits are expected to reverse within the next twelve months.

In connection with the examination of the Company's tax returns, contingencies can arise that generally result from differing interpretations of applicable tax laws and regulations as they relate to the amount, timing or inclusion of revenues or expenses in taxable income, or the sustainability of tax credits to reduce income taxes payable. The Company believes it has sufficient accruals for its contingent tax liabilities. Annual tax provisions include amounts considered sufficient to pay assessments that may result from examination of prior year tax returns, although actual results may differ. The United States. federal tax returns for years 2011 and 2012 are under examination by the Internal Revenue Services. On January 7, 2014, the Company received notification of inspection to be conducted for the 2012 return filed for Spain.

As a result of the DLJ Acquisition on June 15, 2007, the Company provided deferred taxes for the presumed repatriation of foreign earnings due to increased cash flow needs in the United States. No U.S. taxes need to be provided for the undistributed earnings of a foreign subsidiary if the Company can assert that such earnings are planned to be reinvested indefinitely outside of the United States. The Company periodically assesses its business operations and the cash flow needs of its foreign and domestic subsidiaries to determine if the earnings of any of its foreign subsidiaries will be indefinitely reinvested outside the United States. As of December 31, 2012, the Company provided deferred taxes on all of its undistributed foreign earnings other than its Malaysian earnings. Prior to the fourth quarter of 2013, the Company elected to permanently reinvest the earnings of its Malaysia subsidiary.

As of December 31, 2013, the Company no longer asserts that it will permanently reinvest its Malaysia subsidiary's earnings since the Company will be closing the Malaysia plant in 2014. However, based upon the Malaysia subsidiary's liabilities, the Company has determined that the undistributed earnings of its Malaysia subsidiary will be repatriated in a tax free manner. As such, no U.S. federal and state income taxes have been provided thereon.

Upon distribution of those earnings or repatriation of cash in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable, if applicable. As of December 31, 2013, the Company has $51,690 of cash available in the United States.

The Company's subsidiary in Malaysia is operating under a tax holiday arrangement which extends through 2014 with availability for a five-year renewal if certain conditions are satisfied. The Company does not expect to qualify for the holiday extension in 2014 due to closing the Malaysia plant. The impact of its tax holiday on its effective rate is a reduction in the rate of 4.5%, 0.9% and (8.1)% percentage points for 2013, 2012 and 2011, respectively.

During the third quarter of 2012, the taxable gain associated with the sale of the Company's QA business in September 2011 was finalized and the Company recorded an income tax benefit to discontinued operations of $4,228. Refer to Note 3 Discontinued Operations for further discussion.

2014 Stock Option Cancellation

In 2014, approximately 1.1 million stock options are expected to be canceled during 2014. These vested stock options were granted to employees who were recently terminated at the end of 2013. The Company anticipates these options will be canceled in 2014, and as a result, will reduce its deferred tax asset by $1.1 million. Since no tax windfall pool exists in additional paid-in-capital, the reduction in the deferred tax asset will be recorded charged to income tax expense as a discrete item when the options are cancelled.