INCOME TAXES

Income Tax Expense (Benefit)

Income before income taxes is comprised of the following (in thousands):



	Year Ended December 31,
	2013		2012		2011
U.S.	$	22,375	$	22,020	$	330
Foreign	1,366		21,812		2,278
	$	23,741	$	43,832	$	2,608

The provision (benefit) for income taxes is comprised of the following (in thousands):



	Year Ended December 31,
	2013			2012			2011
Current:
Federal	$	69		$	342		$	—
State	2,038			1,093			(713		)
Foreign	(5,184		)	4,125			1,394
	(3,077		)	5,560			681
Deferred:
Federal	(90,827		)	—			(1		)
State	(1,600		)	(28		)	270
Foreign	5,564			1,250			(558		)
	(86,863		)	1,222			(289		)
Tax provision (benefit):
Federal	(90,758		)	342			(1		)
State	438			1,065			(443		)
Foreign	380			5,375			836
	$	(89,940	)	$	6,782		$	392

The differences between the U.S. federal income taxes computed at the statutory rate (35%) and the Company's income taxes for financial reporting purposes are as follows (in thousands):



	Year Ended December 31,
	2013			2012			2011
Statutory federal income tax	$	8,309		$	15,341		$	913
Change in unrecognized tax benefits	199			189			235
State income tax, less federal benefit	370			128			(193		)
Foreign investment in U.S. property	1,203			1,094			—
Tax difference on foreign earnings	(196		)	(2,258		)	(245		)
Change in foreign taxes	(33		)	2			156
Canadian withholding tax	—			(30		)	26
Change in valuation allowance	(100,492		)	(7,666		)	(513		)
Tax credits	(361		)	(401		)	(366		)
Non-deductible expenses	869			342			280
Other, net	192			41			99
Income tax provision (benefit)	$	(89,940	)	$	6,782		$	392

Deferred Tax Asset/Liability

The components of the net deferred income tax asset (liability) reflected in the Company's consolidated balance sheets at December 31, 2013 and 2012 were as follows (in thousands):



	Deferred Tax Assets (Liabilities)
	December 31,
	2013			2012
Deferred tax assets:
Depreciation and amortization	$	11,655		$	19,378
Deferred revenue	1,932			1,044
Net operating loss carryforwards	73,246			75,873
Alternative minimum tax credit carryforward	2,194			2,124
Research and development tax credit carryforward	1,236			1,078
Accrued expenses and other	8,889			8,572
Total deferred tax assets	99,152			108,069
Deferred tax liabilities:
Depreciation and amortization	(8,914		)	(2,791		)
Intangible assets	(4,784		)	(6,595		)
Deferred expenses and other	(521		)	(577		)
Total deferred tax liabilities	(14,219		)	(9,963		)
Valuation allowance:
Beginning balance	(100,492		)	(108,066		)
Decrease during the period	100,492			7,574
Total valuation allowance	—			(100,492		)
Net deferred tax asset (liability)	$	84,933		$	(2,386	)
Deferred income taxes have been classified in the consolidated balance sheet as:
Deferred income tax asset	$	92,511		$	84
Deferred income tax liability	(7,578		)	(2,470		)
Net deferred income tax asset (liability)	$	84,933		$	(2,386	)

During the year ended December 31, 2013, the Company recorded a full release of its valuation allowance provided against its U.S. federal and state net deferred tax assets of $100.5 million based on management's reassessment that it is more likely than not that the deferred tax assets will be realized. In making this assessment, management considered all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income and results of recent operations. The most significant piece of objective positive evidence available in assessing the Company's U.S. deferred tax assets was its cumulative pretax income incurred over the three-year period ended December 31, 2013. Because the Company's revenue activity does not occur evenly throughout the year and the fourth quarter is typically the quarter with the highest activity, management believed a full year of results in 2013 was needed in order to provide enough positive evidence to support the assessment related to the release of the valuation allowance. In addition, the Company's projections of future taxable income show continued profitability. In projecting future taxable income, management began with recent historical results and incorporated assumptions about the amount of future pretax operating income and adjusted for items that do not have tax consequences. The Company's projections of future taxable income indicate it will have sufficient income to realize all of its existing deferred tax assets, the majority of which relate to net operating loss (“NOL”) carryforwards. Adjustments to future estimates during the carry forward period could impact the analysis of NOL utilization. Due to the significance of the Company's NOL carryforwards, management also evaluated the Company's ability to utilize its NOL carryforwards based on projected current taxable income, taking into consideration temporary differences, and determined that the Company's NOL carryforwards would be utilized prior to their expiration. As a result, the valuation allowance was released.

During 2012, the Company’s valuation allowance provided against its U.S. federal net deferred tax asset decreased by $8.1 million primarily due to utilization of NOL carryforwards to offset current taxable income generated in 2012. Additionally, during 2012, the Company's valuation allowance provided against its state deferred tax asset increased by $0.6 million due to the uncertainty of recovery of the deferred tax asset at that time.

As of December 31, 2013, the Company has a U.S. federal NOL carryforward of approximately $190.6 million which can be used to offset U.S. income taxes payable in future years. This U.S. NOL carryforward will expire in periods beginning 2025 through 2030. As of December 31, 2013, the Company has an alternative minimum tax (AMT) credit carryforward of approximately $2.2 million which can be used to offset regular U.S. federal income taxes payable in future years and which has an indefinite carryforward period. As of December 31, 2013, the Company has a Colorado state NOL carryforward of approximately $2.6 million which can be used to offset Colorado state income taxes payable in future years. This state NOL carryforward will expire in periods beginning 2028 through 2031.

As of December 31, 2013, the Company has Canadian NOL carryforwards for federal taxes of approximately $2.5 million (Canadian) and for provincial taxes of approximately $1.2 million (Canadian), both of which can be used to offset Canadian income taxes payable in future years. These Canadian NOL carryforwards will expire in periods beginning 2029 through 2033.

As of December 31, 2013, the Company has a receivable for a current tax refund of approximately $7.9 million (Canadian) which reflects recovery of taxes paid in prior years due to the carryback of the NOL generated in 2013 and recovery of estimated tax payments made in 2013.

In April 2011, Seitel Canada Ltd. (“Seitel Canada”), formerly known as Olympic Seismic Ltd., a wholly-owned subsidiary of the Company, was notified that Canada Revenue Agency (“CRA”) concluded their prior year audits of Seitel Canada's tax returns, disallowing Seitel Canada’s deductions for certain royalties payable to the Company’s U.S. entities for years 2003 to 2007. Seitel Canada and the Company object to and are appealing the audit results. As a condition to appeal the audit results, Seitel Canada paid $7.7 million (Canadian) to CRA in 2011. The payments, which included amounts for taxes, penalties and interest assessed by CRA, have been shown as income tax payments in the consolidated statement of cash flows because the amounts paid can be applied interchangeably to the amounts which may ultimately be due to CRA. As of December 31, 2013, the appeal process has not been concluded. The Company has recorded liabilities associated with potential adjustments that may occur as a result of the appeal based on management’s assessment of the probability of the outcome of the appeal, net of certain payments made to CRA. See “Uncertain Tax Benefits” below.

Uncertain Tax Benefits

The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes,” which prescribes a minimum recognition threshold a tax position must meet before being recognized in the financial statements. A reconciliation of the beginning and ending gross unrecognized tax benefits is as follows (in thousands):



	Year Ended December 31,
	2013			2012		2011
Balance at beginning of year	$	6,150		$	6,016	$	6,151
Foreign currency translation	(398		)	134		(135		)
Balance at end of year	$	5,752		$	6,150	$	6,016

As of December 31, 2013, approximately $5.8 million of the total unrecognized tax benefits would impact the effective income tax rate, if recognized in future periods. In addition, as of December 31, 2013, the Company has recorded $5.9 million in related assets.

Uncertain tax positions are reflected as income tax assets and liabilities. Income tax-related interest and penalty expenses are recorded as a component of income tax expense. As of December 31, 2013, we had $0.9 million of accrued interest and $1.0 million of accrued penalties. As of December 31, 2012, we had $0.7 million of accrued interest and $1.0 million of accrued penalties. Income tax expense (benefit) for each of the years ended December 31, 2013, 2012 and 2011 included $0.2 million related to interest and penalties on unrecognized tax benefits.

With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2009, 2009 and 2006, respectively.