INCOME TAXES

Income before income taxes included the following components (in thousands):



	Year Ended
	2013		2012		2011
U.S.	$	32,549	$	26,640	$	14,189
Foreign	119,053		113,908		108,676
Total	$	151,602	$	140,548	$	122,865

Income tax expense consisted of the following (in thousands):



	Year Ended
	2013			2012			2011
Current:
Federal	$	(851	)	$	8,173		$	7,767
State	419			475			395
Foreign	16,513			13,870			18,559
Total current income tax expense	16,081			22,518			26,721
U.S. deferred expense (benefit)	12,645			4,285			(6,266		)
Foreign deferred benefit	(3,797		)	(1,175		)	(1,227		)
Income tax expense	$	24,929		$	25,628		$	19,228

The effective income tax rate applied to net income varied from the U.S. federal statutory rate due to the following (in thousands):



	Year Ended
	2013			2012			2011
Tax expense at U.S. federal statutory rates	$	53,061		$	49,192		$	43,003
Increase (decrease) resulting from:
State income taxes, net of federal benefit	857			1,126			723
Foreign tax benefit	(25,263		)	(26,181		)	(20,515		)
Research and experimentation benefit	(5,966		)	(758		)	(2,908		)
Foreign tax credit benefit	(2,152		)	(2,738		)	(4,465		)
Tax audit settlements and lapses of statutes of limitations	(70		)	(439		)	(509		)
Stock compensation	2,658			2,134			1,683
Non-deductible items	2,132			3,100			1,597
Other	(328		)	192			619
Income tax expense	$	24,929		$	25,628		$	19,228

Our 2013 tax expense reflected comparatively lower tax rates in foreign jurisdictions where we earn most of our profits. The tax provision also included a benefit for the reduction of unrecognized tax benefits relating to positions on prior year returns after completion of audits in various jurisdictions.

Current taxes payable were reduced for excess tax benefits recorded to common stock and related to stock compensation of $6.4 million, $3.1 million and $2.9 million, respectively, in 2013, 2012 and 2011.

Deferred Income Taxes

Net deferred tax assets (liabilities) were classified on the balance sheet as follows (in thousands):



	December 31,
	2013			2012
Deferred tax assets – current	$	15,114		$	12,245
Deferred tax assets – non-current	1,751			5,092
Deferred tax liabilities – current	(9		)	(93		)
Deferred tax liabilities – non-current	(8,931		)	(17,588		)
Net deferred tax assets (liabilities)	$	7,925		$	(344	)
Valuation allowance	$	2,723		$	2,081

The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and deferred tax liabilities were as follows (in thousands):



	December 31,
	2013			2012
Deferred tax assets:
Accrued liabilities and reserves	$	15,804		$	13,239
Revenue recognition	340			3,707
Tax credit and loss carryforwards	8,063			8,497
Fixed assets and intangibles	546			765
Unrealized investment	765			2,538
Stock compensation	2,151			1,815
Other assets	1,501			665
Gross deferred tax assets	29,170			31,226
Valuation allowance	(2,723		)	(2,081		)
Net deferred tax assets	26,447			29,145
Deferred tax liabilities:
Fixed assets and intangibles	(17,965		)	(20,697		)
Revenue recognition	(19		)	(4,991		)
Other liabilities	(538		)	(3,801		)
Total deferred tax liabilities	(18,522		)	(29,489		)
Net deferred tax assets (liabilities)	$	7,925		$	(344	)

Deferred tax benefit of $1.1 million, $3.0 million and $3.0 million was recorded in other comprehensive income in 2013, 2012 and 2011, respectively.

As of December 31, 2013 and 2012, our valuation allowance on deferred tax assets totaled $2.7 million and $2.1 million, respectively. In assessing the realizability of deferred tax assets, we utilize a more likely than not standard. If it is determined that it is “more likely than not” that deferred tax assets will not be realized, a valuation allowance must be established against the deferred tax assets. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the associated temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, historical operating performance, projected future taxable income and tax planning strategies in making this assessment.

U.S. net operating loss carryforwards as of December 31,2013 were $0.2 million and expire in 2031. Foreign net operating loss carryforwards as of December 31, 2013 were $14.6 million and do not expire.

U.S. research and development tax credit carryforwards as of December 31, 2013 were $2.9 million and expire between 2014 and 2033. Foreign research and development tax credit carryforwards as of December 31, 2013 were $0.2 million and do not expire. Alternative minimum tax credit carryforwards as of December 31, 2013 were $0.7 million and do not expire.

As of December 31, 2013, U.S. income taxes have not been provided for approximately $331.3 million of cumulative undistributed earnings of several non-U.S. subsidiaries, as our current intention is to reinvest these earnings indefinitely outside the U.S. Foreign tax provisions have been provided for these cumulative undistributed earnings. Upon distribution of those earnings in the form of dividends or otherwise, we would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Similarly, we have not provided deferred taxes on the cumulative translation adjustment related to those non-U.S. subsidiaries.

Unrecognized Tax Benefits and Other Tax Contingencies

A rollforward of our unrecognized tax benefits, including interest and penalties, was as follows (in thousands):



	Year Ended
	2013			2012			2011
Unrecognized tax benefits, beginning of period	$	25,135		$	16,041		$	7,156
Increases for tax positions taken in current period	1,197			—			542
Increases for tax positions taken in prior periods	1,701			9,965			10,502
Decreases for tax positions taken in prior periods	(3,997		)	(620		)	(1,723		)
Decreases for lapses in statutes of limitations	(70		)	(251		)	(436		)
Unrecognized tax benefits, end of period	$	23,966		$	25,135		$	16,041

During 2013, we effectively settled matters with the Internal Revenue Service and certain foreign jurisdictions. The result of effective settlements was a reduction of $3.7 million of unrecognized tax benefits, all of which resulted in a tax benefit. This reduction was offset by accruals for positions taken on current and prior year tax returns and related mainly to uncertainty surrounding transfer pricing and permanent establishment.

Non-current unrecognized tax benefits as of December 31, 2013 and 2012 of $23.8 million and $15.7 million were classified on the balance sheet as a component of Other Liabilities.

The entire balance of unrecognized tax benefits, if recognized, would reduce our effective tax rate. We believe it is reasonably possible that our unrecognized tax benefits could decrease, in the next 12 months, between zero and $4.0 million due to lapses of statutes of limitations and as the result of settlements with taxing authorities.

We recognize interest and penalties related to unrecognized tax benefits in income tax expense. The liability for unrecognized tax benefits included accruals for interest and penalties of $3.7 million and $2.0 million as of December 31, 2013 and 2012, respectively.

Tax expense included the following relating to interest and penalties (in thousands):



	Year Ended
	2013			2012			2011
Benefit for lapses of statutes of limitations and settlement with taxing authorities	$	(24	)	$	(88	)	$	(124	)
Accruals for current and prior periods	1,698			652			293
Total interest and penalties	$	1,674		$	564		$	169

For our major tax jurisdictions, the following years were open for examination by the tax authorities as of December 31, 2013:



Jurisdiction		Open Tax Years
U.S.		2010 and forward
The Netherlands		2011 and forward
Czech Republic		2011 and forward