Income Taxes

Income Tax Expense (Benefit)

Income (loss) from continuing operations before income taxes was as follows for the years ended (in thousands):



	2013			2012			2011
Domestic	$	(70,385	)	$	(26,572	)	$	(8,981	)
Foreign	(1,389		)	1,764			4,832
	$	(71,774	)	$	(24,808	)	$	(4,149	)

Income tax expense (benefit) on income (loss) from continuing operations consisted of the following for the years ended (in thousands):



	2013			2012			2011
Current tax expense (benefit):
Federal	$	—		$	—		$	(4,113	)
Foreign	977			295			1,361
State	888			874			436
	1,865			1,169			(2,316		)
Deferred tax expense (benefit):
Federal	2,659			40,703			6,741
Foreign	(1,421		)	(748		)	1,000
State	10,650			14,596			(880		)
	11,888			54,551			6,861
Income tax expense	$	13,753		$	55,720		$	4,545

The Company's deferred tax expense (benefit) for the year ended 2013 includes a tax charge of $40.6 million related to a valuation allowance against its deferred tax assets.

The Company's deferred tax expense (benefit) for the year ended 2012 includes a tax charge of $56.5 million related to a valuation allowance against its deferred tax assets.

The Company's current tax expense (benefit) for the year ended 2011 includes a tax benefit of $5.1 million for the utilization of income tax loss carryforwards and credits.

A reconciliation of the expected tax benefit based on the federal statutory tax rate to the Company’s actual income tax expense is summarized as follows for the years ended (in thousands):



	2013			2012			2011
Expected tax benefit at federal statutory income tax rate	$	(25,121	)	$	(8,683	)	$	(1,452	)
State and local income tax (benefit) expense	(1,706		)	(1,075		)	1,807
Change in valuation allowance	34,049			55,374			(2,592		)
Change in contingency reserves	(105		)	(94		)	(84		)
Non-U.S. tax rate differences	42			(1,063		)	670
Non-deductible expenses	3,260			2,426			6,847
Change in state tax rates	(272		)	1,564			(547		)
Expiration of stock option contracts	968			7,007			—
Other	2,638			264			(104		)
Income tax expense	$	13,753		$	55,720		$	4,545

Deferred Income Taxes

Deferred taxes are recorded to give recognition to temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The tax effects of these temporary differences are recorded as deferred tax assets and deferred tax liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in future years. Deferred tax liabilities generally represent items that have been deducted for tax purposes, but have not yet been recorded in the consolidated statement of operations.

The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities of the Company, were as follows (in thousands):



	2013			2012
Deferred tax assets:
Net operating loss carryforwards	$	108,580		$	106,393
Compensation and benefit related accruals	35,238			60,047
Foreign tax credit carryforwards	7,456			9,011
Alternative minimum tax credit carryforwards	8,242			8,819
Accounts receivable	2,075			1,928
Inventory	2,682			2,504
Restructuring accruals	9,985			11,850
Accrued tax and interest	1,645			1,540
Other	9,958			7,719
Valuation allowance	(110,754		)	(69,241		)
Total deferred tax assets	75,107			140,570

Deferred tax liabilities:
Property, plant and equipment	(44,804		)	(48,912		)
Goodwill and other intangible assets	(56,376		)	(71,187		)
Other	(9,203		)	(10,242		)
Total deferred tax liabilities	(110,383		)	(130,341		)
Net deferred tax (liability) asset	$	(35,276	)	$	10,229

The net deferred tax (liability) asset included the following (in thousands):



	2013			2012
Current deferred tax asset (included in prepaid and other current assets)	$	7,823		$	15,567
Current deferred tax asset (included in assets of discontinued operations - current)	—			83
Long-term deferred tax liability (included in other liabilities)	(43,099		)	(4,541		)
Long-term deferred tax liability (included in liabilities of discontinued operations - long-term)	—			(880		)
Total	$	(35,276	)	$	10,229

The Company has federal and state net operating loss carryforwards. The tax effect of these attributes was $108.6 million as of the year ended 2013. Federal net operating loss carryforwards of $282.3 million will expire from 2022 through 2033, foreign tax credit carryforwards of $7.5 million will expire from 2014 through 2015 and alternative minimum tax credit carryforwards of $8.2 million do not have an expiration date.

The Company reviews the likelihood that it will realize the benefit of its deferred tax assets and therefore the need for valuation allowances on a quarterly basis, or more frequently if events indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or consolidated group recording the net deferred tax asset is considered, along with all other available positive and negative evidence. The factors considered in the determination of the probability of the realization of the deferred tax assets include, but are not limited to: recent historical financial results, historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences, the duration of statutory carryforward periods and tax planning strategies. If, based upon the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized, a valuation allowance is recorded.

Concluding that a valuation allowance is not required is difficult when there is significant negative evidence which is objective and verifiable, such as cumulative losses in recent years. The Company utilizes a rolling twelve quarters of pre-tax income or loss adjusted for significant permanent book to tax differences as a measure of its cumulative results in recent years. In the United States, the Company's analysis indicates that it has cumulative three year historical losses on this basis. While there are significant impairment, restructuring and refinancing charges driving the cumulative three year loss, this is considered significant negative evidence which is objective and verifiable and therefore, difficult to overcome. However, the three year loss position is not solely determinative and accordingly, the Company considers all other available positive and negative evidence in its analysis. Based upon the Company's analysis, which incorporated the excess capacity and pricing pressure experienced in certain product lines, along with the recent decline in net sales and profitability from the print segment during 2013, the Company believes it is more likely than not that the net deferred tax assets in the United States will not be fully realized in the future. Accordingly, the Company increased its valuation allowance related to those net deferred tax assets by $40.6 million to $97.1 million in 2013. Deferred tax assets related to certain state net operating losses and foreign tax credit carryforwards also did not reach the more likely than not realizability criteria and accordingly, were subject to a valuation allowance. During 2013, the valuation allowance related to these state net operating losses and foreign tax credit carryforwards was increased by $1.0 million to $13.7 million, primarily as a result of an increase in the valuation allowance against state net operating losses in the amount of $2.5 million offset by the expiration of foreign tax credit carryforwards in the amount of $1.5 million.

There is no corresponding income tax benefit recognized with respect to losses incurred and no corresponding income tax expense recognized with respect to earnings generated in jurisdictions with a valuation allowance. This causes variability in the Company's effective tax rate. The Company intends to maintain the valuation allowances until it is more likely than not that the net deferred tax assets will be realized. If operating results improve on a sustained basis, or if certain tax planning strategies are implemented, conclusions regarding the need for valuation allowances could change, resulting in a decrease of the valuation allowances in the future, which could have a significant impact on income tax expense in the period recognized and subsequent periods.

Uncertain Tax Positions

The Company accounts for uncertain tax positions by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. During 2013 and 2012, the Company did not reduce its liability for uncertain tax positions. The Company does not anticipate significant changes to its unrecognized tax benefits in the next twelve months. The balance of the Company’s remaining unrecognized tax benefits as of the year ended 2013 includes $2.2 million of tax benefits that, if recognized would affect the effective tax rate, which is included in other liabilities. The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. Related to the uncertain tax benefits noted above, the Company accrued interest of $0.3 million during 2013 and, in total, as of the year ended 2013, has recognized no liabilities for penalties and liabilities of $2.2 million for interest.

The Company’s unrecognized tax benefit activity for the years ended 2013, 2012 and 2011 was as follows (in thousands):



Unrecognized tax benefit – As of year end 2010	$	2,226
Gross decreases - tax positions in prior period	—
Gross decreases – expiration of applicable statute of limitations	—
Unrecognized tax benefit – As of year end 2011	2,226
Gross decreases - tax positions in prior period	—
Gross decreases – expiration of applicable statute of limitations	—
Unrecognized tax benefit – As of year end 2012	2,226
Gross decreases - tax positions in prior period	—
Gross decreases – expiration of applicable statute of limitations	—
Unrecognized tax benefit – As of year end 2013	$	2,226

The Internal Revenue Service (“IRS”) has examined the Company’s federal income tax returns through 2010. The Company’s federal income tax returns for tax years 2003 through 2006 and 2009 remain subject to examination by the IRS due to a federal net operating loss generated in those years. Although the IRS has audited the Company’s tax return for 2010, that return remains subject to examination under the statute of limitations. However, a re-examination of the 2010 tax return is not likely. The various states in which the Company is subject to income tax are generally open for the tax years after 2008. In Canada, the Company remains subject to audit for tax years after 2004. The Company does not believe that the outcome of any examination will have a material impact on its consolidated financial statements.

Current Taxes and Cash Taxes

As of the years ended 2013 and 2012, the Company had income tax receivables of $0.6 million and $1.7 million, respectively included in other current assets. Net cash payments for income taxes were $0.3 million, $1.4 million and $2.1 million in 2013, 2012 and 2011, respectively.