Income Taxes

Earnings (loss) from operations before income taxes and noncontrolling interest:



	For the year ended					For the eleven months ended
(In thousands)	December 31, 2013			December 31, 2012		December 31, 2011
United States	$	(22,011	)	$	33,523	$	(26,057	)
Foreign	36,641			47,619		53,575
	$	14,630		$	81,142	$	27,518

Income tax expense attributable to continuing operations consists of the following:



	For the year ended						For the eleven months ended
(In thousands)	December 31, 2013			December 31, 2012			December 31, 2011
Current income tax expense:
Federal	$	1,276		$	23,032		$	12,350
State	587			1,499			549
Foreign	6,938			6,125			7,438
	$	8,801		$	30,656		$	20,337
Deferred income tax expense (benefit):
Federal	$	2,775		$	1,136		$	(11,932	)
State	(32		)	(374		)	(372		)
Foreign	(350		)	217			(673		)
	2,393			979			(12,977		)
	$	11,194		$	31,635		$	7,360

Significant components of the Company’s deferred tax assets and liabilities are as follows:



Years ended (In thousands)	December 31, 2013			December 31, 2012
Deferred tax assets:
Amortization	$	2,726		$	3,942
Accrued expenses and other	6,523			6,136
Allowance for doubtful receivables	1,217			385
Employee benefit plans	3,059			12,120
Inventory reserves	1,979			1,060
Foreign tax credits	16,758			17,820
Net operating loss	27,318			15,159
Capital loss carryforward	1,995			4,634
Uncertain tax positions	1,121			854
Other reserves	350			1,061
Valuation allowance	(18,721		)	(19,403		)
	$	44,325		$	43,768
Deferred tax liabilities:
Prepaid and other	$	(8,696	)	$	(10,658	)
Undistributed foreign earnings	(13,451		)	(11,242		)
Depreciation and amortization	(10,140		)	(9,514		)
	(32,287		)	(31,414		)
Net deferred tax asset	$	12,038		$	12,354

A valuation allowance for deferred tax assets is recorded to the extent we cannot determine that the ultimate realization of a deferred tax asset is more likely than not. In determining the need for a valuation allowance, we assess the available positive and negative evidence as well as consider available tax planning strategies. The Company’s valuation allowance relates to certain U.S. and non-U.S. tax loss carryforwards, state loss carryforwards, and a U.S. capital loss carryforward, for which the Company believes, due to various limitations in these foreign jurisdictions related to the tax loss carryforwards and due to limitations imposed by U.S. federal and state tax regulations, it is more likely than not that such benefits will not be realized. The change in our valuation allowance primarily related to an increase in certain unrealizable net operating losses and a decrease in expiring capital losses. As of December 31, 2013, the Company had net operating loss carryforwards, of $5.8 million limited by Internal Revenue Code section 382 that will expire on December 31, 2022, $138.7 million of U.S. state net operating losses that will begin to expire in 2014, and foreign net operating losses of $32.7 million that will begin to expire in 2014; however a valuation allowance has been established for these expiring federal, state and foreign NOL’s and no deferred tax asset benefit was recorded. As of December 31, 2013, the Company also had $5.5 million U.S. capital loss carryforward which will begin to expire in 2014. Additionally, as of December 31, 2013, the Company has a foreign tax credit carryforward of $16.8 million and a research credit carryforward of $0.9 million. The Company has determined that future realization of such credits is at least more likely than not. In our determination, we have considered an identified tax planning strategy which would ensure that a significant portion of the credits do not expire unutilized. This strategy is based on our ability to accelerate US taxable income through unremitted foreign earnings and we would undertake such a strategy to realize these tax credit carryforwards prior to the credit’s expiration as it is reasonable, prudent, and feasible.

As of December 31, 2013, the Company determined that $215.0 million of undistributed foreign earnings were not reinvested indefinitely by its non-U.S. subsidiaries. An accumulated deferred tax liability has been recorded against these undistributed earnings of $13.5 million, an increase of $2.3 million from the prior year. Of the current year change, $0.2 million was recorded as a benefit for undistributed earnings to the Company's Net earnings in the current period.

As of December 31, 2013, undistributed earnings of foreign subsidiaries considered permanently reinvested, for which deferred income taxes have not been provided, were approximately $98.1 million. Determining the tax liability that would arise if these earnings were remitted is not practicable.

A reconciliation of the provision for income taxes to the amount computed at the federal statutory rate is as follows:



	For the year ended						For the eleven months ended
(In thousands)	December 31, 2013			December 31, 2012			December 31, 2011
Tax at statutory rate	$	5,121		$	28,399		$	9,632
Tax effect of:
U.S. state income taxes, net of federal benefit	313			561			(15		)
Tax exempt interest	(11		)	(22		)	(9		)
Other non-deductible expenses and return to provision adjustments	(554		)	1,935			1,839
Dividend from non-consolidating domestic subsidiary	852			1,120			—
Valuation allowance release on non-consolidated NOL carryforward	—			—			(2,287		)
Valuation allowance movement on capital loss carryforward	121			(347		)	(313		)
Change in reserve for tax contingencies	571			(192		)	(2,317		)
Foreign dividend and subpart F income	11,203			15,020			21,278
Tax benefit on undistributed foreign earnings	(185		)	(4,507		)	(8,465		)
Foreign tax rate differential	(6,237		)	(10,380		)	(11,956		)
Other	—			48			(27		)
	$	11,194		$	31,635		$	7,360

The following is a reconciliation of the total amounts of unrecognized tax benefits related to uncertain tax positions, excluding interest and penalties, during the year ended December 31, 2013:



(In thousands)
Balance as of January 1, 2013	$	2,679
Gross increases – tax positions prior periods	1,356
Gross decreases – tax positions prior periods	—
Gross increases – tax positions current period	—
Gross decreases – tax positions current period	—
Decreases – settlements with taxing authorities	—
Reductions - lapse of statute of limitations	—
December 31, 2013	$	4,035

As of December 31, 2013, the Company had $4.0 million of gross unrecognized tax benefits, excluding interest and penalties. This amount represents the portion that, if recognized, would impact the effective tax rate. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2013, the Company had $4.4 million accrued for the payment of interest and penalties. Penalties and interest in the amount of $0.2 million and $10 thousand adversely impacted the current year and favorably impacted the prior year tax rate respectively. As of December 31, 2012, the Company had $4.2 million accrued for the payment of interest and penalties.

Due to the various jurisdictions in which the Company files tax returns and the uncertainty regarding the timing of the settlement of tax audits, it is possible that there could be other significant changes in the amount of unrecognized tax benefits in 2014, but the amount cannot be estimated.

The Company files income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions, and many foreign jurisdictions. The number of years with open tax audits varies depending on the tax jurisdiction. The Company’s major taxing jurisdictions include the United States (including the state jurisdictions of California, Connecticut, Illinois, Massachusetts and Michigan), Canada, Germany and Switzerland. In the United States, the Company is currently open to examination by the Internal Revenue Service for fiscal year ended January 31, 2011 and is currently under audit for the calendar years ended December 31, 2011 and December 31, 2012 for Blyth, Inc. and subsidiaries and for the calendar year ended December 31, 2011 for ViSalus. Additionally, in Canada and Germany the Company is open to examination for fiscal years 2008 through 2012 and is currently under audit in Canada for fiscal years ended January 31, 2009 through 2011. In Switzerland, the Company is open to examination for years ended 2009 through 2012.