
	INCOME TAXES

The components of loss before income taxes for the years ended December 31, 2013, 2012 and 2011 are as follows (in thousands):



	Years Ended December 31,
	2013			2012			2011
Domestic loss	$	(21,743	)	$	(20,522	)	$	(17,052	)
Foreign income	10,226			1,687			772
Loss before income taxes	$	(11,517	)	$	(18,835	)	$	(16,280	)

The provision for (benefit from) income taxes for the years ended December 31, 2013, 2012 and 2011 consists of the following (in thousands):



	Years Ended December 31,
	2013			2012			2011
Current:
Federal	$	(466	)	$	(251	)	$	16
State	52			3			4
Foreign	(125		)	254			(1,949		)
Total current	(539		)	6			(1,929		)
Deferred:
Federal	—			—			—
State	—			—			—
Foreign	(3		)	478			3,599
Total deferred	(3		)	478			3,599
Provisions for (benefits from) income taxes	$	(542	)	$	484		$	1,670

The provision for (benefit from) income taxes reconciles to the amount computed by multiplying loss before income taxes by the U.S. statutory rate of 35 percent as follows (in thousands):



	Years Ended December 31,
	2013			2012			2011
Benefits at statutory rate	$	(4,031	)	$	(6,593	)	$	(5,691	)
Deferred tax asset valuation allowance	5,256			4,238			5,169
Foreign earnings taxed at U.S. rates	1,966			3,533			291
Foreign earnings taxed at different rates	(3,315		)	417			4,531
State taxes, net of federal benefit	34			2			2
Nondeductible stock option expense	322			365			507
Uncertain tax position reserve release	(579		)	(511		)	(3,151		)
Foreign tax credits	—			(1,147		)	(144		)
Other	(195		)	180			156
Provision for income taxes	$	(542	)	$	484		$	1,670

Deferred tax assets as of December 31, 2013 and 2012 are comprised of the following (in thousands):



	December 31,
	2013			2012
Net operating loss carryforwards	$	164,105		$	159,859
Reserves not currently deductible	7,367			7,919
Tax credit carryforwards	849			2,043
Depreciation	6,663			3,866
Deferred revenue	1,974			927
Other	611			770
Total deferred tax asset	181,569			175,384
Valuation allowance	(181,499		)	(175,300		)
Net deferred tax asset	70			84
Deferred tax liability	(49		)	(562		)
Net deferred tax asset (liability)	$	21		$	(478	)

The valuation allowance as of December 31, 2013 and 2012 is against all deferred tax assets for all jurisdictions except Korea. Our valuation allowance was determined in accordance with the applicable authoritative guidance, which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred assets are recoverable, with such assessment being required on a jurisdiction-by-jurisdiction basis. In assessing the need for a valuation allowance in the current year, management considered historical levels of income and losses, expectations and risks associated with estimate of future taxable income and ongoing prudent and feasible tax planning strategies. Factors considered in providing a valuation allowance include the lack of a significant history of consistent profits, the cyclical nature of the overall semiconductor market thereby negatively impacting our ability to sustain or grow revenues and earnings and the lack of carry-back capacity to realize these assets. Based on the absence of sufficient positive objective evidence, management is unable to assert that it is more likely than not that we will generate sufficient taxable income to realize these remaining net deferred assets. The amount of the deferred tax asset valuation allowance, however, could be reduced in future periods to the extent that future taxable income is realized.

As of December 31, 2013, we had federal and state net operating loss carryforwards of approximately $460.3 million and $81.1 million, respectively, which will begin expiring in 2018 for Federal and 2014 for state. We have net operating loss carryforwards which include excess tax benefits from employee stock option exercises of $11.4 million which have not been recorded in our deferred tax assets and will increase additional paid in capital as and when such excess tax benefits are ultimately realized. We also have foreign net operating loss carryforwards in Canada and Germany of approximately $49.1 million and $31.0 million, respectively. Canada's net operating loss carryforwards began expiring in 2013. The German net operating loss carryforward has an indefinite carryover life.

Our net operating losses include those acquired as a result of our acquisitions of Vortek, STEAG Semiconductor Division, CFM and Concept Systems Design, Inc. The federal and state net operating losses acquired from the STEAG Semiconductor Division, CFM and Concept are also subject to change in control limitations as defined in Section 382 of the Internal Revenue Code. If certain substantial changes in our ownership occur, there would be an additional annual limitation on the amount of the net operating loss carryforwards that can be utilized.

We provide U.S. income taxes on the earnings of foreign subsidiaries unless the subsidiaries earnings are considered indefinitely reinvested outside the U.S. As of December 31, 2013, U.S. income taxes were not provided for on a cumulative total of $0.7 million of undistributed earnings for certain foreign subsidiaries. If these earnings were repatriated, we would be subject to additional U.S. income taxes (subject to an adjustment for foreign tax credits). However, the tax impact of a potential distribution would be immaterial. We intend to permanently reinvest all foreign unremitted earnings of foreign subsidiaries outside of the U.S., except for Germany, Korea and Canada. Our permanently reinvested non-U.S. earnings have been deployed in active business operations, and it is unlikely that we will repatriate any portion of its permanently reinvested non-U.S. earnings in the future.

As of December 31, 2013, our total unrecognized tax benefits were approximately $25.5 million exclusive of interest and penalties described below. Included in the $25.5 million is approximately $0.3 million of unrecognized tax benefits (net of Federal benefit), that if recognized, would favorably affect the effective tax rate in a future period before consideration of changes in the valuation allowance. We anticipate there will be a decrease of $0.2 million in our unrecognized tax benefits within the next twelve months.

Our practice is to recognize interest and/or penalties related to unrecognized tax benefits in income tax expense. Provisions for income taxes included estimated interest of $0.1 million for each of the years ended December 31, 2013 and 2012 and $0.2 million for 2011. As of December 31, 2013 and 2012, we had accrued estimated interest of $0.1 million and $0.2 million, respectively. We had no accruals for estimated penalties as of December 31, 2013 and 2012.

We are subject to United States federal income tax as well as to income taxes in Germany, Korea and various other foreign and U.S. state jurisdictions. Our federal and state income tax returns are generally not subject to examination by tax authorities for years before 2009 and 2008, respectively. Our German and Korea income tax returns are generally not subject to examination by tax authorities before 2008. We had no tax audits in progress as of December 31, 2013.

A reconciliation of unrecognized tax benefits is as follows (in thousands):



	Years Ended December 31,
	2013			2012			2011
Balance at the beginning of the year	$	25,900		$	26,200		$	28,600
Tax positions related to current year:
Additions	1,000			100			—
Reductions	(100		)	—			(100		)
Expiration of statutes of limitations	(1,300		)	(400		)	(2,300		)
Balance at the end of the year	$	25,500		$	25,900		$	26,200