(8) Income taxes

For the years ended December 28, 2012, December 30, 2011, and December 31, 2010, our loss from continuing operations before income taxes was as follows (in thousands):

	2012			2011			2010
Domestic	$	(138,770	)	$	(14,242	)	$	1,293
Non-U.S.		113,999			(10,413	)		(26,339	)
Total	$	(24,771	)	$	(24,655	)	$	(25,046	)

For the years ended, December 28, 2012, December 30, 2011, and December 31, 2010, our income tax expense was as follows (in thousands):

Current:	2012			2011			2010
Federal	$	602		$	655		$	--
State and local		102			36			88
Non-U.S.		8,234			(1,971	)		3,765
		8,938			(1,280	)		3,853
Deferred:
Federal		124			10,912			(245	)
State and local		-			5,777			(37	)
Non-U.S.		(2,083	)		7,834			(880	)
		(1,959	)		24,523			(1,162	)
Net tax expense	$	6,979		$	23,243		$	2,691

Also, income tax expense related to our discontinued operations was zero, $0.3 million and $0.8 million for the years ended December 28, 2012, December 30, 2011, and December 31, 2010, respectively.

A reconciliation of the U.S statutory federal income tax rate with our effective income tax rate was as follows:

	2012			2011			2010
U.S. statutory federal income tax rate		35	%		35	%		35	%
Decrease (increase) resulting from:
State and local income taxes, net of federal tax effect		(1	)		4			--
Non-deductible expenses and other		(62	)		(20	)		(16	)
Withholding taxes		(9	)		(5	)		(2	)
Non-U.S. income subject to U.S. income tax		-			5			(8	)
Tax credits		62			16			15
Tax effect of intangible impairment		-			--			(35	)
Tax effect of valuation allowance and Section 382/383 limitations		(214	)		(129	)		--
Foreign rate differential		161			--			--
Effective tax rate		(28	) %		(94	) %		(11	) %

The 2012 effective tax rate was primarily impacted by a tax reserve that was recorded in connection with an audit in a non-U.S. jurisdiction as well as U.S. and foreign withholding taxes incurred. The 2012 effective tax rate was not impacted by the change in our assertion of previously permanently reinvested foreign earnings and the establishment of a deferred tax liability, due to available offsetting valuation allowance in the U.S. The effective tax rate for the year ended December 30, 2011 reflects the impact of recording a valuation allowance in 2011. At December 28, 2012 and December 30, 2011, we had approximately $7.9 million and $17.3 million of unrecognized income tax benefits, of which $4.1 million and $8.0 million were classified as other long-term liabilities, respectively. If all of our tax benefits were recognized as of December 28, 2012, approximately $2.5 million would impact the 2012 effective tax rate.

A reconciliation of the total gross unrecognized tax benefits for the years ended December 28, 2012, December 30, 2011, and December 31, 2010 was as follows (in thousands):

	2012			2011			2010
Unrecognized tax benefits at the beginning of the year	$	17,300		$	17,686		$	23,237

Additions to tax positions related to current year		1,415			6,558			1,555
Reductions to tax positions related to prior years		(7,090	)		(1,846	)		(5,005	)
Lapses in statutes of limitation		(3,745	)		(5,098	)		(2,101	)

Unrecognized tax benefits at the end of the year	$	7,880		$	17,300		$	17,686

Our practice is to recognize interest and/or penalties related to income tax matters as income tax expense. As of December 28, 2012, we have approximately $0.3 million accrued for interest and/or penalties related to uncertain income tax positions.

The income tax expense for December 28, 2012, December 30, 2011, and December 31, 2010 was as follows (in thousands):

	2012			2011			2010
Income tax expense	$	(6,979	)	$	(23,243	)	$	(2,691	)
Effective tax rate		(28	%)		(94	%)		(11	%)

We are subject to U.S. federal income tax as well as income tax in multiple state and non-U.S. jurisdictions. With respect to federal and state income tax, tax returns for all years after 2008 are subject to future examination by local tax authorities. With respect to material non-U.S. jurisdictions in which we operate, we have open tax years ranging from 2 to 10 years. With the exception of an anticipated audit settlement in one of our foreign jurisdictions of approximately $1.0 million, we do not expect our unrecognized tax benefits to change within the next twelve months. However, such balances may change on a quarterly basis during 2013.

Several of our foreign subsidiaries continue to operate under tax holidays or incentive arrangements as granted by certain foreign jurisdictions. The nature and extent of such arrangements vary, and the benefits of most arrangements will phase out in the future according to the specific terms and schedules as set forth by the particular tax authorities having jurisdiction over the arrangements. For example, the remaining tax holidays applicable to most of our PRC earnings expired in 2010. In the years ended December 28, 2012, December 30, 2011 and December 31, 2010, taxes on foreign earnings were favorably impacted by tax holidays and other incentives in certain foreign jurisdictions by less than $(0.5) million, $0.2 million and $0.7 million, respectively.

Deferred tax assets and liabilities from continuing operations included the following (in thousands):

Assets:	2012			2011
Inventories	$	1,132		$	794
Plant and equipment		6,155			6,189
Vacation pay and other compensation		218			498
Pension expense		928			613
Stock awards		68			77
Accrued liabilities		1,522			1,788
Net operating losses – federal, state and foreign		22,216			40,130
Tax credits		10,780			20,770
Acquired intangibles		4,120			8,800
Other		8,246			124
Total deferred tax assets		55,385			79,783
Valuation allowance		(44,697	)		(67,556	)
Net deferred tax assets	$	10,688		$	12,227

Liabilities:
Foreign earnings not permanently invested	$	9,535		$	11,494
Restructuring		1,551			1,551
Acquired intangibles		529			461
Other		3,282			1,309
Total deferred tax liabilities		14,897			14,815
Net deferred tax liabilities	$	(4,209	)	$	(2,588	)

Short-term deferred tax assets	$	1,056		$	1,332
Short-term deferred tax liabilities		(92	)		(3,816	)
Long-term deferred tax assets		2,443			8,549
Long-term deferred tax liabilities		(7,616	)		(8,653	)
Net deferred tax liabilities	$	(4,209	)	$	(2,588	)

We maintain a valuation allowance when it is more likely than not that all or a portion of a deferred tax asset will not be realized based on consideration of all available evidence. Our assumptions, judgments and estimates relative to the value of our deferred tax assets also takes into account predictions of the amount and the categories of future taxable income, carry-back and carry-forward periods and tax strategies which could impact the realization of a deferred tax asset. As of December 28, 2012, we could not sustain a conclusion that it was more likely than not that we would realize any of our deferred tax assets resulting from recent losses as well as other factors. Consequently, we continue to maintain a valuation allowance against those deferred tax assets. We have maintained a valuation allowance as a result of weighing all positive and negative evidence, including our history of losses in recent years and the difficulty of forecasting future taxable income. The decrease in the valuation allowance as of December 28, 2012 is primarily a result of a write-off of deferred tax assets that we have a limited ability to utilize as a result of the Oaktree transactions in November 2012. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal.

Unless utilized, our net operating losses will expire in fiscal years 2014 through 2027, our foreign tax credit carry forwards will start to expire in 2013 and our research and development credit carry forwards will start to expire in 2019.

In the fourth quarter of 2012, we reassessed our previous assertion with regard to permanently invested foreign earnings. As a result of our assessment of our potential cash needs in the U.S. in conjunction with certain distributions in 2012 we determined that $40.0 million of previously unremitted foreign earnings would not be permanently reinvested and therefore we recorded a deferred tax liability in 2012 for the net tax-effect of these earnings. Aside from this change, we have generally not provided for U.S. and foreign withholding taxes on our non-U.S. subsidiaries' undistributed earnings which are considered permanently reinvested. We expect our foreign earnings will be used to service our non-U.S. debt and maintain our foreign operations and, thus are permanently reinvested outside of the U.S. for the majority of our foreign earnings. The majority of our cash requirements are generated by our non-U.S. subsidiaries, our manufacturing and operations are primarily outside of the U.S., and we anticipate that a significant portion of our opportunities for future growth will be outside the U.S. In addition, we expect to use a significant portion of the cash to service debt outside of the U.S. We continue to maintain our permanent reinvestment assertion with regard to the remaining undistributed earnings outside of the U.S. As of December 28, 2012, the amount of cash associated with indefinitely reinvested foreign earnings was approximately $13.6 million. We do not anticipate the need to repatriate any of this cash. Should we need to repatriate this cash, the tax affect of repatriation will be minimized by other tax attributes, offsetting the tax-effect of the repatriation.

As of December 28, 2012, there are approximately $134.8 million of accumulated and undistributed earnings in these foreign subsidiaries. Unrecognized taxes on these undistributed earnings are estimated to be approximately $28.4 million.