NOTE K—INCOME TAXES

Components of income tax expense are as follows:

	Year Ended December 31,
				(As Restated)
(In thousands)	2014			2013			2012
Current:
Federal	$	36,147		$	38,431		$	32,181
State	5,479			6,107			6,271

Total current	41,626			44,538			38,452


Deferred:
Federal	(39,712		)	(12,596		)	(10,362		)
State	109			(1,487		)	(1,884		)

Total deferred	(39,603		)	(14,083		)	(12,246		)

Provision for income taxes from continuing operations	$	2,023		$	30,455		$	26,206


Income tax benefit attributable to discontinued operations	$	(8,914	)	$	(3,357	)	$	(80	)

A reconciliation of the federal statutory tax rate to the Company’s effective tax rate is as follows for the Company’s continuing operations:

	Year Ended December 31,
			(As Restated)
	2014		2013		2012
Federal statutory tax rate - (benefit) / provision	(35	.0)%	35	.0%	35	.0%
State and local income taxes	(53	.2)%	4	.0%	3	.4%
Change in valuation allowance	455	.6%	(0	.2)%	(0	.5)%
Domestic manufacturing deduction	(206	.9)%	(2	.8)%	(3	.2)%
Research and development credit	(14	.3)%	(0	.2)%	(0	.7)%
Change in uncertain tax positions	54	.6%	3	.6%	0	.8%
Other	2	.1%	0	.4%	0	.4%
Tax provision	202	.9%	39	.8%	35	.2%

The significant components of the net deferred income tax asset and liability are as follows:

	As of December 31,
(In thousands)	2014			(As Restated) 2013
Deferred tax liabilities:
Goodwill amortization	$	71,911		$	69,014
Acquired intangibles	15,147			16,494
Software development costs	—			3,257
Prepaid expenses	1,887			1,674
Sec. 481(a) adjustments	786			—
Other	117			6
	89,848			90,445
Deferred tax assets:
Property, plant and equipment	2,304			133
Net operating loss carryforwards	5,108			6,039
Accrued expenses	41,431			25,883
Deferred benefit plan compensation	9,119			8,351
Provision for doubtful accounts	40,403			25,507
Inventory	36,347			28,039
Restricted stock	3,672			3,608
Capital leases	641			318
Deferred rent	2,060			1,660
Refund liabilities	1,143			935
Interest on Seller Notes	906			578
Other	1,734			940
	144,868			101,991
Valuation allowance	(5,692		)	(1,259		)
	139,176			100,732
Net deferred tax asset	$	49,328		$	10,287

The significant components of the net deferred income tax asset/(liability) are classified as follows on the accompanying consolidated balance sheet:

	As of December 31,
(In thousands)	2014			(As Restated) 2013
Current:
Deferred tax assets	$	114,560		$	76,242
Deferred tax liabilities	(926		)	(6		)
Valuation allowance	(4,382		)	(620		)
Net current deferred income tax asset	109,252			75,616
Non-current:
Deferred tax assets	30,308			25,749
Deferred tax liabilities	(88,922		)	(90,439		)
Valuation allowance	(1,310		)	(639		)
Net non-current deferred income tax liability	(59,924		)	(65,329		)
Net deferred income tax asset	$	49,328		$	10,287

The Company has $8.9 million and $10.4 million of U.S. federal and $43.3 million and $49.3 million of state net operating loss carryforwards available at December 31, 2014 and 2013, respectively. These carryforwards will be used to offset future income but may be limited by the change in ownership rules in Section 382 of the Internal Revenue Code. These net operating loss carryforwards will expire in varying amounts between 2015 and 2034.

The Company establishes valuation allowances when necessary to reduce deferred tax assets to amounts expected to be realized. We record a valuation allowance to reduce our deferred tax assets to the amount that is estimated to be realized under the more-likely-than-not recognition criteria. As of December 31, 2014 and 2013, the Company had a valuation allowance of approximately $5.7 million and $1.3 million, respectively, related primarily to certain state loss carryforwards, which are expected to expire before utilization. The Company will continue to monitor the realization of its deferred tax assets, and accordingly, the Company may record additional valuation allowances in future periods. An increase to the valuation allowance would result in additional income tax expense in the period recorded, whereas future releases of the valuation allowance, if any, would result in a reduction of income tax expense.

The following schedule presents the activity in the valuation allowance over the previous three fiscal years:

	Balance at								Balance at
(In thousands)	Beginning								End
Year	of Year		Acquisitions		Generated		Released		of Year
2014	$	1,259	$	—	$	5,365	$	932	$	5,692

2013 (As Restated)	$	1,000	$	—	$	665	$	406	$	1,259

2012 (As Restated)	$	1,374	$	—	$	26	$	400	$	1,000

A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows:

	Year Ended December 31,
				(As Restated)
(in thousands)	2014			2013			2012
Unrecognized tax benefits, at beginning of the year	$	7,475		$	4,434		$	2,105
Additions for tax positions related to the current year	623			3,701			3,001
Additions for tax positions of prior years	—			207			79
Decrease related to prior year positions	(476		)	(753		)	(679		)
Decrease for lapse of applicable statute of limitations	(17		)	(114		)	(72		)

Unrecognized tax benefits, at end of the year	$	7,605		$	7,475		$	4,434

As of December 31, 2014, the total amount of unrecognized tax benefits, if recognized, that would affect the effective tax rate is approximately $0.5 million. The Company expects the amount of unrecognized tax benefits will change by approximately $0.7 million within the next twelve months due primarily to the lapse of statute limitations. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of December 31, 2014, 2013 and 2012, the amount of accrued interest and penalties was approximately $0.5 million, $0.4 million and $0.3 million, respectively.

The Company is subject to income tax in the U.S. federal, state and local jurisdictions. With few exceptions, the Company is no longer subject to U.S. Federal income tax examinations for years prior to 2013, as the statute of limitations has lapsed for 2012 and all preceding years. Tax years 2014 and 2013 remain open. However, due to acquired net operating losses, tax authorities have the ability to adjust those net operating losses related to closed years. We believe we have adequate accruals for additional taxes and related interest expense which could ultimately result from tax examinations. We believe the ultimate disposition of tax examinations should not have a material adverse effect on our consolidated financial position, statements of operations, or liquidity. The Company has been recently notified that it will be audited by the IRS for the 2013 and 2015 tax years.