INCOME TAXES

(Loss) income from continuing operations before income taxes consists of the following (in thousands):



	Year ended December 31,
	2014			2013			2012
United States	$	(15,515	)	$	(31,521	)	$	(27,068	)
International	(6,280		)	8,369			9,373
(Loss) income from continuing operations before income taxes	$	(21,795	)	$	(23,152	)	$	(17,695	)

The components of the provision for (benefit from) income taxes consist of the following (in thousands):



	Year ended December 31,
	2014			2013			2012
Current:
Federal	$	(11,525	)	$	(38,243	)	$	857
State	8			93			212
International	1,619			1,988			1,193
Deferred:
Federal	25,722			(10,543		)	(2,053		)
State	8,249			3,023			(1,362		)
International	380			(1,059		)	(353		)
Total provision for (benefit from) income taxes	$	24,453		$	(44,741	)	$	(1,506	)

The differences between the provision for (benefit from) income taxes computed at the U.S. federal statutory rate at 35% and the Company’s actual provision for (benefit from) income taxes are as follows (in thousands):



	Year ended December 31,
	2014			2013			2012
Benefit from for income taxes at U.S. Federal statutory rate	$	(7,628	)	$	(8,103	)	$	(6,193	)
State taxes	5,368			2,940			(824		)
Differential in rates on foreign earnings	4,311			(1,396		)	(4,880		)
Non-deductible amortization expense	3,138			4,311			7,279
Change in valuation allowance	26,053			(996		)	(1,104		)
Change in liabilities for uncertain tax positions	(8,126		)	(35,742		)	1,495
Non-deductible stock-based compensation	1,665			981			1,974
Research and development tax credits	(841		)	(5,044		)	—
Non-deductible meals and entertainment	361			346			208
Adjustments related to tax positions taken during prior years	—			(1,154		)	619
Tax-exempt investment income	—			(304		)	(248		)
Other	152			(580		)	168
Total provision for (benefit from) income taxes	$	24,453		$	(44,741	)	$	(1,506	)

The Company operates in multiple jurisdictions and its profits are taxed pursuant to the tax laws of these jurisdictions. Our effective income tax rate may be affected by changes in or interpretations of tax laws and tax agreements in any given jurisdiction, utilization of net operating loss and tax credit carry forwards, changes in geographical mix of income and expense, and changes in management's assessment of matters such as the ability to realize deferred tax assets.

In 2014, as a result of cumulated losses in the recent years and the analysis of all available positive and negative evidence, the Company recorded a full valuation allowance against the beginning of year U.S. net deferred tax assets of $34.0 million. In addition, in 2014, the Company carried back its 2013 federal net operating loss to 2011 resulting in a tax refund. Certain federal R&D credits were also freed up as a result and utilized to offset income tax reserves as a result of the adoption of the ASU 2013-11. These two events reduced the valuation allowance by approximately $5.0 million and led to the net change of valuation allowance of $29.0 million. This unfavorable net impact was offset partially by a tax benefit of $9.0 million associated with the release of tax reserves including accrued interest and penalties, for our 2010 tax year in the U.S., as a result of the expiration of the applicable statute of limitation for that year.

The benefit from income taxes for the year ended December 31, 2013 included a release of $39.0 million of tax reserves, including accrued interests and penalties, for our 2008 and 2009 tax years in the U.S., as a result of the expiration of the applicable statute of limitations for those tax years. In addition, for the year ended December 31, 2013, the Company recorded a $2.4 million tax benefit arising from the retroactive U.S. federal research and development credit resulting from the American Taxpayer Relief Act which was signed into law on January 2, 2013.

The components of net deferred tax assets included in the Consolidated Balance Sheets are as follows (in thousands):



	December 31,
	2014			2013
Deferred tax assets:
Reserves and accruals	$	21,048		$	29,235
Net operating loss carryovers	24,946			27,253
Research and development credit carryovers	26,404			18,391
Deferred stock-based compensation	6,727			7,554
Other tax credits	2,738			2,738
Gross deferred tax assets	81,863			85,171
Valuation allowance	(75,199		)	(38,644		)
Gross deferred tax assets after valuation allowance	6,664			46,527
Deferred tax liabilities:
Depreciation and amortization	(2,137		)	(3,590		)
Intangibles	(2,228		)	(6,227		)
Other	(589		)	(738		)
Gross deferred tax liabilities	(4,954		)	(10,555		)
Net deferred tax assets	$	1,710		$	35,972

The following table summarizes the activity related to the Company's valuation allowance (in thousands):



	Year ended December 31,
	2014			2013			2012
Balance at beginning of period	$	38,644		$	34,347		$	28,354
Additions	39,556			6,364			5,993
Deductions	(3,001		)	(2,067		)	—
Balance at end of period	$	75,199		$	38,644		$	34,347

Management regularly assesses the ability to realize deferred tax assets recorded based upon the weight of available evidence, including such factors as recent earnings history and expected future taxable income on a jurisdiction by jurisdiction basis. In the event that the Company changes its determination as to the amount of realizable deferred tax assets, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.

As of December 31, 2014, the Company had a valuation allowance of $75.2 million against substantially all of its U.S. federal, California and other state and to a lesser extent, foreign net deferred tax assets, related to net operating loss carryforwards and R&D tax credit carryforwards. The increase in valuation allowance in 2014 resulted from a history of operating losses in recent years, including the lower than expected revenue and profitability in 2014, that has led to uncertainty with respect to the Company's ability to realize certain of its net deferred tax assets, and the mix of income and losses in the various tax jurisdictions in which the Company operates.

As of December 31, 2014, the Company had $84.9 million and $54.5 million of foreign and U.S. California state net operating loss carryforwards ("NOL"), respectively. There is no expiration to the utilization of the foreign NOL, while the U.S. California NOL will begin to expire at various dates beginning in 2015 through 2034, if not utilized. As of December 31, 2014, the U.S. California NOL included approximately $7.8 million relating to stock options tax deductions. These amounts are not included in the Company’s gross or net deferred tax assets pursuant to applicable accounting guidance and, if and when realized, through a reduction in income tax payable, will be accounted for as a credit to additional paid-in capital.

As of December 31, 2014, the Company had U.S. federal and California state tax credit carryforwards of approximately $7.8 million and $29.9 million, respectively. If not utilized, the U.S. federal tax credit carryforwards will begin to expire in 2031, while the California tax credit forward will not expire. In addition, as of December 31, 2014, the Company had U.S. federal alternative minimum tax ("AMT") credit carryforward of approximately $2.7 million, which will not expire.

The Company has not provided U.S. federal and California state income taxes, as well as foreign withholding taxes, on approximately $17.1 million of cumulative undistributed earnings for certain non-U.S. subsidiaries, because such earnings are intended to be indefinitely reinvested. Determination of the amount of unrecognized deferred tax liability for temporary differences related to investment in these non-U.S. subsidiaries that are essentially permanent in duration is not practicable.

The Company applies the provisions of the applicable accounting guidance regarding accounting for uncertainty in income taxes, which requires application of a more-likely-than-not threshold to the recognition and derecognition of uncertain tax positions. If the recognition threshold is met, the applicable accounting guidance permits the recognition of a tax benefit measured at the largest amount of such tax benefit that, in our judgment, is more than fifty percent likely to be realized upon settlement. It further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the period in which such determination is made.

The following table summarizes the activity related to the Company’s gross unrecognized tax benefits (in millions):



	Year ended December 31,
	2014			2013			2012
Balance at beginning of period	$	24.2		$	52.1		$	52.5
Increase in balance related to tax positions taken during current year	1.0			5.4			0.6
Decrease in balance as a result of a lapse of the applicable statues of limitations	(9.5		)	(1.3		)	(0.9		)
Decrease in balance due to settlement with tax authorities	—			(32.1		)	—
Increase in balance related to tax positions taken during prior years	—			0.1			—
Decrease in balance related to tax positions taken during prior years	—			—			(0.1		)
Balance at end of period	$	15.7		$	24.2		$	52.1

The total amount of unrecognized tax benefits that would affect the effective tax rate is approximately $15.7 million at December 31, 2014.

The Company recognizes interest and penalties related to unrecognized tax positions in income tax expenses on the Consolidated Statements of Operations. For the years ended December 31, 2014 and 2013, the Company reversed approximately $1.0 million and $5.6 million, respectively, of interest and penalties previously accrued, primarily resulting from the expiration of the statute of limitations on the Company's 2008 through 2010 U.S. corporate tax returns in September 2013 and 2014. For the year ended December 31, 2012, the Company recorded $1.9 million of interest and penalty in income tax expense. As of December 31, 2014 and December 31, 2013, the Company had approximately $0.5 million and $1.5 million of accrued interest and penalties related to uncertain tax positions, respectively.

The Company files U.S. federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations during which such tax returns may be audited and adjusted by the relevant tax authorities. The U.S. Internal Revenue Service has concluded its audit for the 2008, 2009 and 2010 tax years. The statute of limitations on the Company's 2008 and 2009 U.S. corporate income tax return expired in September 2013, and the 2010 corporate income tax return expired in September 2014. As a result, the Company released $39.0 million of related tax reserves, including accrued interests and penalties, for the 2008 and 2009 tax years in 2013 and, additionally, the Company released $9.0 million of related tax reserves, including accrued interests and penalties, for the 2010 tax year in 2014.

The 2011 through 2014 tax years generally remain subject to examination by U.S. federal and most state tax authorities. In significant foreign jurisdictions, the 2006 through 2014 tax years generally remain subject to examination by their respective tax authorities. In 2013, the Israeli tax authority concluded its audit of a subsidiary of the Company for the years 2007 through 2011, and a final settlement was made with the Israeli tax authority. The settlement did not have a material impact on the Company's overall tax expense, deferred tax assets realization, effective tax rate, operating results or cash flow.

The Company will continue to review its tax positions and provide for, or reverse, unrecognized tax benefits as issues arise. As of December 31, 2014, the Company anticipates that the balance of gross unrecognized tax benefits will decrease up to approximately $0.9 million due to expiration of the applicable statutes of limitations over the next 12 months.

The Company's operations in Switzerland are subject to a reduced tax rate under the Switzerland tax holiday which requires various thresholds of investment and employment in Switzerland. The Company has met these various thresholds and the Switzerland tax holiday is effective through the end of 2018. The income tax benefits attributable to the Switzerland holiday were estimated to be approximately $0.7 million, $1.5 million and $1.1 million in 2014, 2013 and 2012, respectively, increasing diluted earnings per share by approximately $0.008, $0.014 and $0.009 in 2014, 2013 and 2012, respectively.