10.Income Taxes

Income (loss) from continuing operations before income taxes for U.S. and foreign operations was as follows (in thousands):



	2015		2014		2013
U.S.	$	(2,668)	$	(2,124)	$	1,272
Foreign		1,833		5,126		6,259
Total	$	(835)	$	3,002	$	7,531

The income tax (provision) benefit reflected in the statement of income consists of the following (in thousands):



	2015		2014		2013
Current (provision) benefit:
U.S. Federal & State	$	(19)	$	(102)	$	39
Foreign		204		(1,581)		(977)
Deferred taxes
U.S.		1,051		969		(48)
Foreign		(862)		139		(415)
Total (provision) benefit	$	374	$	(575)	$	(1,401)

The components of deferred taxes were as follows (in thousands):



	2015		2014		2013

Benefit of net operating losses	$	8,582	$	7,149	$	6,617
Tax credit carry-forwards		5,006		4,928		4,866
Other, principally reserves		3,251		2,774		2,381
Deferred tax asset		16,839		14,851		13,864
Valuation allowance		(3,104)		(3,103)		(3,224)
Total deferred tax assets		13,735		11,748		10,640
Deferred tax liabilities - basis difference and amortization		(1,798)		-		-
Net deferred taxes	$	11,937	$	11,748	$	10,640

Rate Reconciliation:
Provision at U.S. statutory rate		34.0%		34.0%		34.0%
Net effect of taxes on foreign activities		(4.2)%		(10.0)%		(7.7)%
Tax effect of U.S. permanent differences		21.2%		(0.4)%		0.2%
State taxes and other, net		(0.4)%		(0.7)%		(1.9)%
Adjustment of federal/foreign income taxes related to prior years		(5.9)%		0.3%		0.2%
Valuation allowance		0.0%		(4.0)%		(6.2)%
Effective tax rate		44.7%		19.2%		18.6%

The amount of earnings retained for use by the Company’s foreign subsidiaries for which no tax provision has been made amounted to approximately $20.7 million as of June 30, 2015. The Company may be subject to United States income taxes and foreign withholding taxes if these earnings are distributed in the future. It is not practicable to estimate the amount of unrecognized deferred tax liability for the undistributed foreign earnings. At June 30, 2015, the Company had net operating loss carry-forwards for U.S. federal income tax purposes of $24.3 million that expire in the years 2022 through 2035 and tax credit carry-forwards of $5.0 million of which $4.8 million expire in the years 2018 through 2034. Included in the U.S. federal net operating loss carry-forward is $8.8 million from the exercise of employee stock options, the tax benefit of which, when recognized, will be accounted for as an increase to additional paid-in-capital rather than a reduction of the income tax provision.

The Company’s deferred tax assets are substantially represented by the tax benefit of net operating losses “(NOL’s”), tax credit carry-forwards and the tax benefit of future deductions represented by timing differences for deferred revenue, inventory obsolescence, allowances for bad debts, warranty expenses, and unrealized losses on investments. The Company assesses the realizability of the NOL’s and tax credit carry-forwards based on a number of factors including the Company’s net operating history, the volatility of the Company’s earnings, the accuracy of forecasted earnings for future periods and the general business climate at the end of fiscal 2015. The Company concluded that the positive evidence outweighed the negative evidence for recognizing the benefit of the NOL’s and a portion of the tax credit carry-forwards based in part on the extended period of time available for utilization. The Company has a valuation allowance for tax credit carry-forwards in the United States that it expects will more likely than not expire prior to the tax benefit being realized. The net change in the total valuation allowance for the fiscal years ended June 30, 2015, 2014 and 2013 was $0, $121,000, and $467,000, respectively. The Company also has a deferred tax liability related to the basis difference in the Coord3 intangible assets acquired.

On June 30, 2015 and 2014, the Company had $1.3 million and $1.3 million of unrecognized tax benefits that would affect the effective tax rate if recognized. The Company’s policy is to classify interest and penalties related to unrecognized tax benefits as interest expense and income tax expense, respectively. As of June 30, 2015 there was no accrued interest or penalties related to uncertain tax positions recorded on the Company’s financial statements. For U.S. federal income tax purposes, the tax years 2012 through 2015 remain open to examination by government tax authorities. For German income tax purposes, tax years 2011 through 2015 remain open to examination by government tax authorities. At June 30, 2015, China has no tax years open to examination.

The aggregate changes in the balance of unrecognized tax benefits were as follows (in thousands):



Year End June 30	2015
Balance, beginning of year	$	1,268
Increases for tax positions related to the current year		47
Balance, year end	$	1,315