INCOME TAXES

Income from continuing operations before income taxes and the components of the income tax provision consisted of the following for the years ended December 31, 2014, 2013 and 2012 (in thousands):



	Year Ended December 31,
	2014			2013			2012
Income (loss) from continuing operations before income taxes:
United States	$	(6,864	)	$	(16,414	)	$	19,198
Foreign	23,780			40,506			31,938
Total income from continuing operations before income taxes	$	16,916		$	24,092		$	51,136
Provision for (benefit from) income taxes:
Current tax expense (benefit):
Federal	$	14		$	(104	)	$	(750	)
State	83			114			102
Foreign benefit of net operating losses	(180		)	(170		)	(154		)
Other foreign	2,217			2,369			5,251
Total current tax expense	2,134			2,209			4,449
Deferred tax expense (benefit):
Other foreign	54			730			(400		)
Total deferred tax expense (benefit)	54			730			(400		)
Total provision for income taxes	$	2,188		$	2,939		$	4,049

The cumulative amount of undistributed earnings of foreign subsidiaries, which is intended to be indefinitely reinvested and for which U.S. income taxes have not been provided, totaled approximately $35.5 million at December 31, 2014. The Company does not have any plans to repatriate these earnings because the underlying cash will be used to fund the ongoing operations of the foreign subsidiaries. The additional taxes that might be payable upon repatriation of foreign earnings are not significant. The cash maintained in foreign locations totaled approximately $14 million at December 31, 2014.

Net deferred tax assets (liabilities) consisted of the following at December 31, 2014 and 2013 (in thousands):



	December 31,
	2014			2013
Deferred tax assets:
Tax credit and net operating loss carryforwards	$	290,523		$	244,379
Allowances for bad debts	231			277
Difference in accounting for:
Revenues	63,916			98,838
Costs and expenses	29,004			29,784
Inventories	7,004			9,209
Acquired intangible assets	13,667			17,726
Gross deferred tax assets	404,345			400,213
Valuation allowance	(398,733		)	(396,143		)
Deferred tax assets after valuation allowance	5,612			4,070
Deferred tax liabilities:
Difference in accounting for:
Costs and expenses	(3,540		)	(1,712		)
Gross deferred tax liabilities	(3,540		)	(1,712		)
Net deferred tax assets	$	2,072		$	2,358
Recorded as:
Current deferred tax assets, net	322			522
Long-term deferred tax assets, net	1,886			2,415
Current deferred tax liabilities, net	—			(14		)
Long-term deferred tax liabilities, net	(136		)	(565		)
Net deferred tax assets	$	2,072		$	2,358

Deferred tax assets and liabilities reflect the net tax effects of the tax credits and net operating loss carryforwards and the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The ultimate realization of the net deferred tax assets is dependent upon the generation of sufficient future taxable income in the applicable tax jurisdictions. Based on the magnitude of the deferred tax assets at December 31, 2014 and 2013 and the level of historical U.S. tax losses, management has determined that the uncertainty regarding the realization of these assets warranted a full valuation allowance at December 31, 2014 and 2013. The change in the valuation allowance totaled $2.6 million and $0.5 million and $(35.3) million for the years ended December 31, 2014, 2013 and 2012, respectively.

For U.S. federal and state income tax purposes at December 31, 2014, the Company had tax credit carryforwards of $50.2 million, which will expire between 2016 and 2034, and net operating loss carryforwards of $693.0 million, which will expire between 2019 and 2034. The federal net operating loss and tax credit amounts are subject to annual limitations under Section 382 change of ownership rules of the Internal Revenue Code. The Company completed an assessment at March 31, 2014 regarding whether there may have been a Section 382 ownership change and concluded that it is more likely than not that none of the Company’s net operating loss and tax credit amounts are subject to any Section 382 limitation.

Additionally, the Company has foreign net operating loss carryforwards of $23.7 million and tax credit carryforwards of $4.4 million that begin to expire in 2029. The Company has determined there is uncertainty regarding the realization of a portion of these assets and has recorded a valuation allowance against $19.8 million of net operating losses and $4.4 million of tax credits at December 31, 2014.

The Company’s assessment of the valuation allowance on the U.S. and foreign deferred tax assets could change in the future based on its levels of pre-tax income and other tax related adjustments. Removal of the valuation allowance in whole or in part would result in a non-cash reduction in income tax expense during the period of removal.

Excluded from the above deferred tax schedule at December 31, 2014 are tax assets totaling $33.0 million resulting from the exercise of employee stock options, because recognition of these assets will occur upon utilization of these deferred tax assets to reduce taxes payable and will result in a credit to additional paid-in capital within stockholders’ equity rather than the provision for income taxes.

The following table sets forth a reconciliation of the Company’s income tax provision (benefit) to the statutory U.S. federal tax rate for the years ended December 31, 2014, 2013 and 2012:



	Year Ended December 31,
	2014		2013		2012
Statutory rate	35.0	%	35.0	%	35.0	%
Tax credits	(9.4	)%	(6.2	)%	(1.2	)%
Foreign operations	(35.8	)%	(43.8	)%	(12.7	)%
Non-deductible expenses and other	4.6	%	2.1	%	1.4	%
Increase (decrease) in valuation allowance	18.5	%	25.1	%	(14.6	)%
Effective tax rate	12.9	%	12.2	%	7.9	%

A tax position must be more likely than not to be sustained before being recognized in the financial statements. It also requires the accrual of interest and penalties as applicable on unrecognized tax positions. The Company is disclosing unrecognized tax benefits primarily related to the foreign tax implications of the restatement adjustments. The unrecognized tax benefits did not have an impact on the effective tax rate because the Company maintains a full valuation allowance on the related loss carryforwards. At December 31, 2012, the Company’s unrecognized tax benefits and related accrued interest and penalties totaled $22.6 million, of which $0.9 million would affect the Company’s income tax provision and effective tax rate if recognized. At December 31, 2013, the Company’s unrecognized tax benefits and related accrued interest and penalties totaled $24.7 million, of which $0.8 million would affect the Company’s effective tax rate if recognized. At December 31, 2014, the Company’s unrecognized tax benefits and related accrued interest and penalties totaled $25.8 million, of which $0.8 million would affect the Company’s income tax provision and effective tax rate if recognized.

The following table sets forth a reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding the impact of interest and penalties, for the years ended December 31, 2014, 2013 and 2012 (in thousands):



Unrecognized tax benefits at January 1, 2012	$	20,180
Increases for tax positions taken during a prior period	3,198
Decreases related to the lapse of applicable statutes of limitations	(749		)
Unrecognized tax benefits at December 31, 2012	22,629
Increases for tax positions taken during a prior period	2,205
Decreases related to the lapse of applicable statutes of limitations	(105		)
Unrecognized tax benefits at December 31, 2013	24,729
Increases for tax positions taken during a prior period	1,118
Unrecognized tax benefits at December 31, 2014	$	25,847

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. Accrued interest and penalties related to uncertain tax positions at December 31, 2014 and 2013 were not material.

The tax years 2007 through 2014 remain open to examination by taxing authorities in the jurisdictions in which the Company operates.