INCOME TAXES

Income from before income taxes and the components of the income tax provision consisted of the following for the years ended December 31, 2015, 2014 and 2013 (in thousands):



	Year Ended December 31,
	2015			2014			2013
Income from operations before income taxes:
United States	$	(23,977	)	$	(6,864	)	$	(16,414	)
Foreign	24,542			23,780			40,506
Total income from operations before income taxes	$	565		$	16,916		$	24,092
(Benefit) provision for income taxes:
Current tax expense (benefit):
Federal	$	115		$	14		$	(104	)
State	3			83			114
Foreign benefit of net operating losses	(180		)	(180		)	(170		)
Other foreign	3,734			2,217			2,369
Total current tax expense	3,672			2,134			2,209
Deferred tax (benefit) expense:
Federal benefit related to Note issuance	(6,493		)	—			—
Other foreign	906			54			730
Total deferred tax (benefit) expense	(5,587		)	54			730
Total (benefit) provision for income taxes	$	(1,915	)	$	2,188		$	2,939

Net deferred tax assets (liabilities) consisted of the following at December 31, 2015 and 2014 (in thousands):



	December 31,
	2015			2014
Deferred tax assets:
Tax credit and net operating loss carryforwards	$	318,471		$	290,523
Allowances for bad debts	372			231
Difference in accounting for:
Revenues	54,475			63,916
Costs and expenses	34,116			29,004
Inventories	7,576			7,004
Acquired intangible assets	9,799			13,667
Gross deferred tax assets	424,809			404,345
Valuation allowance	(406,123		)	(398,733		)
Deferred tax assets after valuation allowance	18,686			5,612
Deferred tax liabilities:
Difference in accounting for:
Costs and expenses	(5,654		)	(3,540		)
Acquired intangible assets	(8,554		)	—
Basis difference convertible notes	(5,910		)	—
Gross deferred tax liabilities	(20,118		)	(3,540		)
Net deferred tax (liabilities) assets	$	(1,432	)	$	2,072
Recorded as:
Long-term deferred tax assets, net	2,011			2,208
Long-term deferred tax liabilities, net	(3,443		)	(136		)
Net deferred tax (liabilities) assets	$	(1,432	)	$	2,072

On January 1, 2015 the Company adopted ASU 2015-17, Balance Sheet Classification of Deferred Taxes. The standard requires entities to present DTAs and DTLs as non-current in the classified balance sheet. The standard simplifies the current guidance, which requires entities to separately present DTAs and DTLs as current and non-current in a classified balance sheet. The Company early adopted the guidance to simplify its reporting for the current year. The consolidated balance sheet at December 31, 2014 was retrospectively adjusted, resulting in a $0.3 million reclassification of current DTAs to long-term DTAs.

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, 2015 and 2014 and the level of historical U.S. tax losses, management has determined that the uncertainty regarding the realization of these assets warranted a significant valuation allowance at December 31, 2015 and 2014.

For U.S. federal and state income tax purposes at December 31, 2015, the Company had tax credit carryforwards of $53.1 million, which will expire between 2016 and 2035, and net operating loss carryforwards of $745.6 million, which will expire between 2019 and 2035. 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, 2015 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 $33.8 million and tax credit carryforwards of $3.7 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 $23.1 million of net operating losses and $3.7 million of tax credits at December 31, 2015.

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, 2015 are tax assets totaling $33.7 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 amount for the years ended December 31, 2015, 2014 and 2013:



	Year Ended December 31,
	2015			2014			2013
Statutory tax	$	198		$	5,921		$	8,432
Tax credits	(2,972		)	(1,589		)	(1,482		)
Foreign operations	(4,055		)	(6,047		)	(10,542		)
Non-deductible expenses and other	2,303			771			516
Federal benefit related to Note issuance	(6,493		)	—			—
Increase in valuation allowance	9,104			3,132			6,015
(Benefit) provision for income taxes	$	(1,915	)	$	2,188		$	2,939

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 $38.5 million at December 31, 2015. 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.

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 arising from the changes in revenue recognition that arose in periods prior to 2012. 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, 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 income tax provision and 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 effective tax rate if recognized. At December 31, 2015, the Company’s unrecognized tax benefits and related accrued interest and penalties totaled $26.0 million, of which $3.2 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, 2015, 2014 and 2013 (in thousands):



Unrecognized tax benefits at January 1, 2013	$	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
Increases for tax positions taken during a prior period	148
Unrecognized tax benefits at December 31, 2015	$	25,995

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, 2015 and 2014 were not material.

The tax years 2008 through 2015 remain open to examination by taxing authorities in the jurisdictions in which the Company operates. The most significant operating jurisdictions include: the United States, Ireland, the Netherlands, Germany, Israel, Japan, and the United Kingdom.