Note 20 Income Taxes

The components of the Company’s income before income taxes are as follows:


(in thousands)	2014		2013		2012
Income before income taxes:
Domestic	$	5,751	$	55,826	$	34,105
Foreign		11,636		8,180		9,174
Total	$	17,387	$	64,006	$	43,279

The components of income tax provision for the years ended December 31, 2014, 2013 and 2012 are as follows:


(in thousands)	2014		2013		2012
Current:
U.S. federal	$	23,336	$	24,688	$	441
State		72		1,926		1,031
Foreign		6,588		3,165		3,527
Total		29,996		29,779		4,999

Deferred:
U.S. federal		(21,624)		(7,760)		869
State		(87)		(450)		(798)
Foreign		(2,844)		(1,682)		(732)
Total		(24,555)		(9,892)		(661)
Total income tax provision	$	5,441	$	19,887	$	4,338

The overall effective tax rate differs from the statutory federal tax rate for the years ended December 31, 2014, 2013 and 2012 as follows:


	% of Pretax Income
	2014			2013			2012
Tax provision based on the federal statutory rate		35.0	%		35.0	%		35.0	%
Nondeductible expenses		12.5			—			—
Uncertain tax positions		11.2			—			—
Deemed income related to foreign operations		8.1			0.2			0.1
Return to provision adjustments, foreign current and deferred balances		2.5			(0.4)			0.5
Foreign income tax rate differential		0.5			(0.3)			(0.7)
State taxes, net of federal benefit, before valuation allowance		0.3			2.4			2.3
Release of valuation allowances		—			—			(12.4)
Use of non-operating losses against U.S. taxable income		—			—			(14.6)
Foreign tax credits related to above		(6.3)			—			—
Domestic production activities deduction		(12.0)			(3.6)			—
Research credits		(21.9)			(0.6)			—
Other		1.4			(1.6)			(0.2)
Effective tax rate		31.3	%		31.1	%		10.0	%

The difference between the Company’s effective tax rate for 2014 and the federal statutory rate was 3.7 percentage points. The Company incurred nondeductible expenses and recognized income for tax purposes, net of tax credits, not included in financial statement income, increasing the effective tax rate. The Company is benefiting from the U.S. domestic production activities deduction and from research credits, reducing the effective tax rate.

The difference between the Company’s effective tax rate for 2013 and the federal statutory rate was 3.9 percentage points. The Company reported positive U.S. taxable income, and was therefore entitled to use the domestic production activities deduction provided to producers in the United States, effectively lowering the U.S. tax rate applicable to production activities.

The difference between the Company’s effective tax rate for 2012 and the federal statutory rate resulted primarily from changes in valuation allowances. These comprised:

The release of valuation allowances against certain U.S. deferred tax assets. This release was based upon the Company’s results of operations. The Company concluded during 2012 that it is more likely than not that a portion of its current U.S. deferred tax assets will be realized. As a result, in accordance with ASC 740, the Company released the remainder of its valuation allowances related to $12,388 of reserves, accruals and tax credits and to $7,602 of net operating loss carryforwards for state income tax purposes, resulting in no valuation allowance as of December 31, 2012. This resulted in a non-cash income tax benefit of $5,372.

Other changes in valuation allowances were a result of utilizing U.S. loss carryforwards, which had a full valuation allowance against them, to eliminate all federal and most state income tax expense otherwise arising.

In 2014 and 2013, the Company had no valuation allowance against net deferred income tax assets.

In 2012, the Company’s valuation allowance against net deferred income tax assets decreased by $8,781. This decrease consisted of an $8,781 decrease against the U.S. deferred income tax assets. The decrease in the valuation allowance against the net U.S. deferred income tax assets resulted primarily from the increase in the Company’s domestic net operating income, an increase in the amount of deferred income tax liabilities and from the release of valuation allowances against U.S. net deferred tax assets.

The components of the Company’s net deferred income tax assets and net deferred income tax liabilities at December 31, 2014 and 2013 are as follows:


(in thousands)	2014		2013
Deferred income tax assets:
Tax credit carryforwards	$	4,139	$	2,713
Net operating loss carryforwards		4,474		5,725
Reserves and allowances		12,016		5,927
Stock options and restricted stock awards		15,156		3,174
Deferred lease revenue		270		86
Senior convertible notes		—		1,042
Accrued liabilities		1,501		342
Property, plant and equipment		—		629
Total deferred income tax assets		37,556		19,638
Deferred income tax liabilities
Intangibles		50,324		32,737
Property, plant and equipment		2,122		—
Accrued liabilities		—		—
Total deferred income tax liabilities		52,446		32,737
Net deferred income tax liabilities	$	(14,890)	$	(13,099)

The Company’s net deferred income tax liabilities include both current and noncurrent amounts. Accrued liabilities and deferred lease revenue are classified as current. Portions of reserves and allowances, tax credit carryforwards, and net operating loss carryforwards that would be available within the next year are classified as current, with the remainder of the balance classified as noncurrent. Stock options and restricted stock awards, except for the amount vesting within the next year, property, plant and equipment, and intangibles are also classified as noncurrent.

The Company accounts for income taxes in accordance with ASC 740. Under ASC 740, deferred income tax assets and liabilities are determined based on the differences between financial statement and tax bases of assets and liabilities, using enacted rates in effect for the year in which the differences are expected to reverse. The provision for income taxes is based on domestic and international statutory income tax rates in the jurisdictions in which the Company operates.

At December 31, 2014, $4,474 of the Company’s deferred income tax assets was attributable to $38,338 of net operating loss carryforwards, which consisted of $5,092 loss carryforwards for U.S. federal income tax purposes, $26,365 of loss carryforwards for U.S. state income tax purposes and $6,881 of loss carryforwards for foreign income tax purposes.

At December 31, 2013, $5,725 of the Company’s deferred income tax assets was attributable to $52,177 of net operating loss carryforwards, which consisted of $6,856 loss carryforwards for U.S. federal income tax purposes, $38,934 of loss carryforwards for U.S. state income tax purposes and $6,387 of loss carryforwards for foreign income tax purposes.

At December 31, 2012, $1,949 of the Company’s deferred income tax assets was attributable to $42,202 of net operating loss carryforwards, which consisted of no loss carryforwards for U.S. federal income tax purposes, $41,047 of loss carryforwards for U.S. state income tax purposes and $1,155 of loss carryforwards for foreign income tax purposes.

The net operating loss carryforwards for U.S. federal income tax purposes begin to expire in 2022. The net operating loss carryforwards for U.S. state income tax purposes begin to expire in 2020. In addition, certain loss carryforwards for foreign income tax purposes begin to expire in 2018 and certain other loss carryforwards for foreign purposes do not expire. Ultimate utilization of these loss carryforwards depends on future taxable earnings of the Company and its subsidiaries.

At December 31, 2014, tax credit carryforwards included in the Company’s deferred income tax assets consisted of $2,196 of research and experimentation tax credit carryforwards for U.S. state income tax purposes, $810 of foreign tax credits for U.S. federal income tax purposes, $518 of research and experimentation tax credit carryforwards for foreign income tax purposes and $615 of other state tax credits. The state research and experimentation credits do not expire; the other state credits begin to expire in 2017.

At December 31, 2013, tax credit carryforwards included in the Company’s deferred income tax assets consisted of $2,040 of research and experimentation tax credit carryforwards for U.S. state income tax purposes, $58 of such tax credit carryforwards for foreign income tax purposes and $615 of other state tax credits. The state research and experimentation credits do not expire; the other state credits begin to expire in 2017.

At December 31, 2012, tax credit carryforwards included in the Company’s deferred income tax assets consisted of $735 of research and experimentation tax credit carryforwards for U.S. federal income tax purposes, $2,040 of such tax credit carryforwards for U.S. state income tax purposes and $615 of other state tax credits. The state research and experimentation credits do not expire; the other federal and state credits begin to expire in 2017.

The Company recorded $7,653 to additional paid-in capital during 2014 with respect to the vesting of restricted stock awards.

The Company has not provided for any taxes on approximately $23,628 of unremitted earnings of its foreign subsidiaries, as the Company intends to permanently reinvest all such earnings outside the U.S. We believe a calculation of the deferred tax liability associated with these undistributed earnings is impracticable.

The Company increased its unrecognized benefits by $1,829 for the year ended December 31, 2014 and decreased these benefits by $459 for the year ended December 31, 2013. The Company also accrued $110 in interest and penalties related to the unrecognized tax benefits. The Company does not anticipate any additional unrecognized tax benefits during the next twelve months that would result in a material change to its consolidated financial position.


	Unrecognized Tax Benefits
(in thousands)	2014		2013		2012
Balance at January 1	$	(16)	$	(475)	$	(393)
Increases related to prior year tax positions		—		380		300
Decreases related to prior year tax positions		—		—		(378)
Increases related to current year tax positions		(1,829)		—		—
Decreases related to current year tax positions		—		—		(4)
Decreases in unrecognized liability due to settlements with foreign tax authorities		—		79		—
Balance at December 31	$	(1,845)	$	(16)	$	(475)

The Company includes interest and penalties in the consolidated financial statements as a component of income tax expense.

Tax years 2011 through 2014 remain subject to examination by the U.S. Internal Revenue Service. The Company has utilized U.S. loss carryforwards causing the years 1997 to 2007 to be subject to examination. The Company files income tax returns (which are open to examination beginning in the year shown in parentheses) in Australia (2009), Belgium (2010), Brazil (2014), China (2010), France (2011), Germany (2011), India (2012), Israel (2010), Italy (2009), Japan (2007), Korea (2008), Mexico (2014), Netherlands (2007), Switzerland (2008), the United Kingdom (2009) and Uruguay (2014) .