INCOME TAXES

The following table presents the U.S. and foreign components of consolidated loss before income taxes (in thousands):



	Year Ended December 31,
	2013			2012			2011
(Loss) Income Before Income Taxes:
U.S.	$	(11,240	)	$	(36,248	)	$	(26,778	)
Foreign	(3,926		)	(10,301		)	22
Loss before income taxes	$	(15,166	)	$	(46,549	)	$	(26,756	)

The following table presents the (benefit) provision for income taxes (in thousands):



	Year Ended December 31,
	2013			2012			2011
Provision (Benefit) For Income Taxes:
Current:
Federal	$	—		$	(28	)	$	—
State	(383		)	568			106
Foreign	2,652			1,104			1,038
Subtotal	2,269			1,644			1,144
Deferred:
Federal	$	(268	)	(35,329		)	$	—
State	(21		)	(1,811		)	—
Foreign	(819		)	(357		)	261
Subtotal	(1,108		)	(37,497		)	261
Income tax provision (benefit)	$	1,161		$	(35,853	)	$	1,405

The difference between the provision (benefit) for income taxes and the amount computed by applying the federal statutory income tax rate (35%) to loss before taxes from continuing operations is explained as follows (in thousands):



	Year Ended December 31,
	2013			2012			2011
Tax at federal statutory rate	$	(5,308	)	$	(16,292	)	$	(9,364	)
State taxes, net	(1,289		)	(1,136		)	(1,740		)
Non-deductible stock compensation	327			3,470			453
Non-deductible acquisition costs	—			410			878
Foreign rate differential	3,245			4,353			1,274
Research credits	(930		)	—			(692		)
Change in valuation allowance	4,961			(26,795		)	10,461
Other	155			137			135
Income tax (benefit) provision	$	1,161		$	(35,853	)	$	1,405

During the year ended December 31, 2013, the Company recognized a reduction in the valuation allowance recorded against the Company's net deferred tax assets of approximately $0.3 million. The reduction was related to net deferred tax liabilities recorded for unrealized gains reflected as other comprehensive income. In accordance with U.S. GAAP intraperiod tax allocation provisions, this reduction is reported as an element of deferred income tax expense (benefit) attributable to continuing operations. During the year ended December 31, 2012, the Company recognized a reduction in the valuation allowance recorded against the Company's net deferred tax assets of $37.1 million. The reduction was related to net deferred tax liabilities recognized for the difference between the fair value and carrying basis of certain tangible and intangible assets obtained as part of the Acquisition, which can be used as a source of income to support realization of certain domestic deferred tax assets. Under US GAAP, changes in an acquirer's valuation allowances that stem from a business combination should be recognized as an element of the acquirer's deferred income tax expense (benefit) in the reporting period that includes the business combination. There was no change to the valuation allowance recorded as deferred income tax expense (benefit) during the year ended December 31, 2011.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's assets and liabilities are as follows (in thousands):



	December 31,
	2013			2012
Deferred tax assets:
Net operating loss carryforwards	$	65,830		$	75,622
Tax credit carryforwards	54,887			50,704
Deferred revenue	1,434			1,537
Capitalized research and development costs	315			394
Intangibles	19,254			21,175
Share-based compensation	5,232			5,808
Accrued compensation	3,441			1,775
Accrued warranty	612			446
Inventory reserves	6,835			5,664
Reserves and other	11,150			13,216
Depreciation and amortization	5,958			6,731
Other, net	7,518			6,069
Total deferred tax assets	182,466			189,141
Valuation allowance for deferred tax assets	(135,697		)	(130,979		)
Net deferred tax assets	46,769			58,162
Net deferred tax liabilities:
Acquired intangible assets	(39,836		)	(45,397		)
Acquired tangible assets	(1,993		)	(7,701		)
Cancellation of debt	(9,654		)	(9,669		)
Foreign earnings	(2,923		)	(3,282		)
Other, net	(1,378		)	(1,296		)
Total deferred tax liabilities	(55,784		)	(67,345		)
Net deferred tax (liabilities) assets	$	(9,015	)	$	(9,183	)

As of December 31, 2013, the Company had total U.S. net operating loss carryforwards of $291.4 million, comprised of $186.3 million for U.S. federal purposes, which expire in the years 2021 through 2032 if not utilized, and $105.2 million for state purposes, the majority of which expire in the years 2014 through 2032 if not utilized.

Additionally, the Company had federal research and development tax credit carryforwards of approximately $25.2 million, which expire in the years 2017 through 2033 if not utilized. The Company also has state research and development tax credit carryforwards and other various tax credit carryforwards of approximately $41.0 million. Substantially all of the state tax credits can be carried forward indefinitely. Certain of the net operating loss and tax credit carryforwards are subject to annual limitations due to the ownership change provision under the Internal Revenue Code Section 382 and similar state provisions. The limitations will not result in significant expirations of the net operating loss carryforwards before utilization.

As of December 31, 2013, the Company has recorded a full valuation allowance against all U.S. and certain foreign deferred tax assets. The valuation allowance increase of $4.7 million from $131.0 million in 2012 to $135.7 million in 2013 is primarily attributable to the decrease in deferred tax liabilities associated with amortization of certain tangible and intangible assets acquired in the Acquisition, and research and development tax credit carryforwards generated subsequent to the extension of the federal research and development credit in 2013. Approximately $26.2 million of the valuation allowance as of December 31, 2013, is attributable to the income tax benefits of share-based compensation, the benefit of which will be credited to stockholders' equity when, and if, realized. The valuation allowance decrease of $23.1 million from $154.1 million in 2011 to $131.0 million in 2012 was primarily attributable to the reduction in valuation allowance recorded against the Company's net deferred tax assets of $37.1 million as part of the Acquisition, partially offset by U.S. losses which was recorded as a tax benefit through the income statement.

Not included in the deferred tax assets as of December 31, 2013 is approximately $5.3 million of tax benefits related to share-based compensation. When, and if, realized the tax benefit of these assets will be accounted for as a credit to stockholders' equity, rather than a reduction of the income tax provision.

Of the total tax benefits realized from the share-based compensation, nominal amounts were recorded to stockholders' equity for the years ended December 31, 2013 and 2012, respectively.

The Company provides for U.S. income tax on the earnings of foreign subsidiaries unless the earnings are considered indefinitely reinvested outside the U.S. As of December 31, 2013, the Company has approximately $1.0 million of previously untaxed earnings from its foreign subsidiaries which were not indefinitely reinvested outside the U.S. The potential federal and state taxes on these repatriations is nominal.

A portion of the Company's operations in Singapore operate under various tax holidays and tax incentive programs, which expire in whole or in part at various dates through 2017. There was a minimal net impact of these tax holidays and tax incentive programs for the year ended December 31, 2013.

The following table presents the Company's total amount of gross unrecognized tax benefits (in thousands):



	2013			2012
Unrecognized tax benefits, beginning of year	$	20,413		$	16,480
Gross increases - tax positions in prior period	2,003			3,027
Gross decreases - tax positions in prior period	(762		)	(376		)
Gross increases - current period tax positions	718			1,282
Unrecognized tax benefits, end of year	$	22,372		$	20,413

If recognized, the amount of unrecognized tax benefits that would impact income tax expense is approximately $5.6 million. The Company classifies interest and penalties related to tax positions as components of income tax expense. For the year ended December 31, 2013, the amount of accrued interest and penalties related to tax uncertainties was approximately $0.1 million for a total cumulative amount included in non-current income taxes payable of approximately $1.1 million as of December 31, 2013. The Company is currently under examination by the IRS for the years 2009 through 2012. The Company is also under examination by the state of California for the years 2006 through 2009. Given the potential outcome of current examinations, it is reasonably possible that the amount of unrecognized tax benefits, the tax reserves for tax contingencies, could change in the next 12 months as a result, with an estimated range from zero to approximately $2.0 million.

The Company files U.S. federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The Company's major tax jurisdictions are the U.S. federal, California, Singapore, the United Kingdom and Austria. The federal and California statute of limitations on assessments remain open for substantially all tax years. The major foreign jurisdictions remain open for primarily tax years 2007 through 2013.