INCOME TAXES

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



	Year Ended December 31,
	2015			2014			2013
Income (loss) before income taxes:
U.S.	$	11,156		$	(1,992	)	$	(11,240	)
Foreign	(310		)	(1,606		)	(3,926		)
Income (loss) before income taxes	$	10,846		$	(3,598	)	$	(15,166	)

The provision for income taxes consisted of the following (in thousands):



	Year Ended December 31,
	2015			2014			2013
Provision for income taxes:
Current:
Federal	$	—		$	(151	)	$	—
State	(261		)	(91		)	(383		)
Foreign	1,456			1,663			2,652
Subtotal	1,195			1,421			2,269
Deferred:
Federal	$	—		—			$	(268	)
State	—			—			(21		)
Foreign	(462		)	(1,185		)	(819		)
Subtotal	(462		)	(1,185		)	(1,108		)
Income tax provision	$	733		$	236		$	1,161

The difference between the provision 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,
	2015			2014			2013
Tax at federal statutory rate	$	3,796		$	(1,259	)	$	(5,308	)
State taxes, net	1,246			(1,285		)	(1,289		)
Non-deductible stock compensation	1,252			1,065			327
Foreign rate differential	1,078			1,567			3,245
Research credits	(741		)	(548		)	(930		)
Change in valuation allowance	(6,050		)	556			4,961
Other	152			140			155
Income tax provision	$	733		$	236		$	1,161

During the year ended December 31, 2015 and 2014, the Company recognized a reduction in the valuation allowance recorded against the Company's net deferred tax assets of zero and $0.2 million, respectively, related to net deferred tax liabilities recorded for unrealized gains reflected as other comprehensive income. In accordance with intraperiod tax allocation provisions, the reductions are reported as an element of deferred income tax expense (benefit) attributable to continuing operations.

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 deferred tax assets and liabilities were as follows (in thousands):



	December 31,
	2015			2014
Deferred tax assets:
Net operating loss carryforwards	$	49,313		$	61,308
Tax credit carryforwards	60,524			56,575
Deferred revenue	1,036			1,849
Capitalized research and development costs	497			245
Intangibles	15,380			17,474
Share-based compensation	5,049			4,371
Accrued compensation	5,472			4,625
Accrued warranty	474			347
Inventory reserves	6,501			7,224
Reserves and other	8,239			7,178
Depreciation and amortization	5,202			6,080
Other, net	4,255			9,463
Total deferred tax assets	161,942			176,739
Valuation allowance for deferred tax assets	(126,252		)	(137,957		)
Net deferred tax assets	35,690			38,782
Net deferred tax liabilities:
Acquired intangible assets	(29,587		)	(33,735		)
Acquired tangible assets	—			(78		)
Cancellation of debt	(5,854		)	(7,701		)
Foreign earnings	(4,520		)	(2,734		)
Other, net	(1,457		)	(1,471		)
Total deferred tax liabilities	(41,418		)	(45,719		)
Net deferred tax liabilities	$	(5,728	)	$	(6,937	)

Deferred tax assets are recognized if the realization of such assets is more likely than not. As of December 31, 2015, the Company provided for a valuation allowance of $126.3 million against its net deferred tax assets. Due to the Company’s history of cumulative operating losses, management concluded that after considering all the available objective evidence, it is not more likely than not that all the Company’s net deferred tax assets will be realized. Accordingly, all of the Company's U.S. deferred tax assets continue to be subject to a valuation allowance as of December 31, 2015. We intend to maintain a valuation allowance for the U.S. and certain foreign jurisdictions until sufficient positive evidence exists to support reversal. Due to improvements in the Company's U.S. operating results over the past three years, management believes a reasonable possibility exists that, in the next 12 to 24 months, sufficient positive evidence may become available to reach a conclusion that a portion of the U.S. valuation allowance will no longer be needed.

As of December 31, 2015, the Company has recorded a full valuation allowance against all U.S. and certain foreign net deferred tax assets. The valuation allowance decrease of $11.7 million in 2015 is primarily attributable to the utilization of net operating loss carryforwards. The valuation allowance increase of $2.3 million in 2014 is primarily attributable to the decrease in deferred tax liabilities for amortization of certain tangible and intangible assets acquired in the Acquisition and cancellation of debt income, offset by a decrease in deferred tax assets due to the utilization of net operating loss carryforwards. Approximately $24.7 million of the valuation allowance as of December 31, 2015, 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. Not included in the deferred tax assets as of December 31, 2015 is approximately $10.1 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, 2015 and 2014, respectively.

As of December 31, 2015, the Company had federal net operating loss carryforwards of $160.3 million which begin to expire in 2022 if not utilized, and federal research and development tax credit carryforwards of approximately $26.7 million, which begin to expire in 2018 if not utilized. The Company also had California net operating loss carryforwards of $77.0 million which begin to expire in 2016 if not utilized, and California research and development tax credit and other tax credit carryforwards of $45.6 million, which can be carried forward indefinitely. As certain of the net operating loss and tax credit carryforwards were generated by entities previously acquired by the Company, they 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 or research tax credit carryforwards before utilization. If the Company has an ownership change subsequent to December 31, 2015, utilization of its net operating loss and tax credit carryforwards may be subject to an annual limitation against taxable income in future periods.

The Company provides for U.S. income tax and foreign withholding taxes on the undistributed earnings of foreign subsidiaries unless the earnings are considered indefinitely reinvested outside the U.S. As of December 31, 2015, the Company has approximately $2.0 million of previously untaxed earnings from its foreign subsidiaries which were indefinitely reinvested outside the U.S. Due to unutilized net operating loss carryforwards, the potential federal and state taxes on these repatriations is nominal.

A portion of the Company's operations in Singapore operate under tax holidays and tax incentive programs, which expire by end of 2016. There was a minimal net impact of these tax holidays and tax incentive programs for the year ended December 31, 2015.

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



	2015			2014			2013
Unrecognized tax benefits, beginning of year	$	21,914		$	22,372		$	20,413
Additions for tax positions of prior years	4,465			1,025			2,003
Additions for tax positions of current year	2,164			778			718
Decreases for tax positions of prior years	(849		)	(1,808		)	(5		)
Settlements	(354		)	—			—
Lapse in statute of limitations	(331		)	(453		)	(757		)
Impact of foreign currency, other	(85		)	—			—
Unrecognized tax benefits, end of year	$	26,924		$	21,914		$	22,372

As of December 31, 2015 and 2014, if recognized, the amount of unrecognized tax benefits that would impact income tax expense is approximately $4.6 million and $5.0 million, respectively. The Company classifies interest and penalties related to tax positions as components of income tax expense. For the year ended December 31, 2015, 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 $1.2 million as of December 31, 2015. The Company completed its California examination for the years 2006 through 2009 in 2015 with no additional tax exposure. Given the potential for statute expirations and finalization of current examinations, it is reasonably possible that the amount of unrecognized tax benefits could change in the next 12 months as a result, with an estimated range from zero to approximately $2.5 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 years after 2011 and 2008 respectively; however adjustments may be made to prior years due to the carryforward of unutilized net operating losses and research credit carryforwards. The major foreign jurisdictions statute of limitations remain open from tax years 2008.