INCOME TAXES

Income tax provisions consisted of the following:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(In thousands)						(In thousands)
Income before provision for income taxes	$	1,199		$	1,672		$	3,367		$	4,880
Provision for income taxes	(1,015		)	(599		)	(1,647		)	(1,774		)
Effective tax rate	84.7		%	35.8		%	48.9		%	36.4		%

The provision for income tax for the three months ended September 30, 2015 and 2014 resulted primarily from the Company’s federal and foreign tax recognized at statutory rates, adjusted for the tax impact of nondeductible permanent items including stock-based compensation and foreign withholding taxes. The provision for income tax for the three months ended September 30, 2015 also includes non-cash tax expense on intercompany profit that resulted from the sale of certain IP rights to one of the Company's foreign subsidiaries as part of the Company's reoganization of its international operations during the period. Discrete items recognized for the three months ended September 30, 2015 include an increase to the valuation allowance for certain of the Company's deferred tax assets.

On July 27, 2015, a U.S. Tax Court opinion (Altera Corporation et. al v. Commissioner) concerning the treatment of stock-based compensation expense in an intercompany cost sharing arrangement was issued. In its opinion, the U.S. Tax Court accepted Altera's position of excluding stock-based compensation from its intercompany cost sharing arrangement. Based on the findings of the U.S. Tax Court, the Company has concluded that it is more likely than not that the IRS will uphold the U.S. Tax Court ruling and accordingly has excluded stock-based compensation from intercompany charges during the period. The Company will continue to monitor ongoing developments and potential impacts to its condensed consolidated financial statements.

As of September 30, 2015, the Company had unrecognized tax benefits under ASC 740 “Income Taxes”, of approximately $5.9 million including interest of $80,000. The total amount of unrecognized tax benefits that would affect the Company’s effective tax rate, if recognized, was $2.1 million. The Company expects to release reserves and record an immaterial tax benefit due to the expiration of applicable statutes of limitations during the next 12 months. The Company’s policy is to account for interest and penalties related to uncertain tax positions as a component of income tax provision.

Net deferred income taxes were $24.4 million as of September 30, 2015, consisting primarily of federal net operating loss carryforwards and timing differences between book and tax. Because the Company had net operating loss and credit carryforwards, there are open statutes of limitations in which federal, state, and foreign taxing authorities may examine the Company’s tax returns for all years from 1998 through the current period.

The Company maintains a valuation allowance of $8.0 million against certain of its deferred tax assets, including federal, state, and certain foreign deferred tax assets. The Company has determined there is not sufficient evidence to support the release of the valuation allowance against these federal, state and foreign deferred tax assets.