INCOME TAXES

The U.S. operations of the Company are included in the consolidated U.S. federal income tax return of Holdings. However, for financial reporting purposes, the Company's U.S. provision for income taxes has been computed on the basis that the Company files separate consolidated U.S. federal income tax returns with its subsidiaries.

Income Tax Expense (Benefit)

Income (loss) before income taxes for our U.S. and foreign operations was comprised of the following (in thousands):



	Year Ended December 31,
	2014			2013		2012
U.S.	$	26,957		$	22,375	$	22,020
Foreign	(6,986		)	1,366		21,812
	$	19,971		$	23,741	$	43,832

The provision (benefit) for income taxes was comprised of the following (in thousands):



	Year Ended December 31,
	2014			2013			2012
Current:
Federal	$	334		$	69		$	342
State	686			2,038			1,093
Foreign	—			(5,184		)	4,125
	1,020			(3,077		)	5,560
Deferred:
Federal	10,241			(90,827		)	—
State	526			(1,600		)	(28		)
Foreign	(1,494		)	5,564			1,250
	9,273			(86,863		)	1,222
Tax provision (benefit):
Federal	10,575			(90,758		)	342
State	1,212			438			1,065
Foreign	(1,494		)	380			5,375
	$	10,293		$	(89,940	)	$	6,782

The differences between the U.S. federal income taxes computed at the statutory rate (35%) and the Company's income taxes for financial reporting purposes were as follows (in thousands):



	Year Ended December 31,
	2014		2013			2012
Statutory federal income tax	$	6,990	$	8,309		$	15,341
Change in unrecognized tax benefits	186		199			189
State income tax, less federal benefit	972		370			128
Foreign investment in U.S. property	999		1,203			1,094
Tax difference on foreign earnings	675		(196		)	(2,258		)
Change in foreign taxes	—		(33		)	2
Canadian withholding tax	—		—			(30		)
Change in valuation allowance	—		(100,492		)	(7,666		)
Tax credits	—		(361		)	(401		)
Non-deductible expenses	289		869			342
Other, net	182		192			41
Income tax provision (benefit)	$	10,293	$	(89,940	)	$	6,782

Deferred Tax Asset/Liability

The components of the net deferred income tax asset (liability) reflected in the Company's consolidated balance sheets at December 31, 2014 and 2013 were as follows (in thousands):



	Deferred Tax Assets (Liabilities)
	December 31,
	2014			2013
Deferred tax assets:
Depreciation and amortization	$	8,288		$	11,655
Deferred revenue	716			1,932
Net operating loss carryforwards	67,148			73,246
Alternative minimum tax credit carryforward	2,527			2,194
Research and development tax credit carryforward	1,133			1,236
Accrued expenses and other	8,153			8,889
Total deferred tax assets	87,965			99,152
Deferred tax liabilities:
Depreciation and amortization	(7,870		)	(8,914		)
Intangible assets	(3,276		)	(4,784		)
Deferred expenses and other	(409		)	(521		)
Total deferred tax liabilities	(11,555		)	(14,219		)
Valuation allowance:
Beginning balance	—			(100,492		)
Decrease during the period	—			100,492
Total valuation allowance	—			—
Net deferred tax asset	$	76,410		$	84,933
Deferred income taxes have been classified in the consolidated balance sheet as:
Deferred income tax asset	$	81,744		$	92,511
Deferred income tax liability	(5,334		)	(7,578		)
Net deferred income tax asset	$	76,410		$	84,933

During the year ended December 31, 2013, the Company recorded a full release of its valuation allowance provided against its U.S. federal and state net deferred tax assets of $100.5 million based on management's reassessment that it is more likely than not that the deferred tax assets will be realized. In making this assessment, management considered all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income and results of recent operations. The most significant piece of objective positive evidence available in assessing the Company's U.S. deferred tax assets was its cumulative pretax income incurred over the three-year period ended December 31, 2013. Because the Company's revenue activity does not occur evenly throughout the year and the fourth quarter is typically the quarter with the highest activity, management believed a full year of results in 2013 was needed in order to provide enough positive evidence to support the assessment related to the release of the valuation allowance. In addition, the Company's projections of future taxable income show continued profitability. In projecting future taxable income, management began with recent historical results and incorporated assumptions about the amount of future pretax operating income and adjusted for items that do not have tax consequences. The Company's projections of future taxable income indicate it will have sufficient income to realize all of its existing deferred tax assets, the majority of which relate to net operating loss (“NOL”) carryforwards. Adjustments to future estimates during the carry forward period could impact the analysis of NOL utilization. Due to the significance of the Company's NOL carryforwards, management also evaluated the Company's ability to utilize its NOL carryforwards based on projected current taxable income, taking into consideration temporary differences, and determined that the Company's NOL carryforwards would be utilized prior to their expiration. As a result, the valuation allowance was released.

As of December 31, 2014, the Company has a U.S. federal NOL carryforward of approximately $170.3 million which can be used to offset U.S. income taxes payable in future years. This U.S. NOL carryforward will expire in periods beginning 2027 through 2031. As of December 31, 2014, the Company has an alternative minimum tax (AMT) credit carryforward of approximately $2.5 million which can be used to offset regular U.S. federal income taxes payable in future years and which has an indefinite carryforward period. As of December 31, 2014, the Company has a Colorado state NOL carryforward of approximately $1.8 million which can be used to offset Colorado state income taxes payable in future years. This state NOL carryforward will expire in periods beginning 2028 through 2031.

As of December 31, 2014, the Company has Canadian NOL carryforwards for federal taxes of approximately $8.7 million (Canadian) and for provincial taxes of approximately $6.3 million (Canadian), both of which can be used to offset Canadian income taxes payable in future years. These Canadian NOL carryforwards will expire in periods beginning 2029 through 2034.

In April 2011, Seitel Canada Ltd. (“Seitel Canada”), a wholly-owned subsidiary of the Company, was notified that Canada Revenue Agency (“CRA”) concluded their prior year audits of Seitel Canada's tax returns, disallowing Seitel Canada’s deductions for certain royalties payable to the Company’s U.S. entities for years 2003 to 2007. Seitel Canada and the Company object to and are appealing the audit results. As a condition to appeal the audit results, Seitel Canada paid $7.7 million (Canadian) to CRA in 2011. As of December 31, 2014, the appeal process has not been concluded. The Company has recorded liabilities associated with potential adjustments that may occur as a result of the appeal based on management’s assessment of the probability of the outcome of the appeal, net of certain payments made to CRA. See “Uncertain Tax Benefits” below.

Uncertain Tax Benefits

The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes,” which prescribes a minimum recognition threshold a tax position must meet before being recognized in the financial statements. A reconciliation of the beginning and ending gross unrecognized tax benefits was as follows (in thousands):



	Year Ended December 31,
	2014			2013			2012
Balance at beginning of year	$	5,752		$	6,150		$	6,016
Foreign currency translation	(478		)	(398		)	134
Balance at end of year	$	5,274		$	5,752		$	6,150

As of December 31, 2014, approximately $5.3 million of the total unrecognized tax benefits would impact the effective income tax rate, if recognized in future periods. In addition, as of December 31, 2014, the Company has recorded $5.9 million in related assets.

Uncertain tax positions are reflected as income tax assets and liabilities. Income tax-related interest and penalty expenses are recorded as a component of income tax expense. As of December 31, 2014, we had $1.0 million of accrued interest and $0.9 million of accrued penalties. As of December 31, 2013, we had $0.9 million of accrued interest and $1.0 million of accrued penalties. Income tax expense (benefit) for each of the years ended December 31, 2014, 2013 and 2012 included $0.2 million related to interest on unrecognized tax benefits.

With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2011, 2011 and 2007, respectively.