Income Taxes

The provision for income taxes was as follows during fiscal 2015, 2014 and 2013:



	Year ended September 30,
	2015			2014			2013
	(In thousands)
Current:
Federal	$	23,646		$	42,570		$	31,469
State	(5,381		)	4,221			2,755
Foreign	10,405			7,487			3,994
	28,670			54,278			38,218
Deferred:
Federal	(5,004		)	(15,401		)	(468		)
State	1,422			(1,093		)	2,069
Foreign	(2,352		)	468			2,070
	(5,934		)	(16,026		)	3,671
Total provision	$	22,736		$	38,252		$	41,889

The foreign provision was based on foreign pre-tax earnings of $45.2 million, $43.3 million and $24.3 million in fiscal 2015, 2014 and 2013, respectively. Current foreign tax expense related to foreign tax withholdings was $5.3 million, $7.7 million and $4.8 million in fiscal 2015, 2014 and 2013, respectively. Foreign withholding tax and related foreign tax credits are included in federal current tax expense above.

Deferred tax assets and liabilities at September 30, 2015 and 2014 were as follows:



	September 30,
	2015			2014
	(In thousands)
Deferred tax assets:
Net operating loss carryforward	$	17,650		$	18,618
Research credit carryforward	5,759			5,018
Accrued bonus	5,400			8,484
Investments	1,042			1,059
Accrued compensation	1,834			1,381
Share-based compensation	23,741			20,238
Deferred revenue	979			629
Accrued lease costs	5,009			1,007
Property and equipment	3,249			2,837
Other	5,613			4,731
	70,276			64,002
Less valuation allowance	(13,882		)	(12,078		)
Total deferred tax assets	56,394			51,924
Deferred tax liabilities:
Intangible assets	(30,286		)	(27,391		)
Prepaid expense	(3,877		)	(3,966		)
Other	(993		)	(993		)
Total deferred tax liabilities	(35,156		)	(32,350		)
Deferred tax assets, net	$	21,238		$	19,574

Based upon the level of historical taxable income and projections for future taxable income over the periods that the deferred tax assets will reverse, management believes it is more likely than not that we will realize the benefits of the deferred tax assets, net of the existing valuation allowance at September 30, 2015.

As of September 30, 2015, we had available U.S. federal, state and foreign NOL carryforwards of approximately $23.9 million, $0.3 million, and $34.2 million, respectively. The U.S. NOLs were acquired in connection with our acquisitions of Braun in fiscal 2005, Adeptra and Entiera in fiscal 2012, and Infoglide in fiscal 2013. The U.S. federal NOL carryforward will expire at various dates beginning in fiscal 2024, if not utilized. The state NOL carryforward will begin to expire at various dates beginning in fiscal 2021, if not utilized. The UK and Luxembourg NOL carryforwards do not have an expiration date. The $34.2 million of foreign NOL includes $22.0 million related to China. Due to a limited ability to utilize the China NOLs a full valuation allowance has been recorded on the China NOLs, resulting in no tax benefit. Utilization of the U.S. federal and state NOL are subject to an annual limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986, as amended, and similar state provisions. We also have available excess California state research credit of approximately $5.7 million. The California state research credit does not have an expiration date; however, based on enacted law and expected future cash taxes, we have recorded a valuation allowance of $5.7 million.

The reconciliation between the U.S. federal statutory income tax rate of 35% and our effective tax rate is shown below for fiscal 2015, 2014 and 2013:



	Year Ended September 30,
	2015			2014			2013
	(In thousands)
Income tax provision at U.S. federal statutory rate	$	38,233		$	46,595		$	46,194
State income taxes, net of U.S. federal benefit	1,719			2,832			2,689
Foreign tax rate differential	(5,279		)	(4,592		)	(2,855		)
Intercompany interest	(1,260		)	(1,246		)	—
Research credits	(2,104		)	(302		)	(2,412		)
Domestic production deduction	(1,607		)	(3,141		)	(2,168		)
Federal and state audit settlements	(5,806		)	(5,886		)	—
Foreign	(3,109		)	(1,654		)	—
Valuation allowance	1,805			3,888			2,310
Intercompany dividend	(1,296		)	150			(32		)
Other	1,440			1,608			(1,837		)
Recorded income tax provision	$	22,736		$	38,252		$	41,889

The decrease in our effective tax rate in fiscal 2015 compared to fiscal 2014 was due primarily to the favorable settlement of the fiscal 2006 - 2009 state audits, the favorable settlement of the 2010 foreign transfer pricing assessment, as well as the December 2014 reenactment of the calendar 2014 U.S. Federal Research and Development Credit, which resulted in a catch up adjustment for the R&D credit during fiscal 2015.

The decrease in our effective tax rate in fiscal 2014 compared to fiscal 2013 was due primarily to the favorable settlement of the fiscal 2010 - 2012 Federal IRS audits and secondly, due to a higher percentage of revenue in lower taxing jurisdictions. The 2013 effective tax rate was positively impacted by the reenactment of the U.S. Federal Research and Development Credit.

In fiscal 2015 and 2014, the foreign taxes consist of tax rate differentials, local country permanent items, and prior years’ true ups.

In general, it is our practice and intention to reinvest the earnings of its non-U.S. subsidiaries in those operations. As of September 30, 2015, we have not made a provision for U.S. or additional foreign withholding taxes on approximately $52.8 million of the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.

Unrecognized Tax Benefit for Uncertain Tax Positions

We conduct business globally and, as a result, file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities. With a few exceptions, we are no longer subject to U.S. federal, state, local, or foreign income tax examinations for fiscal years prior to 2012. We are currently under audit by the California Franchise Tax Board for fiscal 2012 and 2013. We do not anticipate any adjustments related to those audits that will result in a material change to our consolidated financial statements.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	Year Ended September 30,
	2015			2014			2013
	(In thousands)
Gross unrecognized tax benefits at beginning of year	$	4,554		$	9,009		$	7,501
Gross increases for tax positions in prior years	1,725			2,468			508
Gross decreases for tax positions in prior years	(3		)	(967		)	—
Gross increases based on tax positions related to the current year	582			923			1,000
Decreases for settlements and payments	(2,224		)	(6,879		)	—
Gross unrecognized tax benefits at end of year	$	4,634		$	4,554		$	9,009

We had $4.6 million of total unrecognized tax benefits as of September 30, 2015, including $4.0 million of tax benefits that, if recognized, would impact the effective tax rate. Although the timing and outcome of audit settlements are uncertain, it is unlikely there will be a reduction of the uncertain tax benefits in the next 12 months.

We recognize interest expense related to unrecognized tax benefits and penalties as part of the provision for income taxes in our consolidated statements of income and comprehensive income. We recognize interest earned related to income tax matters as interest income in our consolidated statements of income and comprehensive income. As of September 30, 2015, we have accrued interest of $0.2 million related to the unrecognized tax benefits.