12.

Income Taxes

The Company’s income (loss) before income taxes were as follows (in thousands):


	Years Ended June 30,
	2014			2013			2012
Domestic	$	(4,091	)	$	(6,826	)	$	(1,183	)
Foreign		4,101			(3,519	)		(2,936	)

Total	$	10		$	(10,345	)	$	(4,119	)

The Company had no accumulated foreign earnings at June 30, 2014.

The provision for (benefit from) income taxes consists of the following (in thousands):


	Years Ended June 30,
	2014		2013			2012
Current:
Federal	$	—	$	(59	)	$	(8	)
State		23		22			41
Foreign		206		(171	)		(429	)

Total current		229		(208	)		(396	)

Deferred:
Foreign		120		(112	)		—

Provision for (benefit of) income taxes	$	349	$	(320	)	$	(396	)

The difference between the provision for (benefit from) income taxes and the amount computed by applying the federal statutory income tax rate to income (loss) before provision for (benefit from) income taxes is summarized below (in thousands):


	Years Ended June 30,
	2014			2013			2012
Tax at federal statutory rate	$	3		$	(3,517	)	$	(1,440	)
State taxes, net of federal benefit		(36	)		462			112
Foreign taxes differential		451			432			(36	)
Tax credits		(59	)		(148	)		(53	)
Non-deductible meals and entertainment		29			21			25
Stock compensation		(28	)		325			317
Unrecognized tax benefits		11			(425	)		(533	)
Imputed intercompany interest		132			243			282
Adjustments related to prior years		21			(212	)		1,535
Change in valuation allowance		(237	)		2,462			(656	)
Other		62			37			51

Provision for (benefit from) income taxes	$	349		$	(320	)	$	(396	)

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 are as follows (in thousands):


	Years Ended June 30,
	2014			2013
Deferred tax assets:
Net operating loss carryforwards	$	35,947		$	36,872
Tax credit carryforwards		2,114			1,994
Inventory valuation		644			700
Depreciation and amortization		847			523
Other accruals not currently deductible for tax purposes		1,809			1,341
Other		85			85

Total deferred tax assets		41,446			41,515
Valuation allowance		(40,850	)		(41,087	)

Net deferred tax assets		596			428

Deferred tax liabilities:
Depreciation and amortization		(308	)		—
Purchased intangibles		(297	)		(316	)

Net deferred tax liabilities		(605	)		(316	)

Total net deferred tax assets (liabilities)	$	(9	)	$	112

For financial reporting purposes, the Company’s deferred tax assets have been substantially offset by a valuation allowance due to uncertainties about the Company’s ability to generate future taxable income. The change in the valuation allowance was a net increase (decrease) of $(0.2) million and $2.5 million for the years ended June 30, 2014, and June 30, 2013, respectively.

The accumulated tax benefits associated with employee stock options provide a deferred benefit of approximately $2.7 million which has been fully offset by the valuation allowance. The deferred tax benefit associated with the employee stock options will be credited to additional paid-in capital when realized.

The reversal of previously accrued income taxes reflects management’s reassessment of the appropriate level of tax liabilities for the Company based on the Company’s current level of operating activities and recent filing of its federal, state, and certain international tax returns.

At June 30, 2014, the Company had income tax carryfowards summarized as follows:


	Amount (in millions)		Years of expiration, if unused
Net operating loss carryforwards:
Federal	$	102.7		2022-2034
California		34.3		2015-2034
Other states		15.1		2015-2034
Foreign		5.2		No expiration date
Credit carryforwards:
Federal		2.9		2015-2034
State		5.8		2015-2034

Utilization of the net operating loss and credit carryforwards may be subject to a substantial annual limitation due to the change in ownership limitations provided in the Internal Revenue Code. The annual limitation may result in the expiration of the net operating losses and credits before utilization.

The Company evaluates if its income tax positions will more than likely not sustain on technical merits if audited by an income tax authority. The more likely than not threshold is assessed assuming that the taxing authority will examine the income tax position having full knowledge of all relevant information. At June 30, 2014 the Company had $7.4 million of unrecognized tax benefits of which $0.4 million , if recognized, would reduce the Company’s effective tax rate.

Adept files income tax returns in the U.S. federal jurisdiction, California and various state and foreign tax jurisdictions in which the Company has a subsidiary or branch operation. The tax years 1999 to 2014 remain open to examination by the U.S. and state tax authorities, and the tax years 2010 to 2014 remain open to examination by the foreign tax authorities or until the statute of limitations lapses in each jurisdiction.

Adept’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of June 30, 2014, the Company had no material accrued interest or penalties associated with unrecognized tax benefits. The Company does not expect an increase to the estimated amount of the liability associated with its uncertain tax position within the next twelve months.

The following table summarizes the activity related to Adept’s unrecognized tax benefits (in thousands):


	Years Ended June 30,
	2014			2013
Beginning balance	$	6,982		$	8,063
Increases related to prior year tax positions		407			—
Decreases related to prior year tax positions		(11	)		(617	)
Increases related to current year tax positions		35			82
Decreases related to lapse of statute or settlements		—			(546	)

Ending balance	$	7,413		$	6,982

In general, it is the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations. The Company does not provide for U.S. income taxes on the earnings of foreign subsidiaries as such earnings are to be reinvested indefinitely. As of June 30, 2014, there is no cumulative amount of earnings upon which U.S. income taxes have not been provided.