INCOME TAXES

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



	Year Ended December 31,
	2014			2013			2012
Loss Before Income Taxes:
U.S.	$	(1,992	)	$	(11,240	)	$	(36,248	)
Foreign	(1,606		)	(3,926		)	(10,301		)
Loss before income taxes	$	(3,598	)	$	(15,166	)	$	(46,549	)

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



	Year Ended December 31,
	2014			2013			2012
Provision (Benefit) For Income Taxes:
Current:
Federal	$	(151	)	$	—		$	(28	)
State	(91		)	(383		)	568
Foreign	1,663			2,652			1,104
Subtotal	1,421			2,269			1,644
Deferred:
Federal	$	—		(268		)	$	(35,329	)
State	—			(21		)	(1,811		)
Foreign	(1,185		)	(819		)	(357		)
Subtotal	(1,185		)	(1,108		)	(37,497		)
Income tax provision (benefit)	$	236		$	1,161		$	(35,853	)

The difference between the provision (benefit) 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,
	2014			2013			2012
Tax at federal statutory rate	$	(1,259	)	$	(5,308	)	$	(16,292	)
State taxes, net	(1,285		)	(1,289		)	(1,136		)
Non-deductible stock compensation	980			327			3,470
Non-deductible acquisition costs	—			—			410
Foreign rate differential	1,567			3,245			4,353
Research credits	(548		)	(930		)	—
Change in valuation allowance	556			4,961			(26,795		)
Other	225			155			137
Income tax (benefit) provision	$	236		$	1,161		$	(35,853	)

During the year ended December 31, 2014 and 2013, the Company recognized a reduction in the valuation allowance recorded against the Company's net deferred tax assets of approximately $0.2 million and $0.3 million, respectively. The reductions related to net deferred tax liabilities recorded for unrealized gains reflected as other comprehensive income. In accordance with U.S. GAAP intraperiod tax allocation provisions, the reductions are reported as an element of deferred income tax expense (benefit) attributable to continuing operations. During the year ended December 31, 2012, the Company recognized a reduction in the valuation allowance recorded against the Company's net deferred tax assets of $37.1 million. The reduction was related to net deferred tax liabilities recognized for the difference between the fair value and carrying basis of certain tangible and intangible assets obtained as part of the Acquisition, which can be used as a source of income to support realization of certain domestic deferred tax assets. Under US GAAP, changes in an acquirer's valuation allowances that stem from a business combination should be recognized as an element of the acquirer's deferred income tax expense (benefit) in the reporting period that includes the business combination.

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,
	2014			2013
Deferred tax assets:
Net operating loss carryforwards	$	61,308		$	65,830
Tax credit carryforwards	56,575			54,887
Deferred revenue	1,849			1,434
Capitalized research and development costs	245			315
Intangibles	17,474			19,254
Share-based compensation	4,371			5,232
Accrued compensation	4,625			3,441
Accrued warranty	347			612
Inventory reserves	7,224			6,835
Reserves and other	7,178			11,150
Depreciation and amortization	6,080			5,958
Other, net	9,463			7,518
Total deferred tax assets	176,739			182,466
Valuation allowance for deferred tax assets	(137,957		)	(135,697		)
Net deferred tax assets	38,782			46,769
Net deferred tax liabilities:
Acquired intangible assets	(33,735		)	(39,836		)
Acquired tangible assets	(78		)	(1,993		)
Cancellation of debt	(7,701		)	(9,654		)
Foreign earnings	(2,734		)	(2,923		)
Other, net	(1,471		)	(1,378		)
Total deferred tax liabilities	(45,719		)	(55,784		)
Net deferred tax liabilities	$	(6,937	)	$	(9,015	)

Deferred tax assets are recognized if the realization of such assets is more likely than not. As of December 31, 2014, the Company provided for a valuation allowance of $138.0 million against our net deferred tax assets. As a result of negative evidence based on the cumulative three year net loss position, the Company has placed a full valuation allowance on U.S. and certain foreign deferred tax assets. The Company intends to maintain the valuation allowance until sufficient positive evidence exists to assure realization of these tax benefits through future taxable income. As of December 31, 2014, the Company has recorded a full valuation allowance against all U.S. and certain foreign net deferred tax assets. 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. The valuation allowance increase of $4.7 million in 2013 is primarily attributable to the decrease in deferred tax liabilities associated with amortization of certain tangible and intangible assets acquired in the Acquisition, and an increase in deferred tax assets for research and development tax credit carryforwards. Approximately $25.7 million of the valuation allowance as of December 31, 2014, 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, 2014 is approximately $7.3 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, 2014 and 2013, respectively.

As of December 31, 2014, the Company had U.S. net operating loss carryforwards of $178.2 million which begin to expire in 2022 if not utilized, and federal research and development tax credit carryforwards of approximately $25.6 million, which begin to expire in 2018 if not utilized. The Company also had California net operating loss carryforwards of $115.4 million which begin to expire in 2015 if not utilized, and California research and development tax credit and other tax credit carryforwards of $42.5 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, 2014, 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, 2014, the Company has approximately $0.9 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 various tax holidays and tax incentive programs, which expire in whole or in part at various dates through 2016. There was a minimal net impact of these tax holidays and tax incentive programs for the year ended December 31, 2014.

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



	2014			2013
Unrecognized tax benefits, beginning of year	$	22,372		$	20,413
Gross increases - tax positions in prior period	1,025			2,003
Gross decreases - tax positions in prior period	(1,808		)	(5		)
Gross increases - current period tax positions	778			718
Lapse in statute of limitations	(453		)	(757		)
Unrecognized tax benefits, end of year	$	21,914		$	22,372

As of December 31, 2014 and 2013, if recognized, the amount of unrecognized tax benefits that would impact income tax expense is approximately $5.0 million and $5.6 million, respectively. The Company classifies interest and penalties related to tax positions as components of income tax expense. For the year ended December 31, 2014, 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 $1.1 million as of December 31, 2014. The Company completed its IRS examination for the years 2009 through 2012 in 2014 with no adjustments to its reported tax liabilities. The Company is currently under examination by the state of California for the years 2006 through 2009. 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 $1.6 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 2010 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 2007.