Note 20 Income Taxes

The components of the Company’s income before income taxes are as follows:


(in thousands)	2015		2014		2013
Income before income taxes:
Domestic	$	(580,720)	$	5,751	$	55,826
Foreign		(74,233)		11,636		8,180
Total	$	(654,953)	$	17,387	$	64,006

The components of income tax provision for the years ended December 31, 2015, 2014 and 2013 are as follows:


(in thousands)	2015		2014		2013
Current:
U.S. federal	$	10,753	$	23,336	$	24,688
State		169		72		1,926
Foreign		925		6,588		3,165
Total		11,847		29,996		29,779

Deferred:
U.S. federal		(5,252)		(21,624)		(7,760)
State		(225)		(87)		(450)
Foreign		2,602		(2,844)		(1,682)
Total		(2,875)		(24,555)		(9,892)
Total income tax provision	$	8,972	$	5,441	$	19,887

The overall effective tax rate differs from the statutory federal tax rate for the years ended December 31, 2015, 2014 and 2013 as follows:


	% of Pretax Income
	2015			2014			2013
Tax provision based on the federal statutory rate		35.0	%		35.0	%		35.0	%
Nondeductible expenses		(0.1)			12.5			—
Uncertain tax positions		(0.5)			11.2			—
Deemed income related to foreign operations		(0.6)			8.1			0.2
Return to provision adjustments, foreign current and deferred balances		(0.7)			2.5			(0.4)
Foreign income tax rate differential		(2.0)			0.5			(0.3)
State taxes, net of federal benefit, before valuation allowance		0.9			0.3			2.4
Increase in valuation allowances		(16.4)			—			—
Impairment of goodwill with no tax basis		(16.8)			—			—
Foreign tax credits related to above		0.2			(6.3)			—
Domestic production activities deduction		—			(12.0)			(3.6)
Research credits		—			(21.9)			(0.6)
Other		(0.4)			1.4			(1.6)
Effective tax rate		(1.4)	%		31.3	%		31.1	%

The difference between the Company’s effective tax rate for 2015 and the federal statutory rate was 36.4 percentage points. The Company recorded nondeductible expenses, including non-deductible goodwill impairment charges and a valuation allowance in the U.S. and certain foreign jurisdictions, which contributed to a difference in the effective tax rate.

The difference between the Company’s effective tax rate for 2014 and the federal statutory rate was 3.7 percentage points. The Company incurred nondeductible expenses and recognized income for tax purposes, net of tax credits, not included in financial statement income, increasing the effective tax rate. The Company is benefiting from the U.S. domestic production activities deduction and from research credits, reducing the effective tax rate.

The difference between the Company’s effective tax rate for 2013 and the federal statutory rate was 3.9 percentage points. The Company reported positive U.S. taxable income, and was therefore entitled to use the domestic production activities deduction provided to producers in the United States, effectively lowering the U.S. tax rate applicable to production activities.

In 2015, the Company recorded a valuation allowance of $107,312, including $2,006 in various foreign jurisdictions, including France and the Netherlands. During the fourth quarter, based upon the Company’s review of recent results of operations and forecast estimates in connection with the assessment of deferred tax benefits, the Company determined that it is more likely than not that the deferred tax assets in the US and those foreign jurisdictions will not be realized. In 2014, the Company had no valuation allowance against net deferred income tax assets.

The components of the Company’s net deferred income tax assets and net deferred income tax liabilities at December 31, 2015 and 2014 are as follows:


(in thousands)	2015		2014
Deferred income tax assets:
Intangibles	$	46,293	$	—
Stock options and restricted stock awards		22,010		15,156
Reserves and allowances		18,738		12,016
Net operating loss carryforwards		16,796		4,474
Tax credit carryforwards		9,926		4,139
Accrued liabilities		4,943		1,501
Deferred revenue		405		270
Valuation allowance		(107,312)		—
Total deferred income tax assets		11,799		37,556

Deferred income tax liabilities:
Intangibles		22,676		50,324
Property, plant and equipment		3,851		2,122
Total deferred income tax liabilities		26,527		52,446

Net deferred income tax liabilities	$	(14,728)	$	(14,890)

In November 2015, the FASB issued Accounting Standards Update No. 2015-17 “Income Taxes: Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”), which requires all deferred tax assets and liabilities to be classified as non-current on an entity’s balance sheet. This standard is effective for fiscal years beginning after December, 15, 2017, with early adoption permitted. ASU 2015-17 may be applied either prospectively, for all deferred tax assets and liabilities, or retrospectively. The Company has elected to early adopt ASU 2015-17, on a prospective basis, as of December 31, 2015. Deferred tax assets and liabilities on the Company’s balance sheet for December 31, 2015 have been classified as entirely non-current; however, the adoption is on a prospective basis and deferred tax assets and liabilities on the Company’s balance sheet as of December 31, 2014 have not been re-classified.

The Company accounts for income taxes in accordance with ASC 740. Under ASC 740, deferred income tax assets and liabilities are determined based on the differences between financial statement and tax bases of assets and liabilities, using enacted rates in effect for the year in which the differences are expected to reverse. The provision for income taxes is based on domestic and international statutory income tax rates in the jurisdictions in which the Company operates, prior to any valuation allowances.

At December 31, 2015, $16,796 of the Company’s deferred income tax assets was attributable to $85,609 of net operating loss carryforwards, which consisted of $33,606 loss carryforwards for U.S. federal income tax purposes, $34,492 of loss carryforwards for U.S. state income tax purposes and $17,511 of loss carryforwards for foreign income tax purposes.

At December 31, 2014, $4,474 of the Company’s deferred income tax assets was attributable to $38,338 of net operating loss carryforwards, which consisted of $5,092 loss carryforwards for U.S. federal income tax purposes, $26,365 of loss carryforwards for U.S. state income tax purposes and $6,881 of loss carryforwards for foreign income tax purposes.

The net operating loss carryforwards for U.S. federal income tax purposes begin to expire in 2022. The net operating loss carryforwards for U.S. state income tax purposes begin to expire in 2020. In addition, certain loss carryforwards for foreign income tax purposes begin to expire in 2018 and certain other loss carryforwards for foreign purposes do not expire.

At December 31, 2015, tax credit carryforwards included in the Company’s deferred income tax assets consisted of $3,368 of research and experimentation credit carryforwards for U.S. federal income tax purposes, $2,082 of research and experimentation tax credit carryforwards for U.S. state income tax purposes, $3,232 of foreign tax credits for U.S. federal income tax purposes, $474 of other U.S. federal tax credits, $155 of research and experimentation tax credit carryforwards for foreign income tax purposes and $615 of other state tax credits. The state research and experimentation credits do not expire; the other state credits begin to expire in 2017. The Company recorded a valuation allowance related to the U.S. federal and state tax credits.

At December 31, 2014, tax credit carryforwards included in the Company’s deferred income tax assets consisted of $2,196 of research and experimentation tax credit carryforwards for U.S. state income tax purposes, $810 of foreign tax credits for U.S. federal income tax purposes, $518 of research and experimentation tax credit carryforwards for foreign income tax purposes and $615 of other state tax credits. The state research and experimentation credits do not expire; the other state credits begin to expire in 2017.

The Company recorded a reduction of $1,243 to additional paid-in capital during 2015 with respect to the vesting of restricted stock awards.

The Company has not provided for any taxes on approximately $18,615 of unremitted earnings of its foreign subsidiaries, as the Company intends to permanently reinvest all such earnings outside the U.S. We believe a calculation of the deferred tax liability associated with these undistributed earnings is impracticable.

The Company increased its unrecognized benefits by $6,451 for the year ended December 31, 2015 and increased these benefits by $1,829 for the year ended December 31, 2014. The Company does not anticipate any additional unrecognized tax benefits during the next 12 months that would result in a material change to its consolidated financial position.


	Unrecognized Tax Benefits
(in thousands)	2015		2014		2013
Balance at January 1	$	(1,845)	$	(16)	$	(475)
Increases related to prior year tax positions		—		—		380
Decreases related to prior year tax positions		1,475		—		—
Increases related to current year tax positions		(7,926)		(1,829)		—
Decreases related to current year tax positions		—		—		—
Decreases in unrecognized liability due to settlements with foreign tax authorities		—		—		79
Balance at December 31	$	(8,296)	$	(1,845)	$	(16)

The Company includes interest and penalties in the Consolidated Financial Statements as a component of income tax expense.

Tax years 2012 through 2014 remain subject to examination by the U.S. Internal Revenue Service. The Company has utilized U.S. loss carryforwards causing the years 1997 to 2007 to be subject to examination. The Company files income tax returns (which are open to examination beginning in the year shown in parentheses) in Australia (2009), Belgium (2012), Brazil (2010), China (2012), France (2012), Germany (2010), India (2011), Israel (2012), Italy (2011), Japan (2010), Korea (2010), Mexico (2010), Netherlands (2010), Switzerland (2010), the United Kingdom (2014) and Uruguay (2010).