Entity information:
INCOME TAXES

The components of loss from continuing operations before income taxes consisted of the following (in thousands):
 
Year ended December 31,
 
2016
 
2015
 
2014
Income (loss) before income taxes:
 
 
 
 
 
United States
$
(11,973
)
 
$
(29,595
)
 
$
(16,582
)
Foreign
557

 
(293
)
 
1,941

 
$
(11,416
)
 
$
(29,888
)
 
$
(14,641
)


The provision (benefit) for income taxes from continuing operations consisted of the following (in thousands):
 
Year ended December 31,
 
2016
 
2015
 
2014
Provision (benefit) for income taxes:
 
 
 
 
 
Current:
 
 
 
 
 
Federal
$
12

 
$
60

 
$
23

State
24

 
150

 
150

Foreign
1,378

 
982

 
926

Total current
1,414

 
1,192

 
1,099

Deferred:
 
 
 
 
 
Federal
(301
)
 
(7,069
)
 
(3,885
)
State
(1,007
)
 
4,962

 
(1,656
)
Foreign
338

 
155

 
414

Change in valuation allowance
2,072

 
2,767

 
6,242

Total deferred
1,102

 
815

 
1,115

Total
$
2,516

 
$
2,007

 
$
2,214



A reconciliation of the Company's effective tax rate for continuing operations to the statutory federal rate is as follows:
 
Year ended December 31,
 
2016
 
2015
 
2014
U.S. statutory income tax rate
(35.0
)%
 
(35.0
)%
 
(35.0
)%
State income taxes, net of federal benefit
—

 
—

 
(4.9
)
Foreign income taxes
7.9

 
3.6

 
5.1

Settlement of foreign tax audit
5.2

 
—

 
—

Foreign deemed dividends
5.0

 
1.7

 
11.5

Stock-based compensation
38.9

 
14.4

 
12.0

Tax credits
(11.6
)
 
(3.3
)
 
(14.6
)
Valuation allowance
1.9

 
24.3

 
29.8

Goodwill amortization
6.7

 
2.2

 
4.8

Meals and entertainment
1.4

 
0.8

 
2.5

Tax gain on sale of acquired assets
—

 
—

 
4.2

Other, net
1.6

 
(2.0
)
 
(0.3
)
Effective income tax rate
22.0
 %
 
6.7
 %
 
15.1
 %


The following is a summary of the significant components of deferred income tax assets and liabilities (in thousands):
 
December 31,
 
2016
 
2015
Assets:
 
 
 
Net operating loss carryforwards
$
77,425

 
$
76,970

Research and development tax credits
24,440

 
22,412

Other tax credits
230

 
230

Intangible assets
9,270

 
7,128

Deferred revenue
3,176

 
3,936

Accrued expenses
6,699

 
8,706

Inventory
5,010

 
6,103

Stock-based compensation
14,295

 
13,594

Other temporary differences
2,892

 
2,623

 
143,437

 
141,702

Valuation allowance
(141,895
)
 
(139,823
)
Total deferred tax assets
1,542

 
1,879

Liabilities:
 
 
 
Purchased intangible assets
(3,047
)
 
(2,282
)
Total deferred tax liabilities
(3,047
)
 
(2,282
)
Total net deferred tax assets
$
(1,505
)
 
$
(403
)
 
 
 
 
Reported as:
 
 
 
  Deferred income taxes - noncurrent assets
$
1,542

 
$
1,879

  Deferred income taxes - noncurrent liabilities
(3,047
)
 
(2,282
)
 
$
(1,505
)
 
$
(403
)


At December 31, 2016, the Company had cumulative NOLs of $226.5 million for federal income tax purposes and $111.2 million for state income tax purposes. The federal NOL carryforwards expire at various dates from 2020 through 2034. The state NOL carryforwards expire at various dates from 2017 through 2036. Of the federal NOL, $150.8 million is attributable to stock option deductions. The Company's federal NOL carryforwards for tax return purposes are $22.7 million greater than its recognized federal NOL for financial reporting purposes, primarily due to excess tax benefits (stock-based compensation deductions in excess of book compensation costs) not recognized for financial statement purposes until realized. The tax benefit of this loss would be recognized for financial statement purposes in the period in which the tax benefit reduces income taxes payable, which will not be recognized until the Company recognizes a reduction in taxes payable from all other NOL carryforwards. In addition, the Company had $14.3 million of deferred tax assets as of December 31, 2016 related to compensation expenses recognized for financial reporting purposes that are not deductible for tax purposes until options are exercised or shares vest. The ultimate realization of the benefit related to stock options is directly associated with the price of the Company's common stock. Employees will not exercise the underlying options unless the current market price exceeds the option exercise price.

The Company also has available federal and state research and development credit carryforwards of approximately $25 million that expire at various dates from 2017 through 2036.

In November 2015, the FASB issued ASU 2015-17, which requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in the consolidated balance sheet. The Company elected to early-adopt ASU 2015-17 and accordingly, reclassified its net current deferred tax asset totaling $1.0 million to its noncurrent net deferred tax asset as of December 31, 2015. No prior periods were retrospectively adjusted.

During 2016 and 2015, the Company performed an analysis to determine if, based on all available evidence, it considered it more likely than not that some portion or all of the recorded deferred tax assets will not be realized in a future period. As a result of the Company's evaluation, the Company concluded that there was insufficient positive evidence to overcome the more objective negative evidence related to its cumulative losses and other factors. Accordingly, the Company has maintained a valuation allowance against its domestic deferred tax asset amounting to $141.9 million at December 31, 2016 and $139.8 million at December 31, 2015.

A reconciliation of the Company's unrecognized tax benefits is as follows (in thousands):
 
2016
 
2015
 
2014
Unrecognized tax benefits at January 1
$
8,888

 
$
8,875

 
$
8,861

Increases related to current year tax positions
36

 
13

 
14

Increases related to prior period tax positions
723

 
—

 
—

Decreases related to prior period tax positions
(81
)
 
—

 
—

Settlements
(597
)
 
—

 
—

  Unrecognized tax benefits at December 31
$
8,969

 
$
8,888

 
$
8,875



The Company recorded liabilities for potential penalties and interest of $80,721 for the year ended December 31, 2016, $13,000 for the year ended December 31, 2015 and $14,000 for the year ended December 31, 2014. The Company does not expect its unrecognized tax benefits to change materially over the next 12 months. Due to the Company's valuation allowance at December 31, 2016, none of the Company's unrecognized tax benefits, if recognized, would affect the effective tax rate.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, as well as various state and foreign jurisdictions. Generally, the tax years 2013 through 2015 remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company's federal NOLs generated prior to 2013 could be adjusted on examination even though the year in which the loss was generated is otherwise closed by the statute of limitations. The Company's primary state jurisdiction, Massachusetts, has open periods from 2011 through 2013.

The acquisition of PT was accounted for as a taxable business combination and the Company carried over the existing tax basis of the acquired assets and liabilities as the Company did not make the election under Section 338(g) of the Internal Revenue Code to have the transaction treated as an asset acquisition election to step up the basis in the acquired assets and liabilities to fair market value for tax purposes. Deferred taxes were recorded as part of the business combination based on the differences between the tax basis of the acquired assets or liabilities and their reported amounts for financial reporting purposes. The Company concluded that there was insufficient positive evidence to overcome the more objective negative evidence related to cumulative losses and other factors. Accordingly, the Company recorded a valuation allowance against the acquired deferred tax assets. As a result of the change in control of PT, the NOL and credit carryforwards are limited under Internal Revenue Code Section 382.

The Company acquired approximately $26 million of federal and state NOL carryforwards and federal and state research and development credit carryforwards as a result of the PT acquisition. Under the provisions of the Internal Revenue Code, the NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has not performed a comprehensive Section 382 study to determine any potential loss limitation with regard to NOL carryforwards and tax credits acquired as a result of the PT acquisition.

The acquisition of the SDN Business was a taxable purchase of a business under Section 197 of the Internal Revenue Code. The tax amortization related to the SDN Business goodwill created a deferred tax liability.

The acquisition of Taqua was a taxable purchase of a business under Section 197 of the Internal Revenue Code. The tax amortization related to Taqua goodwill created a deferred tax liability.