16.

INCOME TAXES

Consolidated income (loss) before income taxes for the years ended December 31, 2016, 2015 and 2014 consisted of the following:

(in thousands)	2016		2015		2014
U.S. operations	$	(8,442)	$	(5,937)	$	(870)
Foreign operations		1,214		(458)		(2,657)
(Loss) before income taxes	$	(7,228)	$	(6,395)	$	(3,527)

The income tax provision (benefit) for the years ended December 31, 2016, 2015 and 2014 consisted of the following:

(in thousands)	2016		2015		2014
Current:
Federal	$	—	$	—	$	—
State and local		81		59		29
Foreign		64		67		(81)
Total current provision (benefit)		145		126		(52)
Deferred:
Federal		—		—		—
State and local		—		—		—
Foreign		(107)		(534)		(674)
Total deferred provision (benefit)		(107)		(534)		(674)
Total income tax provision (benefit)	$	38	$	(408)	$	(726)

The following table provides a reconciliation of the federal statutory tax at 34% to the recorded tax provision (benefit) for the years ended December 31, 2016, 2015 and 2014, respectively:

(in thousands)	2016		2015		2014
Computed federal income taxes at the statutory rate (benefit)	$	(2,457)	$	(2,174)	$	(1,199)
State income taxes (net of federal benefit)		53		37		19
Permanent tax differences		(415)		(372)		(346)
Foreign tax rates and tax credits differing from USA		4		(60)		502
Net operating loss and other adjustment		216		—		—
Change in enacted tax rates applied to foreign deferred taxes		(38)		(114)		—
Change in valuation allowance		2,675		2,275		298
Total income tax provision (benefit)	$	38	$	(408)	$	(726)

The Company accounts for income taxes under the asset-liability method. 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. Valuation allowances are provided when it is ‘‘more likely than not’’ that the benefits of existing deferred tax assets will not be realized in a future period. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2016 and 2015 are as follows:

(in thousands)	2016		2015
Deferred tax assets:
Net operating loss carryforwards	$	21,704	$	19,080
Property, plant and equipment		—		—
Contribution and other carryforwards		370		313
Inventory and accounts receivable reserves		441		537
Other		1,051		1,213
Valuation allowance		(23,503)		(20,828)
Deferred tax assets after valuation allowance		63		315
Deferred tax liabilities
Intangible Assets		(3,754)		(4,574)
Property, plant and equipment		(414)		(251)
Total deferred tax liabilities		(4,168)		(4,825)
Net deferred tax liabilities	$	(4,105)	$	(4,510)

The Company adopted the provisions of ASU 2015-17 in 2015. ASU 2015-17 requires that all deferred tax assets and liabilities be classified as noncurrent on the balance sheet.

The net deferred tax liability is recorded as of December 31, 2016 and December 31, 2015 as follows:

(in thousands)
	2016		2015
Noncurrent deferred tax assets	$	15	$	23
Noncurrent deferred tax liability		(4,120)		(4,533)
Net deferred tax liability	$	(4,105)	$	(4,510)

Noncurrent deferred tax assets are included in the Deposits and other assets line of the balance sheet. The Company’s consolidated deferred tax liability relates to intangibles recorded in connection with prior acquisitions. Approximately $2.8 million of the liability relates to indefinite-lived intangibles, which will only reverse at the time of ultimate sale or impairment of the underlying intangible assets. Additionally, $1.2 million of the deferred tax liability relates to finite-lived intangibles as a result of a foreign acquisition, which reverses as the intangibles are amortized.

As of December 31, 2016 and 2015, the Company recorded a valuation allowance of $23.5 million and $20.8 million, respectively. During the years ended December 31, 2016, 2015 and 2014, the Company recorded a change in valuation allowance of $2.7 million, $2.3 million, and $0.3 million, respectively. The Company has provided for a full valuation on existing deferred tax assets in the United States. As of December 31, 2016, the Company has available federal, state and foreign net operating loss carry forwards of approximately $56.6 million, $55.1 million, and $0.3 million respectively, which have various expiration dates beginning in 2018 through 2036. Our ability to utilize federal net operating loss (NOL) carry forwards to reduce future taxable income may be limited under Section 382 of the Internal Revenue Code if certain ownership changes in our company occur during a rolling three-year period. If such ownership changes by 5-percent-shareholders result in aggregate increases that exceed 50 percentage points during the three-year period, then Section 382 imposes an annual limitation on the amount of our taxable income that may be offset by the federal NOL carry forwards or tax credit carry forwards at the time of ownership change.

CUI Global files consolidated income tax returns with its domestic subsidiaries for federal and many state jurisdictions in addition to separate subsidiary income tax returns in Japan, the United Kingdom and Canada. As of December 31, 2016, the Company is not under examination by any income tax jurisdiction. The Company is no longer subject to examination for years prior to 2013.

The Company accounts for income tax uncertainties using a threshold of ‘‘more-likely-than-not’’ in accordance with the provisions of ASC Topic 740, Income Taxes (‘‘ASC 740’’). As of December 31, 2016, the Company has reviewed all of its tax filings and positions taken on its returns and has not identified any material current or future effect on its consolidated results of operations, cash flows or financial position. As such, the Company has not recorded any tax, penalties or interest on tax uncertainties. It is Company policy to record any interest on tax uncertainties as a component of income tax expense.

The Company has immaterial amounts of undistributed earnings of foreign subsidiaries at December 31, 2016 for which no deferred taxes have been provided. Such earnings are considered indefinitely invested outside of the United States. If these earnings were repatriated to the United States, the earnings would be subject to U.S. taxation. The amount of the unrecognized deferred tax liability associated with the undistributed earnings is immaterial as of December 31, 2016. Any unrecognized deferred tax liability would approximate the excess of the U.S. tax liability over the amount of creditable foreign taxes paid that would result from a full remittance of undistributed earnings.