Note 19. Income Taxes

Income (loss) before income taxes is as follows:


	Year ended December 31,
	2016		2015		2014
	(in thousands)
United States	$	8,880	$	12,708	$	(11,987)
Foreign		2,144		2,497		1,820
Income (loss) before income taxes	$	11,024	$	15,205	$	(10,167)

Provision for income taxes is as follows:


	Year ended December 31,
	2016		2015		2014
	(in thousands)
Current:
United States
Federal	$	—	$	—	$	—
State		49		(33)		59
Foreign		(217)		374		780
Total current		(168)		341		839
Deferred:
Foreign		191		186		260
Total deferred		191		186		260
Income tax provision	$	23	$	527	$	1,099

Reconciliations of income taxes at the United States Federal statutory rate to the effective income tax rate are as follows:


	Year ended December 31,
	2016		2015		2014
	(in thousands)
Income tax benefit at the United States statutory rate	$	3,859	$	5,322	$	(3,558)
State income taxes		32		(22)		38
Unrecognized tax benefits		(615)		(174)		184
Effect of change in valuation allowance		(7,765)		(5,676)		(6,835)
Foreign income tax rate differentials		233		600		259
Unremitted earnings of foreign subsidiaries		305		(102)		(758)
Stock options		264		379		686
Credit expirations		3,565		—		—
Deemed distribution from foreign subsidiaries		—		—		607
Discrete items, net		—		(540)		9,143
Other, net		145		740		1,333
Income tax provision	$	23	$	527	$	1,099

Significant components of current and long‑term deferred income taxes are as follows:


	`	As of December 31,
		2016				2015
		Current		Long Term		Current		Long Term
		(in thousands)
Federal net operating loss carryforwards		$	—	$	98,007	$	—	$	101,479
State net operating loss carryforwards			—		1,546		—		1,636
Foreign net operating loss carryforwards			—		673		—		810
Federal tax credit carryforwards			—		12,778		—		16,343
State tax credit carryforwards			—		2,566		—		3,964
Unremitted earnings of foreign subsidiaries			—		(8,913)		—		(8,632)
Intangible assets			—		229		—		286
Property, plant and equipment			—		9,774		—		9,331
Accrued compensation			—		97		1,082		—
Inventories			—		5,230		2,541		—
Stock compensation			—		6,687		—		6,001
Warranty			—		930		1,214		—
Other			—		(5,578)		1,237		(3,945)
Deferred taxes, gross			—		124,026		6,074		127,273
Valuation allowance			—		(122,966)		(6,335)		(125,928)
Deferred taxes, net		$	—	$	1,060	$	(261)	$	1,345

At December 31, 2016, the Company had $124.0 million of deferred tax assets worldwide relating to net operating loss carryforwards, tax credit carryforwards and other temporary differences, which are available to reduce income taxes in future years. A valuation allowance must be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including a company’s performance, the market environment in which the company operates, length of carryback and carryforward periods, existing sales backlog, and projections of future operating results. Where there are cumulative losses in recent years there is a strong presumption that a valuation allowance is needed. This presumption can be overcome in very limited circumstances.

The Company maintains a valuation allowance reducing the carrying value of the deferred tax assets in the United States to zero. The Company will continue to maintain a full valuation allowance for those tax assets until sustainable future levels of profitability are evident. Changes in the valuation allowance in 2016 and 2015 were attributable to changes in the composition of temporary differences and changes in net operating loss carryforwards. The remaining net deferred tax asset on the consolidated balance sheet represents the balances related to the activities of the foreign subsidiaries.

At December 31, 2016, the Company has federal and state net operating loss carryforwards of $317.1 million and foreign net operating loss carryforwards of $2.8 million, expiring principally between 2017 and 2034.

The Company has research and development and other tax credit carryforwards of $12.8 million at December 31, 2016 that can be used to reduce future federal and state income tax liabilities. These tax credit carryforwards expire principally between 2017 and 2028. The Company does not have any foreign tax credit carryforwards as a result of the expiration of $3.6 million of foreign tax credits at December 31, 2016.

It is Company policy to provide taxes for the total anticipated tax impact of the undistributed earnings of our wholly‑owned foreign subsidiaries, as such earnings are not expected to be reinvested indefinitely. The Company anticipates that U.S. tax resulting from remitting such earnings will be offset by net operating loss or credit carryforwards to the extent available. In addition, the Company does not anticipate incurring a foreign withholding tax on remitting such earnings since it does not intend to remit the earnings as dividends.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company and most foreign subsidiaries are subject to income tax examinations by tax authorities for all years dating back to 2005. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. The Company believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

At December 31, 2016, the Company had unrecognized tax benefits related to uncertain tax positions of approximately $6.8 million, of which approximately $5.4 million reduced the Company’s deferred tax assets and the offsetting valuation allowance and $1.5 million was recorded in other long‑term liabilities. During the first quarter of 2016, the statute of limitations associated with a tax position previously taken by the Company expired. The related tax reserve of $0.6 million and accrued interest of $0.3 million that had been recorded were reversed during the twelve months ended December 31, 2016. The Company believes that it is reasonably possible that there will be a reduction to the reserve for uncertain tax positions of approximately $0.5 million within the next twelve months as a result of the expiration of the statute of limitations in a foreign tax jurisdiction. The Company recognized $0.2 million in interest and penalty expense related to unrecognized tax benefits for each of the years-ended December 31, 2016, 2015 and 2014, respectively.

A reconciliation of the beginning and ending balance of unrecognized tax benefits are as follows:


	2016		2015
	(in thousands)
Balance at beginning of year	$	7,671	$	7,960
Increase (decrease) in unrecognized tax benefits as a result of tax positions taken during a prior period		76		(78)
Decreases in unrecognized tax benefits related to settlements with tax authorities		—		(211)
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitation		(903)
Increases in unrecognized tax benefits as a result of tax positions taken during the current period		—		—
Balance at end of year	$	6,844	$	7,671

Recorded as other long-term liability	$	1,462	$	2,142
Recorded as a decrease in deferred tax assets and offsetting valuation allowance		5,382		5,529
Balance at end of year	$	6,844	$	7,671