9. Income Taxes

Total income (loss) before income taxes summarized by region for the years ended December 31 is as follows (in thousands):

	Year Ended December 31,
	2016			2015			2014
United States	$	77,538		$	128,489		$	11,462
Foreign		(12,830	)		(16,470	)		(22,672	)
Total income (loss) before income taxes	$	64,708		$	112,019		$	(11,210	)

The income tax provision (benefit) for the years ended December 31 consists of the following (in thousands):

	Year Ended December 31,
	2016			2015			2014
Current:
Federal	$	(14,837	)	$	1,480		$	32,387
State		1,283			178			3,359
Foreign		2,350			2,090			2,259
Total current provision		(11,204	)		3,748			38,005
Deferred:
Federal		40,338			42,719			(28,604	)
State		1,453			4,433			(2,296	)
Foreign		(2,583	)		(698	)		(1,528	)
Total deferred provision		39,208			46,454			(32,428	)
Changes in tax rate		(216	)		266			(84	)
Changes in valuation allowance		1,494			(3,739	)		793
Total provision	$	29,282		$	46,729		$	6,286

The differences between the income tax provision at the United States federal statutory tax rate and the Company’s effective tax rate for the years ended December 31 are the following (in thousands):

	Year Ended December 31,
	2016			2015			2014
Tax provision at federal statutory rate	$	22,648		$	39,207		$	(3,923	)
Globalization initiative		6,290			9,039			9,244
Acquisition related charges		5,167			—			—
State income tax		3,243			4,264			827
Valuation allowance		1,494			(3,739	)		793
Income tax reserves		759			2,301			657
Compensation expense		(8,013	)		(2,115	)		1,428
Income tax credits and incentives		(3,426	)		(1,754	)		(2,198	)
Non-deductible meals and entertainment		1,013			638			521
Foreign earnings taxed as non-United States rates		605			(494	)		(199	)
Other		(498	)		(618	)		(864	)
Total provision	$	29,282		$	46,729		$	6,286

Significant components of the Company’s deferred tax assets and liabilities at December 31 are composed of the following (in thousands):

	December 31,
	2016			2015
Deferred tax assets:
Litigation and related accrual	$	—		$	34,054
Share-based compensation		18,227			23,641
Inventory		16,324			13,344
Net operating loss carryforwards		9,976			3,484
General business and other credit carryforwards		21,215			5,425
Deferred rent		4,347			5,154
Original issue discount		8,817			—
Other		20,589			14,739
Gross deferred tax assets		99,495			99,841
Less valuation allowance		(10,544	)		(7,290	)
Net deferred tax assets		88,951			92,551
Deferred tax liabilities:
Depreciation		(29,888	)		(24,361	)
Original issue discount		—			(1,090	)
Acquired intangibles		(69,428	)		(295	)
Other		(1,687	)		(1,278	)
Total deferred tax liabilities		(101,003	)		(27,024	)
Consolidated net deferred tax (liabilities) assets	$	(12,052	)	$	65,527
Add deferred tax liability, net, attributable to non-controlling interests		528			897
Net deferred tax (liabilities) assets	$	(11,524	)	$	66,424

The following table summarizes the activity related to the Company’s unrecognized tax benefits (in thousands):

	Year Ended December 31,
	2016			2015			2014
Gross unrecognized tax benefits at January 1	$	12,448		$	12,372		$	4,504
Increases in tax positions for prior years		1,716			2,614			5,294
Decreases in tax positions for prior years		(270	)		(3,156	)		—
Increases in tax positions for current year relating to ongoing operations		6,205			618			2,574
Increases in tax positions for current year relating to acquisitions		3,223			—			—
Gross unrecognized tax benefits at December 31	$	23,322		$	12,448		$	12,372

Included in the gross uncertain tax benefits balance at December 31, 2016 are $0.4 million of tax deductions for which there is uncertainty only regarding the timing of the tax benefit. In the event these deductions are deferred to a later period, it would accelerate the payment of cash to the taxing authority. Other than potential interest and penalties, such deferral would have no impact on tax expense. At December 31, 2016, 2015, and 2014, $12.5 million, $7.2 million, and $7.2 million, respectively, of the Company’s total unrecognized tax benefits, if recognized, would affect the effective income tax rate.

In accordance with the disclosure requirements as described in ASC Topic 740, Income Taxes, the Company has classified uncertain tax positions as non-current income tax liabilities unless expected to be paid in one year. The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. For the years ended December 31, 2016 and December 31, 2015, the Company recognized approximately $0.3 million and $0.1 million, respectively, in interest and penalties as income tax expense in the Consolidated Statements of Operations. The Company did not recognize any interest and penalties in 2014. The Company had approximately $0.5 million and $0.1 million for the payment of interest and penalties accrued at December 31, 2016 and December 31, 2015, respectively, in the Consolidated Balance Sheets.

The Company does not anticipate there will be a significant change in unrecognized tax benefits within the next 12 months.

The Company is subject to routine compliance reviews on various tax matters around the world in the ordinary course of business. Currently, income tax audits are being conducted in the state of New York and the state of Louisiana. U.S. and most foreign jurisdictions remain subject to examination in all years due to prior year net operating losses and R&D credits.

The undistributed earnings of the Company’s foreign subsidiaries as of December 31, 2016 are immaterial. In the event the Company is required to repatriate funds from outside of the United States, such repatriation would not generate additional United States tax liabilities, but could be subject to local laws and customs generating immaterial tax consequences in the subsidiaries’ jurisdictions.

At December 31, 2016, the Company had $42.7 million, $106.0 million and $8.6 million of federal, state and foreign net operating loss carryforwards, respectively, which will begin to expire in 2018, 2017, and 2018, respectively. Reserves of $52.7 million are recorded against California net operating losses of $52.7 million due to uncertainty surrounding their realization.

There were also federal and California income tax credit carryforwards of $18.2 million and $16.2 million, respectively. The federal credits will begin to expire in 2020. The California credits can be carried forward indefinitely. Reserves of $16.2 million are recorded against the California credits due to uncertainty surrounding their realization.

Due to the “change of ownership” provision of the Tax Reform Act of 1986, utilization of the Company’s net operating loss and credit carryforwards may be subject to an annual limitation against taxable income in future periods. As a result of any future ownership changes, the annual limitation of loss and credit carryforwards may cause them to expire before ultimately becoming available to reduce future income tax liabilities.