Income Taxes

Pre-tax income (loss) consisted of the following for the years ended December 31 (in thousands):



	2015		2014		2013
Domestic	$	16,819	$	6,820	$	(20,863	)
Foreign	—		5,942		6,075
Total	$	16,819	$	12,762	$	(14,788	)

A reconciliation of income taxes computed at the statutory rates to the reported income tax (benefit) provision for the years ended December 31 is as follows (in thousands):



	2015			2014			2013
Federal provision at statutory rate	$	5,887		$	4,466		$	(5,176	)
U.S./foreign tax rate differential	1			(991		)	(809		)
Foreign non-deductible expenses	(479		)	1,556			1,174
Foreign tax provision	296			361			114
State taxes, net of federal benefit	588			1,799			1,009
Change in uncertain tax positions	236			(150		)	(253		)
Change in valuation allowance	3,283			(2,538		)	856
Tax credits	(283		)	(91		)	(326		)
Share-based compensation	459			377			636
Other	(230		)	342			438
Provision (benefit) for income taxes	$	9,758		$	5,131		$	(2,337	)

The provision (benefit) for income taxes for the years ended December 31 is as follows (in thousands):



	2015							2014								2013
	Current Provision			Deferred Provision		Total Provision		Current Provision		Deferred Provision			Total Provision			Current Provision			Deferred Provision			Total Provision
Federal	$	(153	)	$	6,077	$	5,924	$	26	$	4,799		$	4,825		$	(2,689	)	$	(1,837	)	$	(4,526	)
State and local	380			389		769		316		2,834			3,150			17			994			1,011
Foreign	1,374			1,691		3,065		1,512		(4,356		)	(2,844		)	731			447			1,178
Total	$	1,601		$	8,157	$	9,758	$	1,854	$	3,277		$	5,131		$	(1,941	)	$	(396	)	$	(2,337	)

A summary of deferred income tax assets and liabilities as of December 31 is as follows (in thousands):



	2015			2014
Noncurrent deferred tax assets:
Amortization and fixed assets	$	5,270		$	6,558
Accounts receivable	706			410
Inventories	3,959			3,074
Pension obligations	5,268			7,228
Warranty obligations	3,608			2,267
Accrued benefits	1,370			1,980
Foreign exchange contracts	94			212
Restricted stock	153			173
Tax credits carryforward	2,562			2,062
Net operating loss carryforward:	15,094			20,928
Other temporary differences not currently available for tax purposes	287			(573		)
Total noncurrent assets	38,371			44,319
Valuation allowance	(13,118		)	(11,029		)
Net noncurrent deferred tax assets	$	25,253		$	33,290
Noncurrent deferred tax liabilities:
Amortization and fixed assets	$	(1,158	)	$	(938	)
Net operating loss carryforwards	2,121			1,432
Other temporary differences not currently available for tax purposes	(796		)	(667		)
Total noncurrent tax liabilities	167			(173		)
Valuation allowance	(1,286		)	(741		)
Net noncurrent deferred tax liabilities	$	(1,119	)	$	(914	)
Total deferred tax asset	$	24,134		$	32,376

We have elected early adoption of FASB ASU 2015-17, “Income Taxes (Topic 740)” which requires deferred tax assets and liabilities to be classified as noncurrent amounts in the consolidated balance sheets. We are adopting this change because this method simplifies financial reporting and reduces complexity. We have applied the change retrospectively and have reclassified the amounts in 2014 for comparison purposes. The impact of this change on the 2014 consolidated balance sheet was a decrease in current assets of $9.2 million, a decrease in total assets of $0.1 million and a decrease in total liabilities of $0.1 million.

As of December 31, 2015, we had total noncurrent deferred assets of $38.4 million, which was offset by $13.1 million of valuation allowances. Our total noncurrent deferred tax liabilities were $0.2 million, which was offset by $1.3 million of valuation allowances. Our overall deferred tax position was a net deferred tax asset of $24.1 million.

As a result of certain realization requirements, the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets at December 31, 2015 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Equity will be increased by $2.1 million if and when such deferred tax assets are ultimately realized. We use tax law ordering for purposes of determining when excess tax benefits have been realized.

We assess whether valuation allowances should be established against deferred tax assets based on consideration of all available evidence, both positive and negative, using a “more likely than not” standard. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carryforward periods, our experience with tax attributes expiring unused and tax planning alternatives. In making such judgments, significant weight is given to evidence that can be objectively verified.

During 2015, we released valuation allowances of $0.5 million in Belgium and Luxemburg that had been previously established. A forecast of future profitability in our operations in Belgium and Luxembourg indicates that they will be able to utilize their remaining deferred assets before expiration.Also, we released valuation allowance of $0.2 million associated with certain U.S. state tax net operating loss carry forwards. We determined a valuation allowance of $1.9 million should be established for our foreign deferred tax assets located in China which is in a cumulative loss position. In the event that our actual results differ from our estimates or we adjust these estimates in future periods, the effects of these adjustments could materially impact our financial position and results of operations.

As of December 31, 2015, we had $62.4 million of foreign, no federal and $54.6 million of state net operating loss carryforwards available to offset future taxable income. Utilization of these losses is subject to the tax laws of the applicable tax jurisdiction and may be limited by the ability of certain subsidiaries to generate taxable income in the associated tax jurisdiction. Generally, our net operating loss carryforwards expire between 2016 and 2035. However, there are certain tax jurisdictions with no expiration dates. We have established valuation allowances for all net operating losses that we believe are more likely than not to expire before they can be utilized. Of the net operating losses that we anticipate utilizing, there are none that would expire in 2016 and $3.0 million that would expire before 2020.

As of December 31, 2015, we had $1.5 million of research and development tax credits being carried forward related to our U.S. operations. Utilization of these credits may be limited by the ability to generate federal taxable income in future years and the credits will expire between 2027 and 2034. We also had $1.1 million of alternative minimum tax credit carryforwards that do not expire.

As of December 31, 2015, undistributed earnings from our foreign affiliates were $33.8 million. We do not intend to repatriate these funds and consider these funds to be permanently reinvested. Deferred taxes have not been provided on these unremitted earnings as determination of the liability is not practical because the liability would be dependent on circumstances existing if and when remittance occurs.

As of December 31, 2015 cash of $25.8 million was held by foreign subsidiaries. If we were to repatriate any portion of these funds back to the U.S., we would need to accrue and pay the appropriate withholding and income taxes on amounts repatriated. We do not intend to repatriate funds held by our foreign affiliates, but intend to use the cash to fund the growth of our foreign operations.

We operate in multiple jurisdictions and are routinely under audit by federal, state and international tax authorities. Exposures exist related to various filing positions which may require an extended period of time to resolve and may result in income tax adjustments by the taxing authorities. Reserves for these potential exposures have been established which represent management’s best estimate of the probable adjustments. On a quarterly basis, management evaluates the reserve amounts in light of any additional information and adjusts the reserve balances as necessary to reflect the best estimate of the probable outcomes. However, actual results may differ from these estimates. The resolution of these matters in a particular future period could have an impact on our consolidated statement of operations and provision for income taxes.

We file federal income tax returns in the U.S. and income tax returns in various states and foreign jurisdictions. With few exceptions, we are no longer subject to income tax examinations by any of the taxing authorities for years before 2011. We currently have no tax examinations in process.

As of December 31, 2015, and 2014, we provided a liability of $0.5 million and $27 thousand, respectively, of unrecognized tax benefits related to federal, state, and foreign jurisdictions, all of which would impact our effective tax rate, if recognized. These unrecognized tax benefits are netted against their related noncurrent deferred tax assets that are being carried forward (net operating losses and tax credits).

We accrue interest and penalties related to unrecognized tax benefits through income tax expense. We had $0.1 million and $2 thousand accrued for the payment of interest and penalties as of December 31, 2015 and December 31, 2014, respectively. Accrued interest and penalties are included in the $0.5 million of unrecognized tax benefits.

We have no unrecognized tax reserves, interest and penalties we anticipate to be released within the next 12 months due to the statue of limitations.

A reconciliation of the beginning and ending amount of unrecognized tax benefits (including interest and penalties) at December 31 is as follows (in thousands):



	2015			2014			2013
Balance — Beginning of the year	$	27		$	189		$	444
Gross increase — tax positions in prior periods	445			—			—
Gross decreases — tax positions in prior periods	—			(170		)	(257		)
Gross increases — current period tax positions	44			8			2
Lapse of statute of limitations	(27		)	—			—
Balance — End of the year	$	489		$	27		$	189