Income Taxes

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



	2016			2015		2014
Domestic	$	(13,928	)	$	16,819	$	6,820
Foreign	20,762			—		5,942
Total	$	6,834		$	16,819	$	12,762

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



	2016			2015			2014
Federal provision at statutory rate	$	2,392		$	5,887		$	4,466
U.S./foreign tax rate differential	(1,842		)	1			(991		)
Foreign non-deductible expenses	743			(479		)	1,556
Foreign tax provision	336			296			361
State taxes, net of federal benefit	(171		)	556			1,958
State tax rate change, net of federal benefit	541			32			(159		)
Change in uncertain tax positions	114			236			(150		)
Change in valuation allowance	(1,858		)	3,283			(2,538		)
Tax credits	(104		)	(283		)	(91		)
Share-based compensation	(108		)	459			377
Other	6			(230		)	342
Provision for income taxes	$	49		$	9,758		$	5,131

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



	2016									2015							2014
	Current Provision (Benefit)			Deferred Provision (Benefit)			Total Provision (Benefit)			Current Provision (Benefit)			Deferred Provision		Total Provision		Current Provision		Deferred Provision (Benefit)			Total Provision (Benefit)
Federal	$	(4	)	$	(1,801	)	$	(1,805	)	$	(153	)	$	6,077	$	5,924	$	26	$	4,799		$	4,825
State and local	(27		)	1,021			994			380			389		769		316		2,834			3,150
Foreign	2,605			(1,745		)	860			1,374			1,691		3,065		1,512		(4,356		)	(2,844		)
Total	$	2,574		$	(2,525	)	$	49		$	1,601		$	8,157	$	9,758	$	1,854	$	3,277		$	5,131

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



	2016			2015
Noncurrent deferred tax assets:
Amortization and fixed assets	$	4,109		$	5,270
Accounts receivable	815			706
Inventories	2,899			3,959
Pension obligations	4,623			5,268
Warranty obligations	2,519			3,608
Accrued benefits	1,060			1,370
Foreign exchange contracts	460			94
Restricted stock	145			153
Tax credits carryforwards	2,238			2,562
Net operating loss carryforwards	20,130			15,094
Other temporary differences not currently available for tax purposes	2,135			287
Total noncurrent assets	41,133			38,371
Valuation allowance	(12,546		)	(13,118		)
Net noncurrent deferred tax assets	$	28,587		$	25,253
Noncurrent deferred tax liabilities:
Amortization and fixed assets	$	(764	)	$	(1,158	)
Net operating loss carryforwards	2,178			2,121
Other temporary differences not currently available for tax purposes	(1,430		)	(796		)
Total noncurrent tax liabilities	(16		)	167
Valuation allowance	—			(1,286		)
Net noncurrent deferred tax liabilities	$	(16	)	$	(1,119	)
Total deferred tax asset	$	28,571		$	24,134

Our overall deferred tax position was a net deferred tax asset of $28.6 million.

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 2016, our foreign affiliates in China and India each generated enough income to no longer be in a cumulative three-year loss position. With an improved future forecast of income and other favorable evidence, valuation allowances totaling $3.1 million were released. The valuation allowance in the United Kingdom was reduced by $1.3 million due to a reduction in the statutory tax rate. We determined a valuation allowance of $2.6 million should be established for our foreign deferred assets in Luxembourg because projected future income is lower than originally expected. Also, we established a valuation allowance of $0.3 million for deferred assets associated with certain U.S. state tax net operating loss carry forwards. We expect to be able to realize the benefits of all of our deferred tax assets that are not currently offset by a valuation allowance, as discussed above. 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, 2016, we had $61.9 million of foreign, $14.5 million U.S. federal and $61.6 million of U.S. 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 beginning in 2017 and continue through 2036. 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.

As of December 31, 2016, 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 2028 and 2035. We also had $0.8 million of alternative minimum tax credit carryforwards that do not expire.

As of December 31, 2016, undistributed earnings from our foreign affiliates were $41.2 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, 2016, cash of $34.8 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 currently have any plans or intentions 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 U.S. federal, U.S. 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 one tax examination in process in India.

As of December 31, 2016, and 2015, we provided a liability of $0.6 million and $0.5 million, respectively, for unrecognized tax benefits related to U.S. federal, U.S. 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 $0.2 million and $0.1 million accrued for the payment of interest and penalties as of December 31, 2016 and December 31, 2015, respectively. Accrued interest and penalties are included in the $0.6 million of unrecognized tax benefits.

We have $0.2 million unrecognized tax reserves, interest and penalties we anticipate will 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):



	2016			2015			2014
Balance — Beginning of the year	$	489		$	27		$	189
Gross increase — tax positions in prior periods	40			445			—
Gross decreases — tax positions in prior periods	—			—			(170		)
Gross increases — current period tax positions	103			44			8
Lapse of statute of limitations	(4		)	(27		)	—
Balance — End of the year	$	628		$	489		$	27