INCOME TAXES

In the fiscal years set forth below, the provision for income taxes consisted of the following (in thousands):

	Year Ended October 31,
	2016		2015		2014

Current:
U.S. taxes	$	1,362	$	4,600	$	3,498
Foreign taxes		4,456		3,752		3,594
		5,818		8,352		7,092
Deferred:
U.S. taxes		(176)		(896)		(709)
Foreign taxes		(49)		(117)		(165)
		(225)		(1,013)		(874)
	$	5,593	$	7,339	$	6,218

A comparison of income tax expense at the U.S. statutory rate to the Company’s effective tax rate is as follows (dollars in thousands):

	Year Ended October 31,
	2016			2015			2014
Income before income taxes:
Domestic	$	2,703		$	10,806		$	9,190
Foreign		16,182			12,747			12,171
Earnings (Loss) before taxes on income	$	18,885		$	23,553		$	21,361
Tax rates:
U.S. statutory rate		34	%		35	%		35	%
Effect of tax rate of international jurisdictions different than U.S. statutory rates		(7)	%		(5)	%		(4)	%
Valuation allowance		3	%		1	%		0	%
State taxes		0	%		1	%		0	%
Tax Credits		(2)	%		(1)	%		(1)	%
Effect of Tax Rate Changes		4	%		0	%		0	%
Other		(2)	%		0	%		(1)	%
Effective tax rate		30	%		31	%		29	%

We have not made any provision for U.S. income taxes on the undistributed earnings of our wholly-owned foreign subsidiaries based upon our determination that such earnings will be indefinitely reinvested. Undistributed earnings of our wholly-owned foreign subsidiaries at October 31, 2016 were approximately $79.7 million. In the event these earnings are later distributed to the U.S., such distributions would likely result in additional U.S. tax that may be offset, at least in part, by associated foreign tax credits.

Deferred income taxes are determined based on the difference between the amounts used for financial reporting purposes and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred taxes are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

As of October 31, 2016, we had deferred tax assets established for accumulated net operating loss carryforwards of $1.6 million, primarily related to state and foreign jurisdictions. We also have deferred tax assets for research and development tax credits of $0.5 million. We have established a valuation allowance against some of these carryforwards due to the uncertainty of their full realization. As of October 31, 2016 and 2015, the balance of this valuation allowance was $2.1 million and $1.5 million, respectively.

Significant components of our deferred tax assets and liabilities at October 31, 2016 and 2015 were as follows (in thousands):

	October 31,
	2016		2015
Deferred Tax Assets:
Accrued inventory reserves		1,824		1,304
Accrued warranty expenses		312		441
Compensation related expenses		2,664		1,891
Unrealized exchange gain/loss		370		186
Other accrued expenses		194		237
Net operating loss carryforwards		1,616		1,275
Other credit carryforwards		474		287
Other		331		170
		7,785		5,791
Less: Valuation allowance on net operating loss carryforwards		(1,593)		(1,300)
Valuation allowance on other credit carryforwards		(474)		(185)
		(2,067)		(1,485)
Deferred tax assets		5,718		4,306

Deferred Tax Liabilities:
Net derivative instruments		(701)		(811)
Property and equipment and capitalized software development costs		(2,717)		(2,369)
Other		(456)		(403)

Net deferred tax assets	$	1,844	$	723

As of October 31, 2016, we had net operating losses carryforwards for international and U.S. income tax purposes of $7.9 million, of which $6.5 million will expire within 5 years and $1.4 million will expire between 5 and 20 years. We also had tax credits of $719,000 which will expire between 10 and 20 years.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding the related accrual for interest or penalties, is as follows (in thousands):

	2016		2015		2014
Balance, beginning of year	$	1,034	$	1,196	$	1,284
Additions based on tax positions related to the current year		52		17		5
Additions (reductions) related to prior year tax positions		19		(51)		(4)
Reductions due to statute expiration		—		—		—
Other		(3)		(128)		(89)

Balance, end of year	$	1,102	$	1,034	$	1,196

The entire balance of the unrecognized tax benefits and related interest at October 31, 2016, if recognized, would favorably affect the effective tax rate in future periods.

We recognize accrued interest and penalties related to unrecognized tax benefits as components of our income tax provision. As of October 31, 2016, the gross amount of interest accrued, reported in other liabilities, was approximately $53,000, which did not include the federal tax benefit of interest deductions. The statute of limitations with respect to unrecognized tax benefits will expire between July 2017 and July 2019.

Due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of future audits may result in liabilities that could be different from this estimate. In such case, we would record additional tax expense or tax benefit in the tax provision (benefit) or reclassify amounts on the consolidated balance sheets in the period in which the matter is effectively settled with the taxing authority.

We file income tax returns in the U.S. federal jurisdiction and various states, local, and non-U.S. jurisdictions. There are currently no open audits in any jurisdictions.

A summary of open tax years by major jurisdiction is presented below:

United States federal	Fiscal 2013 through the current period
Germany¹	Fiscal 2013 through the current period
Taiwan	Fiscal 2013 through the current period

¹ Includes federal as well as state, provincial or similar local jurisdictions, as applicable.