14. Income Taxes

For financial reporting purposes, income before income taxes includes the following components:

	Year Ended December 31
	2015				2014				2013
United States		$	57,846			$	57,651			$	53,315
Foreign			(5,873	)			(4,045	)			4,927
Income before income taxes		$	51,973			$	53,606			$	58,242

The provision for income taxes consists of the following:

	Year Ended December 31
	2015			2014			2013
Current provision (benefit):
Federal	$	19,758		$	18,713		$	16,239
State		2,553			2,992			2,785
Foreign		255			243			2,664
Total current provision		22,566			21,948			21,688
Deferred benefit:
Federal		(1,183	)		(1,627	)		(885	)
State		(275	)		(222	)		(923	)
Foreign		(1,101	)		(699	)		(852	)
Total deferred benefit		(2,559	)		(2,548	)		(2,660	)
Total provision (benefit):
Federal		18,575			17,086			15,354
State		2,278			2,770			1,862
Foreign		(846	)		(456	)		1,812
Total tax provision	$	20,007		$	19,400		$	19,028

The Company’s income tax provision is computed based on the domestic and foreign federal statutory rates and the average state statutory rates, net of related federal benefit.

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before income taxes. A reconciliation of the provision for income taxes at the statutory federal income tax rate to the amount provided is as follows:

	Year Ended December 31
	2015			2014			2013
Tax at the statutory federal income tax rate	$	18,191		$	18,762		$	20,385
Qualified production activity deduction		(1,174	)		(1,360	)		(1,395	)
State income tax, net of federal income tax		1,386			1,727			1,105
Other permanent differences		393			840			464
Research and development tax credits		(291	)		(1,323	)		(2,054	)
Change in valuation allowance		2,036			1,675			810
Other items		(534	)		(921	)		(287	)
Total tax provision	$	20,007		$	19,400		$	19,028

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred tax assets and liabilities are as follows:

	December 31
	2015			2014
Deferred tax assets:
Inventory reserves	$	6,696		$	6,539
Warranty reserves		2,774			2,988
Bad debt reserves		409			598
State tax loss carryforwards		3,006			2,377
Accrued vacation		2,055			2,060
SERP		275			1,231
Deferred compensation		1,328			1,255
Restricted stock units		1,893			2,256
Foreign exchange gains/losses		4,549			3,111
Pension and post-employment benefits		2,232			2,197
Foreign deferred tax assets		2,773			3,311
Foreign net operating losses		5,134			3,168
Other		3,460			3,267
Valuation allowances		(8,065	)		(6,029	)
Total deferred tax assets		28,519			28,329
Deferred tax liabilities:
Property and equipment		17,616			19,394
Amortization		1,019			1,087
Goodwill		1,917			2,014
Pension		1,305			1,313
Foreign tax rate differential		--			2,236
Foreign deferred tax liabilities		2,815			3,820
Total deferred tax liabilities		24,672			29,864
Total net deferred assets (liabilities)	$	3,847		$	(1,535	)

In accordance with ASU No. 2015-17 Topic 740-10-65-4, the Company has prospectively adopted the early application of ASU No. 2015-17, thereby classifying all deferred taxes as noncurrent assets and noncurrent liabilities as of December 31, 2015. The reason for the change is to simplify the reporting of all deferred tax assets and liabilities on the balance sheet. The prior periods were not retrospectively adjusted.

As of December 31, 2015, the Company has state net operating loss carryforwards of $66,501, foreign net operating loss carryforwards of approximately $16,062, and state tax credit carryforwards of $864 for tax purposes, which will be available to offset future taxable income. If not used, these carryforwards will expire between 2016 and 2029. A significant portion of the valuation allowance for deferred tax assets relates to the future utilization of state and foreign net operating loss and state tax credit carryforwards. Future utilization of these net operating loss and state tax credit carryforwards is evaluated by the Company on a periodic basis and the valuation allowance is adjusted accordingly. In 2015, the valuation allowance on these carryforwards was increased by $2,111 due to uncertainty about whether certain entities will realize their state and foreign net operating loss carryforwards. The Company has also determined that the recovery of certain other deferred tax assets is uncertain. The valuation allowance for these deferred tax assets was decreased by $75 during 2015.

Undistributed earnings of the Company’s Canadian subsidiary, Breaker Technology Ltd., and Northern Ireland subsidiary, Telestack Limited, are considered to be indefinitely reinvested; accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon any future repatriation of their earnings, in the form of dividends or otherwise, the Company would be subject to additional U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes due to Canada and may have to be paid. The cumulative amount of Breaker Technology, Ltd.’s unrecovered basis difference is $9,300 as of December 31, 2015. The cumulative amount of Telestack Limited’s unrecovered basis difference is $1,000 as of December 31, 2015. The determination of the unrecognized deferred tax liability on the basis difference is not practical at this time.

The Company files income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by authorities for years prior to 2013. With few exceptions, the Company is no longer subject to state and local or non-U.S. income tax examinations by authorities for years prior to 2008.

The Company has a liability for unrecognized tax benefits of $603 and $2,585 (excluding accrued interest and penalties) as of December 31, 2015 and 2014, respectively. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. The Company recognized tax benefits of $123 and $107 in 2015 and 2014, respectively, for penalties and interest related to amounts that were settled for less than previously accrued. The net total amount of unrecognized tax benefits that, if recognized, would affect the Company’s effective tax rate is $618 and $2,722 at December 31, 2015 and 2014, respectively. The Company does not expect a significant increase or decrease to the total amount of unrecognized tax benefits within the next twelve months.

A reconciliation of the beginning and ending unrecognized tax benefits excluding interest and penalties is as follows:

	Year Ended December 31
	2015			2014		2013
Balance, beginning of year	$	2,585		$	1,933	$	2,095
Additions for tax positions related to the current year		206			127		102
Additions for tax positions related to prior years		549			525		128
Reductions due to lapse of statutes of limitations		(162	)		--		(149	)
Decreases related to settlements with tax authorities		(2,575	)		--		(243	)
Balance, end of year	$	603		$	2,585	$	1,933

The December 31, 2015 balance of unrecognized tax benefits includes no tax positions for which the ultimate deductibility is highly certain but the timing of such deductibility is uncertain. Accordingly, there is no impact to the deferred tax accounting for certain tax benefits.