INCOME TAXES

The jurisdictional components of income before taxes consist of the following:



	December 31,
(in thousands)	2016		2015		2014
Income before income taxes:
Domestic	$	44,446	$	52,313	$	43,345
Foreign	17,743		14,554		17,260
	$	62,189	$	66,867	$	60,605

The components of income tax expense (benefit) consist of the following:



	December 31,
(in thousands)	2016		2015			2014
Current:
Domestic	$	11,958	$	13,293		$	13,495
Foreign	5,491		4,614			3,382
State	2,075		2,947			2,685
	19,524		20,854			19,562
Deferred:
Domestic	1,580		3,481			(600		)
Foreign	934		(718		)	540
State	106		41			(48		)
	2,620		2,804			(108		)
Total income taxes	$	22,144	$	23,658		$	19,454

The difference between income tax expense (benefit) for financial statement purposes and the amount of income tax expense computed by applying the domestic statutory income tax rate of 35% to income before income taxes consists of the following:



	December 31,
(in thousands)	2016			2015			2014
Domestic statutory rate at 35%	$	21,766		$	23,403		$	21,212
Increase (reduction) from:
Jurisdictional rate differences	(1,936		)	(2,192		)	(2,119		)
Valuation allowance	1,731			797			353
Stock based compensation	275			257			199
U.S. state taxes	1,295			1,942			1,649
Domestic production deduction	(618		)	(518		)	(1,321		)
R&D credit	(329		)	(475		)	(614		)
Other, net	(40		)	444			95
Provision for income taxes	$	22,144		$	23,658		$	19,454
Effective tax rate	36		%	35		%	32		%

Deferred income taxes arise from temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. The components of the Company’s deferred income tax assets and liabilities consist of the following:



	December 31,
(in thousands)	2016			2015
Deferred income tax assets:
Inventory basis difference	$	1,568		$	2,241
Accounts receivable reserve	231			529
Depreciation	—			110
Stock based compensation	937			968
Pension liability	3,947			2,481
Employee benefit accrual	1,481			2,038
Product liability and warranty reserves	1,600			1,517
Expenses not currently deductible for tax purposes	28			60
Foreign net operating loss	3,513			2,726
State net operating loss	102			49
Other	94			194

Total deferred income tax assets	$	13,501		$	12,913
Less: Valuation allowance	(3,382		)	(1,651		)

Net deferred income tax assets	$	10,119		$	11,262

Deferred income tax liabilities:
Inventory basis differences	$	(16	)	$	(310	)
Depreciation	(5,289		)	(4,624		)
Intangible assets	(10,046		)	(7,934		)
Deferred revenue	—			—
Expenses not currently deductible for tax purposes	(593		)	(642		)

Total deferred income tax liabilities	$	(15,944	)	$	(13,510	)

Net deferred income taxes	$	(5,825	)	$	(2,248	)

As of December 31, 2016, the Company had foreign deferred tax assets consisting of foreign net operating losses and other tax benefits available to reduce future taxable income in a foreign jurisdiction. These foreign jurisdictions’ net operating loss carryforwards are in the approximate amount of $10,200,000 with an unlimited carryforward period, and $900,000 with a carryforward expiring in 2035. The Company also has U.S. state net operating loss carryforwards in the amount of $2,600,000 which will expire between 2017 and 2028.

The company recorded a valuation allowance as of December 31, 2016 and 2015 due to uncertainties related to the ability to utilize some of the deferred income tax assets, primarily consisting of certain U.S. state NOLs and income tax credits, and international NOLs, before they expire. The valuation allowance is based on estimates of taxable income in the various jurisdictions in which we operate and the period over which deferred income tax assets will be recoverable. The realization of net deferred income tax assets recorded as of December 31, 2016 is primarily dependent upon the ability to generate future taxable income in certain U.S. states and international jurisdictions.

Deferred income taxes have not been provided on the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and the respective tax bases of the Company’s foreign subsidiaries, based on the determination that such differences are essentially permanent in duration in that the earnings of the subsidiaries are expected to be indefinitely reinvested in foreign operations. As of December 31, 2016, the cumulative undistributed earnings of these subsidiaries approximated $173,844,000. If these earnings were not considered indefinitely reinvested, deferred income taxes would have been recorded after the consideration of foreign tax credits. At this time, it is not practicable to estimate the amount of additional income taxes that might be payable on those earnings, if distributed.

Unrecognized tax benefits in the amount of $235,000 and $301,000 for 2016 and 2015, respectively, are included in other non-current liabilities on the balance sheet. The unrecognized tax benefits, if recognized, would favorably impact our effective tax rate in a future period. We do not expect our unrecognized tax benefits disclosed above to change significantly over the next 12 months.



	December 31,
	2016			2015
Balance as of beginning of year	$	301,000		$	388,000
Additions for tax positions related to the current year	51,000			63,000
Additions for tax positions related to prior years	—			—
Reduction due to lapse of statute of limitations	(117,000		)	(150,000		)
Balance as of end of year	$	235,000		$	301,000

The Company adopted the policy to include interest and penalty expense related to income taxes as interest and other expense, respectively. As of December 31, 2016, no interest or penalties has been accrued. The Company’s open tax years for its federal and state income tax returns are for the tax years ended 2012 through 2016. The Company’s open tax years for its foreign income tax returns are for the tax years ended 2012 through 2016.

On March 2016, the FASB issued ASU No. 2016-09, "Compensation-Stock Compensation," to simplify the accounting and reporting for employee share-based payments. Currently excess gains on exercises of stock are not expensed as additional expense, but are typically adjusted through the Additional Paid In Capital account. The amendment requires, the expensing of excess gains when they occur. This may result in some fluctuations in our quarterly tax rates. We are adopting beginning in 2017 and the change will be reflected on our consolidated financial statements beginning in fiscal year 2017.