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Income taxes | 12 Months Ended
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Dec. 31, 2016
Income Tax Disclosure [Abstract] |
Income taxes |
18. | Income taxes
Income (loss) from continuing operations before provision for income taxes consisted of the following:
|  | Year Ended December 31, |
(U.S. Dollars, in thousands) |  | 2016 |  |  | 2015 |  |  | 2014 |
U.S. |  | $ | 23,006 |  |  | $ | 15,480 |  |  | $ | 17,532 |
Non-U.S. |  |  | (3,982 | ) |  |  | (6,973 | ) |  |  | (5,076 | )
Income before income taxes |  | $ | 19,024 |  |  | $ | 8,507 |  |  | $ | 12,456 |
The Company accounts for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and income tax basis of assets and liabilities, and for operating losses and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the years in which those items are expected to be realized. Tax law and rate changes are recorded in the period such changes are enacted. The Company establishes a valuation allowance when it is more likely than not that certain deferred tax assets will not be realized in the foreseeable future. The provision for income taxes on continuing operations consists of the following:
|  | Year Ended December 31, |
(U.S. Dollars, in thousands) |  | 2016 |  |  | 2015 |  |  | 2014 |
U.S. |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | 558 |  |  | $ | 6,792 |  |  | $ | 5,067 |
Deferred |  |  | 9,296 |  |  |  | (1,146 | ) |  |  | 2,825 |
|  |  | 9,854 |  |  |  | 5,646 |  |  |  | 7,892 |
Non-U.S. |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | 4,509 |  |  |  | 3,661 |  |  |  | 18,186 |
Deferred |  |  | 1,164 |  |  |  | 1,542 |  |  |  | (9,878 | )
|  |  | 5,673 |  |  |  | 5,203 |  |  |  | 8,308 |
Income tax expense |  | $ | 15,527 |  |  | $ | 10,849 |  |  | $ | 16,200 |
The rate reconciliation for continuing operations presented below is based on the U.S. federal income tax rate, rather than the Company’s country of domicile tax rate. The Company believes, given the large proportion of taxable income earned in the United States, such disclosure is more meaningful.
|  | 2016 |  |  | 2015 |  |  | 2014 |
(U.S. Dollars, in thousands, except percentages) |  | Amount |  |  | Percent |  |  | Amount |  |  | Percent |  |  | Amount |  |  | Percent |
Statutory U.S. federal income tax rate |  | $ | 6,658 |  |  |  | 35.0 | % |  | $ | 2,978 |  |  |  | 35.0 | % |  | $ | 4,360 |  |  |  | 35.0 | %
State taxes, net of U.S. federal benefit |  |  | 395 |  |  |  | 2.1 |  |  |  | 521 |  |  |  | 6.1 |  |  |  | 1,439 |  |  |  | 11.6 |
Foreign rate differential, including withholding taxes |  |  | (805 | ) |  |  | (4.2 | ) |  |  | (1,934 | ) |  |  | (22.7 | ) |  |  | 2,386 |  |  |  | 19.1 |
Charges related to U.S. Government resolutions |  |  | 2,050 |  |  |  | 10.8 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Valuation allowances, net |  |  | 6,149 |  |  |  | 32.3 |  |  |  | 10,952 |  |  |  | 128.7 |  |  |  | 8,672 |  |  |  | 69.6 |
Change in estimate on compensation expenses |  |  | (2,151 | ) |  |  | (11.3 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Italian subsidiary intangible asset |  |  | (1,477 | ) |  |  | (7.8 | ) |  |  | (2,076 | ) |  |  | (24.4 | ) |  |  | (2,546 | ) |  |  | (20.4 | )
Change of intention for foreign earnings |  |  | 1,300 |  |  |  | 6.8 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Domestic manufacturing deduction |  |  | — |  |  |  | — |  |  |  | (469 | ) |  |  | (5.5 | ) |  |  | (377 | ) |  |  | (3.0 | )
Unrecognized tax benefits, net of settlements |  |  | 3,049 |  |  |  | 16.0 |  |  |  | 406 |  |  |  | 4.8 |  |  |  | 1,370 |  |  |  | 11.0 |
Other, net |  |  | 359 |  |  |  | 1.9 |  |  |  | 471 |  |  |  | 5.5 |  |  |  | 896 |  |  |  | 7.2 |
Income tax expense/effective rate |  | $ | 15,527 |  |  |  | 81.6 | % |  | $ | 10,849 |  |  |  | 127.5 | % |  | $ | 16,200 |  |  |  | 130.1 | %
During 2016, the Company revised its estimate relating to the deductibility of certain compensation expenses. This change in estimate reduced income tax expense and increased net income from continuing operations by $2.4 million and increased earnings per share by $0.13 for the year ended December 31, 2016. The Company’s deferred tax assets and liabilities are as follows:
|  | December 31, |
(U.S. Dollars, in thousands) |  | 2016 |  |  | 2015 |
Intangible assets and goodwill |  | $ | 2,628 |  |  | $ | 2,931 |
Inventories and related reserves |  |  | 17,665 |  |  |  | 17,640 |
Deferred revenue and cost of goods sold |  |  | 11,263 |  |  |  | 14,358 |
Other accruals and reserves |  |  | 4,066 |  |  |  | 5,622 |
Accrued compensation |  |  | 6,747 |  |  |  | 2,964 |
Allowance for doubtful accounts |  |  | 2,898 |  |  |  | 2,863 |
Accrued interest |  |  | 4,621 |  |  |  | 17,300 |
Net operating loss carryforwards |  |  | 37,930 |  |  |  | 38,010 |
Other, net |  |  | 3,032 |  |  |  | 3,379 |
|  |  | 90,850 |  |  |  | 105,067 |
Valuation allowance |  |  | (41,701 | ) |  |  | (43,340 | )
Deferred tax asset |  | $ | 49,149 |  |  | $ | 61,727 |
Withholding taxes |  |  | (648 | ) |  |  | (253 | )
Property, plant and equipment |  |  | (1,176 | ) |  |  | (4,168 | )
Deferred tax liability |  |  | (1,824 | ) |  |  | (4,421 | )
Net deferred tax assets |  | $ | 47,325 |  |  | $ | 57,306 |
The valuation allowance is primarily attributable to net operating loss carryforwards and temporary differences in certain foreign jurisdictions. The net decrease in the valuation allowance of $1.6 million during the year principally relates to the reduction of valuation allowances on expiring net operating loss carryforwards, offset by current year losses for which no benefit is recognized. The Company has U.S. federal net operating loss carryforwards of approximately $4.1 million that will expire in 2036 and state net operating loss carryforwards of approximately $15.1 million that will begin to expire in 2018. Additionally, the Company has net operating loss carryforwards in various foreign jurisdictions of approximately $155.5 million that begin to expire in 2017, the majority of which relate to the Company’s Netherlands operations. During 2016, the Company changed its intention related to unremitted foreign earnings in its Puerto Rico subsidiary and certain United Kingdom subsidiaries. As a result of the change in intention, the Company recorded $ 1.3 million of income tax expense for the remitted and unremitted earnings in each of these subsidiaries. The Company’s current intention is to indefinitely reinvest substantially all of its other unremitted foreign earnings (residing outside Curaçao). As an entity incorporated in Curaçao, “foreign earnings” refer to both U.S. and non-U.S. earnings. Furthermore, only income sourced in the U.S. is subject to U.S. income tax. Unremitted foreign earnings increased from $184.6 million at December 31, 2015 to $198.9 million at December 31, 2016. Determining the additional income tax that may be payable if such earnings are repatriated is not practicable. The Company records a benefit for uncertain tax positions when the weight of available evidence indicates that it is more likely than not, based on an evaluation of the technical merits, that the tax position will be sustained on audit. The tax benefit is measured as the largest amount that is more than 50% likely to be realized upon settlement. The Company re-evaluates income tax positions periodically to consider changes in facts or circumstances such as changes in or interpretations of tax law, effectively settled issues under audit, and new audit activity. The Company includes interest and any applicable penalties related to income tax issues as part of income tax expense in its consolidated financial statements. The Company’s unrecognized tax benefit was $18.4 million and $15.8 million for the years ended December 31, 2016 and 2015, respectively. The Company recorded interest and penalties on unrecognized tax benefits of $2.1 million, $0.2 million, and less than $0.1 million for the years ended December 31, 2016, 2015, and 2014, respectively, and had approximately $3.0 million and $0.8 million accrued for payment of interest and penalties as of December 31, 2016 and 2015, respectively. The entire amount of unrecognized tax benefits, including interest, would favorably impact the Company’s effective tax rate if recognized. As of December 31, 2016, the Company does not expect the amount of unrecognized tax benefits to change significantly over the next twelve months. A reconciliation of the gross unrecognized tax benefits (excluding interest and penalties) for the years ended December 31, 2016, 2015, and 2014 follows:
(U.S. Dollars, in thousands) |  | 2016 |  |  | 2015 |  |  | 2014 |
Balance as of January 1, |  | $ | 15,763 |  |  | $ | 15,597 |  |  | $ | 723 |
Additions for current year tax positions |  |  | 77 |  |  |  | 332 |  |  |  | 14,794 |
Increases (decreases) for prior year tax positions |  |  | 2,551 |  |  |  | (86 | ) |  |  | 145 |
Settlements of prior year tax positions |  |  | — |  |  |  | — |  |  |  | — |
Expiration of statutes |  |  | (7 | ) |  |  | (80 | ) |  |  | (65 | )
Balance as of December 31, |  | $ | 18,384 |  |  | $ | 15,763 |  |  | $ | 15,597 |
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and in certain state and foreign jurisdictions, including Italy and the United Kingdom. The statute of limitations with respect to federal and state tax filings is closed for years prior to 2012. The statute of limitations with respect to the major foreign tax filing jurisdictions is closed for years prior to 2012. During the third quarter of 2015, the Internal Revenue Service commenced an examination of the Company’s federal income tax return for 2012. Further, in October 2016, the Company was notified of an examination of its federal income tax return for 2013. The Company cannot reasonably determine if this examination, or any state and local tax examinations, will have a material impact on its financial statements and cannot predict the timing regarding resolution of these tax examinations.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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