11. Income taxes

Significant components of the provisions for income taxes attributable to operations consist of the following:

	Year ended December 31,
(in thousands)	2016			2015			2014
Current
Federal	$	29,244		$	38,957		$	22,988
State		2,331			2,221			959
International		1,002			2,029			828
Total current		32,577			43,207			24,775
Deferred
Federal		9,979			(119	)		3,332
State		(272	)		(111	)		209
International		(5,587	)		1,323			1,612
Total deferred		4,120			1,093			5,153
Total provision for income taxes	$	36,697		$	44,300		$	29,928

The Company's net deferred tax asset (liability) consists of the following:

	December 31,
(in thousands)	2016			2015
Federal losses carryforward	$	4,130		$	5,394
State losses carryforward		13,682			12,751
Research and development carryforward		3,647			3,545
Scientific research and experimental development credit carryforward		16,594			25,771
Intangible assets		-			5,792
Stock compensation		8,389			9,391
Foreign deferrals		58,647			80,920
Inventory reserves		2,273			3,754
Other		5,569			8,484
Deferred tax asset		112,931			155,802
Fixed assets		(30,728	)		(31,925	)
Intangible assets		(5,882	)		(4,760	)
Other		(16,047	)		(17,192	)
Deferred tax liability		(52,657	)		(53,877	)
Valuation allowance		(54,178	)		(90,639	)
Net deferred tax (liabilities)/ asset	$	6,096		$	11,286

As of December 31, 2016, the Company currently has approximately $11.8 million ($4.1 million tax effected) in net operating loss carryforwards along with $3.7 million in research and development tax credit carryforwards for U.S. federal tax purposes that will begin to expire in 2026 and 2023, respectively. The U.S. federal tax carryforwards are recorded with no valuation allowance. The Company has $255.1 million ($13.7 million tax effected) in state net operating loss carryforwards, primarily in Maryland, that will begin to expire in 2018. The U.S. state tax loss carryforwards are recorded with a valuation allowance of $191.7 million ($10.3 million tax effected). The Company has approximately $170.3 million ($43.9 million tax effected) in net operating losses from foreign jurisdictions (excluding Canada) that will have an indefinite life unless the foreign entities have a change in the nature or conduct of the business in the three years following a change in ownership. A valuation allowance in respect to these foreign losses has been recorded in the amount of $43.9 million. The Company has approximately $43.6 million ($11.7 million tax effected) in Canadian loss carryforwards which are recorded with no valuation allowance. The Company currently has approximately $0.5 million of Canadian federal scientific research and experimental development credit carryforwards that will begin to expire in 2027. In addition, the Company has approximately $16.1 million in Manitoba scientific research and experimental development credit carryforwards that will begin to expire in 2024. The use of any of these net operating losses and research and development tax credit carryforwards may be restricted due to changes in the Company's ownership.

The provision for income taxes differs from the amount of taxes determined by applying the U.S. federal statutory rate to loss before provision for income taxes as a result of the following:

	Year ended December 31,
(in thousands)	2016			2015			2014
US	$	63,330		$	117,385		$	76,909
International		35,891			18,331			7,285
Earnings before taxes on income		99,221			135,716			84,194

Federal tax at statutory rates	$	34,738		$	47,475		$	29,468
State taxes, net of federal benefit		529			852			650
Impact of foreign operations		(9,937	)		(1,640	)		(1,176	)
Change in valuation allowance		10,458			(950	)		1,091
Effect of foreign rates		(720	)		-			-
Tax credits		(1,572	)		(2,088	)		(1,743	)
Other differences		1,823			733			126
Permanent differences		1,378			(82	)		1,512
Provision for income taxes	$	36,697		$	44,300		$	29,928

The effective annual tax rate for the years ended December 31, 2016, 2015 and 2014 was 37%, 33% and 36%, respectively.

The increase in the effective annual tax rate in 2016 is primarily related to tax on the sale, within the Company's consolidated group, of assets from Canadian subsidiaries to U.S. subsidiaries in preparation of the spin-off of Aptevo, and a valuation allowance charge recorded in its continuing operations related to Aptevo deferred tax assets prior to the distribution. The Company determined that upon spin-off, the deferred tax assets of Aptevo would be unrealizable. The increase in the effective annual tax rate as a result of the above was partially offset by a release of valuation allowances associated with Canadian Scientific Research and Experimental Development tax credits. Finally, the Company had a shift in the jurisdictional mix of earnings in the current year which contributed to the change in the effective annual tax rate.

The Company recognizes interest in interest expense and recognizes potential penalties related to unrecognized tax benefits in selling, general and administrative expense. Of the total unrecognized tax benefits recorded at December 31, 2016 and 2015, $0.5 million and $0.3 million, respectively, is classified as a current liability and $1.3 million and $1.1 million, respectively, is classified as a non-current liability on the balance sheet.

The table below presents the gross unrecognized tax benefits activity for 2016, 2015 and 2014:

(in thousands)
Gross unrecognized tax benefits at December 31, 2013	$	1,121
Increases for tax positions for prior years		150
Decreases for tax positions for prior years		-
Increases for tax positions for current year		102
Settlements		-
Lapse of statute of limitations		(125	)
Gross unrecognized tax benefits at December 31, 2014		1,248
Increases for tax positions for prior years		150
Decreases for tax positions for prior years		-
Increases for tax positions for current year		59
Settlements		-
Lapse of statute of limitations		-
Gross unrecognized tax benefits at December 31, 2015		1,457
Increases for tax positions for prior years		5
Decreases for tax positions for prior years		-
Increases for tax positions for current year		299
Settlements		-
Lapse of statute of limitations		-
Gross unrecognized tax benefits at December 31, 2016	$	1,761

When resolved, substantially all of these reserves would impact the effective tax rate.

The Company's federal and state income tax returns for the tax years 2011 to 2015 remain open to examination. The Company's tax returns in the United Kingdom remain open to examination for the tax years 2007 to 2015, and tax returns in Germany remain open indefinitely. The Company's tax returns for Canada remains open to examination for the tax years 2009 to 2015.

As of December 31, 2016, the Company's 2011 and 2012 federal income tax returns are under audit.