(20)	Income Taxes

The Company accounts for income taxes under the liability method. Accordingly, deferred income taxes have been provided for temporary differences between the recognition of revenue and expenses for financial and income tax reporting purposes and between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements.

The components of income (loss) before taxes are as follows (in thousands):

	Year ended December 31,
	2016		2015
Domestic	$	5,375	$	(18,625	)
Foreign		969		(6,599	)
Total	$	6,344	$	(25,224	)

The components of income tax expense are as follows (in thousands):

	Year ended December 31,
	2016		2015
Current:
Federal	$	0	$	0
State		222		31
Foreign		79		(269	)
Total current income tax expense (benefit)		301		(238	)
Deferred:
Federal		0		0
State		0		0
Foreign		0		2,230
Total deferred income tax expense		0		2,230
	$	301	$	1,992

The Company files a consolidated federal income tax return which includes all domestic subsidiaries. State income taxes paid in the U.S. during

2016

and

2015

totaled

$41,000

and

$120,000,

respectively. There were

state income tax refunds in

2016.

State income tax refunds received in the U.S. during

2015

totaled

$30,000.

Foreign income taxes paid during

2016

and

2015

totaled

$141,000

and

$2,195,000,

respectively. There were

foreign refunds received in

2016

and

2015.

There were

federal taxes paid in

2016

and

2015,

and there were

federal refunds received in

2016

and

2015.

December

31,

2016,

the Company had

$130,798,000

of federal net operating loss carryforwards available to offset future federal taxable income, which will expire in various amounts from

2024

2035.

December

31,

2016,

the Company had

$95,719,000

of state net operating loss carryforwards available to offset future state taxable income, the majority of which relates to Florida and Kentucky. These carryforwards expire in various amounts from

2018

2036.

The following is a reconciliation of income tax (benefit) expense to that computed by applying the federal statutory rate to income (loss) before income taxes (in thousands):

	Year ended December 31,
	2016			2015
Federal tax expense at the statutory rate	$	2,220		$	(8,829	)
Current year permanent differences		598			254
State income taxes, net of federal tax impact		528			(613	)
Foreign repatriation, net of foreign tax credits		165			(3,394	)
Effect of tax rates of foreign subsidiaries		(51	)		323
Currency translation effect on temporary differences		626			(217	)
Change in valuation allowance		(6,256	)		11,453
State NOL carryforwards, stock compensation and other items		2,471			3,015
Total	$	301		$	1,992

ASC

740,

Income Taxes

requires that a valuation allowance be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. The net cumulative domestic loss for the current and prior

two

years represents negative evidence under the provisions of ASC

740

requiring the Company to establish a valuation allowance against domestic deferred tax assets. Until an appropriate level and characterization of profitability is attained, the Company expects to continue to maintain a valuation allowance on its net deferred tax assets related to future U.S. and certain non-U.S. tax benefits.

The gross deferred tax asset for the Company’s Mexican subsidiaries was

$3,269,000

and

$4,033,000

as of

December

31,

2016

and

2015,

respectively.

As a result of the increased uncertainty surrounding the Company’s forecast of taxable income in Mexico, it was determined that the Company no longer met the “more likely than not” threshold required under ASC

740

in order to maintain the Mexico deferred tax asset. Accordingly, the Company recorded a valuation allowance on its net deferred tax asset related to certain non-U.S. tax benefits, resulting in deferred tax expense of

$2,230,000

during year ended

December

31,

2015.

Until an appropriate level and characterization of profitability is attained, the Company expects to continue to maintain a valuation allowance on its net deferred tax assets related to future U.S. and non-U.S. tax benefits.

Deferred income tax assets and liabilities are as follows (in thousands):

	December 31,
	2016			2015
Deferred tax assets:
Compensation and benefit accruals	$	1,517		$	1,987
Inventory valuation		1,481			2,840
Federal and state net operating loss carryforwards		49,298			51,460
Deferred revenue		63			533
Accounts receivable allowance		153			42
Defined benefit pension plan		1,627			1,766
Foreign deferred revenue and other provisions		3,269			4,033
AMT credits		185			185
Other		777			1,526
Total		58,370			64,372
Domestic valuation allowance		(52,900	)		(58,682	)
Foreign valuation allowance		(3,269	)		(4,033	)
Total deferred tax assets		2,201			1,657
Deferred tax liabilities:
Foreign subsidiaries – unrepatriated earnings		(543	)		(379	)
Depreciation		(1,658	)		(1,278	)
Total deferred tax liabilities		(2,201	)		(1,657	)
Net deferred tax asset	$	0		$	0

The ASC Income Tax topic includes guidance for the accounting for uncertainty in income taxes recognized in an enterprise’s financials. Specifically, the guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The total amount of gross unrecognized tax benefits as of

December

31,

2016

and

2015

was

$200,000

There were

changes to the unrecognized tax benefit balance during the years ended

December

31,

2016

and

2015.

If the Company’s positions are sustained by the taxing authority in favor of the Company, the entire balance at

December

31,

2016

would reduce the Company’s effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly over the next

months. The Company recognizes accrued interest and penalties related to uncertain tax positions in income tax expense. As of

December

31,

2016

and

2015,

the Company does

not

have an accrual for the payment of tax-related interest and penalties.

The Company files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Internal Revenue Service (IRS) is not currently examining the Company’s U.S. income tax returns for

2012

through

2015,

for which the statute has yet to expire. In addition, open tax years related to state and foreign jurisdictions remain subject to examination.

As of

December

31,

2016,

the Company has

undistributed earnings of foreign subsidiaries that are classified as permanently reinvested. The Company did not repatriate any funds to the U.S during

2016

and expects the repatriation of any available non-U.S. cash holdings during

2017

will be limited to the amount of undistributed earnings as of

December

31,

2016.

Although the Company’s Mexican operating company recognized losses from operations in

2016

and

2015,

the Toluca Sale-Leaseback (See Note

to the consolidated financial statements in this Form

-K) caused the Mexican operating company to generate a marginal profit. The income recognized by the Company’s Mexican operating company during

2016

increased the undistributed earnings of that entity while the loss recognized during

2015

reduced the entity’s undistributed earnings. Accordingly, the Company has therefore recognized a deferred income tax expense equal to the increase in in the U.S. deferred tax liability in

2016

and a deferred income tax benefit equal to the reduction in the U.S deferred tax liability in

2015,

both of which were offset by a corresponding decrease in the deferred tax valuation allowance in

2016

and increase in the deferred tax asset valuation allowance in

2015.