Note 10 – Income Taxes

A summary of the components of the provision for income taxes for the years ended December 31, 2016, 2015 and 2014 is as follows:

(In thousands)	2016			2015			2014
Current
Federal	$	12,733		$	7,504		$	7,626
State		1,141			279			599
International		477			(29	)		12,587
Total Current		14,351			7,754			20,812

Deferred
Federal		647			(585	)		(1,083	)
State		73			(66	)		(123	)
International		(3,405	)		(41	)		(4,320	)
Total Deferred		(2,685	)		(692	)		(5,526	)
Total Provision for Income Taxes	$	11,666		$	7,062		$	15,286

Our effective income tax rate differs from the federal statutory rate due to the following:

	2016			2015			2014
Tax provision computed at the federal statutory rate		35.00	%		35.00	%		35.00	%
State income tax provision, net of federal benefit		3.93			4.86			2.69
Federal research credits		(8.15	)		(12.55	)		(4.05	)
Foreign taxes		(0.34	)		2.10			(7.26	)
Tax-exempt income		(0.53	)		(1.94	)		(1.25	)
State tax incentives		(2.77	)		(5.04	)		(2.21	)
Stock-based compensation		2.53			6.91			3.06
Domestic production activity deduction		(2.23	)		(3.17	)		(1.15	)
Bargain purchase		(2.64	)		—			—
Other, net		0.08			1.30			0.69
Effective Tax Rate		24.88	%		27.47	%		25.52	%

Income before provision for income taxes for the years ended December 31, 2016, 2015 and 2014 is as follows:

(In thousands)	2016			2015			2014
U.S. entities	$	54,077		$	27,400		$	23,812
International entities		(7,182	)		(1,692	)		36,094
Total	$	46,895		$	25,708		$	59,906

Income before provision for income taxes for international entities reflects income based on statutory transfer pricing agreements. This amount does not correlate to consolidated international revenues, many of which occur from our U.S. entity.

Deferred income taxes on the balance sheet result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The principal components of our current and non-current deferred taxes are as follows:

(In thousands)	2016			2015
Deferred tax assets
Accounts receivable	$	—		$	7
Inventory		12,020			12,558
Accrued expenses		5,551			6,359
Investments		1,062			—
Deferred compensation		5,751			5,072
Stock-based compensation		4,724			4,704
Uncertain tax positions related to state taxes and related interest		762			1,026
Pensions		4,273			5,729
Foreign losses		6,486			5,389
State losses and credit carry-forwards		4,021			4,187
Federal loss and research carry-forwards		5,886			5,886
Valuation allowance		(6,149	)		(7,250	)
Total Deferred Tax Assets		44,387			43,667

Deferred tax liabilities
Property, plant and equipment		(4,433	)		(3,315	)
Accrued expenses		—			(2,791	)
Intellectual property		(1,918	)		(476	)
Investments		—			(70	)
Total Deferred Tax Liabilities		(6,351	)		(6,652	)
Net Deferred Tax Assets	$	38,036		$	37,015

At December 31, 2016 and 2015, non-current deferred taxes related to our investments and our defined benefit pension plan, reflect deferred taxes on the net unrealized gains on available-for-sale investments and deferred taxes on unrealized losses in our pension plan. The net change in non-current deferred taxes associated with these items, a deferred tax benefit of $1.5 million and $3.7 million in 2016 and 2015, respectively, is recorded as an adjustment to other comprehensive income, presented in the Consolidated Statements of Comprehensive Income.

Based upon our results of operations in 2016 and expected profitability in future years in a certain international jurisdiction, we concluded that it is more likely than not certain foreign deferred tax assets will be realized. As of December 31, 2016, the remaining valuation allowance primarily relates to deferred tax assets related to state credit carry-forwards from tax credits in excess of our annual tax liability to an individual state where we do not generate sufficient state income to offset the credit and net operating losses in foreign jurisdictions. We believe it is more likely than not that we will not realize the full benefits of the deferred tax assets arising from these losses and credits, and accordingly, we have provided a valuation allowance against these deferred tax assets. The deferred tax assets for foreign and domestic carry-forwards, unamortized research and development costs, and state credit carry-forwards of $16.4 million will expire between 2017 and 2030. The loss carry-forwards were acquired through acquisitions in 2009 and 2011. We will continue to assess the realization of our deferred tax assets and related valuations allowances. We do not provide for U.S. income tax on undistributed earnings of our foreign operations, whose earnings are intended to be permanently reinvested. These earnings are not required to service debt or fund our U.S. operations. It is impracticable to determine the amount of any unrecognized deferred tax liability for temporary differences related to investments in foreign subsidiaries. The net change in our valuation allowance from December 31, 2015 to December 31, 2016 was $1.1 million.

As of December 31, 2016 and 2015, respectively, our cash and cash equivalents were $79.9 million and $84.6 million and short-term investments were $43.2 million and $34.4 million, which provided an available short-term liquidity of $123.1 million and $118.9 million. Of these amounts, our foreign subsidiaries held cash of $42.1 million and $38.9 million, respectively, representing approximately 34.2% and 32.7% of available short-term liquidity, which is used to fund on-going liquidity needs of these subsidiaries. We intend to permanently reinvest these funds outside the U.S. and our current business plans do not indicate a need to repatriate to fund domestic operations. However, if these funds were repatriated to the U.S. or used for U.S. operations, certain amounts related to the earnings and profits of foreign subsidiaries could be subject to U.S. tax for the incremental amount in excess of the foreign tax paid. Due to the timing and circumstances of repatriation of such earnings, if any, it is not practical to determine the amount of funds subject to repatriation or the associated unrecognized deferred tax liability related to the amount.

During 2016, 2015 and 2014, we recorded an income tax benefit (expense) of nil, $(40) thousand and $0.1 million, respectively, as an adjustment to equity. This is calculated on the difference between the exercise price of stock option exercises and the market price of the underlying common stock upon exercise.

The change in the unrecognized income tax benefits for the years ended December 31, 2016, 2015 and 2014 is reconciled below:

(In thousands)	2016			2015			2014
Balance at beginning of period	$	2,537		$	3,334		$	3,240
Increases for tax position related to:
Prior years		95			—			—
Current year		428			280			522
Decreases for tax positions related to:
Prior years		—			(29	)		—
Settlements with taxing authorities		—			(103	)		—
Expiration of applicable statute of limitations		(834	)		(945	)		(428	)
Balance at end of period	$	2,226		$	2,537		$	3,334

As of December 31, 2016, 2015, and 2014, our total liability for unrecognized tax benefits was $2.2 million, $2.5 million, and $3.3 million, respectively, of which $1.7 million, $1.8 million, and $2.6 million, respectively, would reduce our effective tax rate if we were successful in upholding all of the uncertain positions and recognized the amounts recorded. We classify interest and penalties recognized on the liability for unrecognized tax benefits as income tax expense. As of December 31, 2016, 2015 and 2014, the balances of accrued interest and penalties were $0.8 million, $0.9 million and $1.0 million, respectively.

We do not anticipate a single tax position generating a significant increase or decrease in our liability for unrecognized tax benefits within 12 months of this reporting date. We file income tax returns in the U.S. federal and various state jurisdictions and several foreign jurisdictions. We are not currently under audit by the Internal Revenue Service. Generally, we are not subject to changes in income taxes by any taxing jurisdiction for the years prior to 2013.