INCOME TAXES

The components of income from continuing operations, before income taxes are as follows (in thousands):



	Fiscal years ended September 30,
	2016		2015		2014
United States	$	9,841	$	6,934	$	(833	)
International	6,849		6,183		5,894
Income from continuing operations, before income taxes	$	16,690	$	13,117	$	5,061

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



	Fiscal years ended September 30,
	2016			2015			2014
Current:
Federal	$	(141	)	$	1,452		$	1,007
State	139			453			(58		)
Foreign	2,099			2,279			2,196
Deferred:
U.S.	1,260			(297		)	(2,417		)
Foreign	(145		)	(203		)	(160		)
Income tax provision	$	3,212		$	3,684		$	568

11. INCOME TAXES (CONTINUED)

The net deferred tax asset consists of the following (in thousands):



	As of September 30,
	2016			2015
Current deferred tax asset	$	—		$	3,252
Non-current deferred tax asset	7,295			6,255
Current deferred tax liability	—			(36		)
Non-current deferred tax liability	(616		)	(135		)
Net deferred tax asset	$	6,679		$	9,336

Uncollectible accounts and other reserves	$	915		$	966
Depreciation and amortization	421			206
Inventories	683			999
Compensation costs	4,925			7,130
Tax carryforwards	6,263			1,185
Valuation allowance	(5,970		)	(862		)
Identifiable intangible assets	(558		)	(288		)
Net deferred tax asset	$	6,679		$	9,336

As of September 30, 2016, we have estimated carryforwards for tax purposes as follows: We have $0.9 million of carryforwards mostly related to state research and development tax credits and carryforwards consisting of a U.S. capital loss of $5.1 million and non-U.S. net operating losses of $0.3 million. The majority of the state research and development tax credits and non-U.S. net operating losses have an unlimited carryforward period. Our non-U.S. tax credit carryforwards will expire in 2028. Our U.S. capital loss carryforward will expire in 2020.

Our valuation allowance for certain U.S. and foreign locations increased to $6.0 million at September 30, 2016 from $0.9 million at September 30, 2015, primarily due to the capital loss realized on the sale of Etherios. We are not expecting to generate sufficient capital gains within the carryforward period to fully utilize the capital loss. The amount of the deferred tax assets realized could vary if there are differences in the timing or amount of future reversals of existing deferred tax liabilities or changes in the amounts of future taxable income. If our future taxable income projections are not realized, an additional valuation allowance may be required, and would be reflected as income tax expense at the time that any such change in future taxable income is determined.

The reconciliation of the statutory federal income tax amount to our income tax provision is as follows (in thousands):



	Fiscal years ended September 30,
	2016			2015			2014
Statutory income tax amount	$	5,548		$	4,491		$	1,721
Increase (decrease) resulting from:
State taxes, net of federal benefits	204			(190		)	(251		)
Utilization of tax credits	(1,116		)	(250		)	(76		)
Manufacturing deduction	(450		)	(285		)	(92		)
Discrete tax benefits	(1,461		)	(818		)	(1,475		)
Foreign operations	276			181			316
Valuation reserve	(43		)	297			11
Adjustment of tax contingency reserves	202			71			168
Meals and entertainment	55			64			93
Employee stock purchase plan	83			76			85
Contingent consideration	(154		)	—			—
Other, net	68			47			68
Income tax provision	$	3,212		$	3,684		$	568

11. INCOME TAXES (CONTINUED)

During fiscal 2016, we recorded net tax benefits of $1.5 million, primarily from the reinstatement of the federal research and development tax credit for calendar year 2015 and the reversal of tax reserves due to the expiration of statutes of limitation from U.S. and foreign tax jurisdictions. In addition, we filed amended income tax returns resulting in an additional domestic refund related to qualified manufacturing activities. These benefits are included within the discrete tax benefits in the above table.

During fiscal 2015, we recorded net tax benefits of $0.8 million, resulting from the reinstatement of the research and development tax credit for calendar year 2014, reversal of tax reserves due to the expiration of statute of limitations from U.S. and foreign tax jurisdictions and reversal of tax reserves due to the resolution of tax audits. These benefits are included within the discrete tax benefits in the above table.

During fiscal 2014, we recorded net tax benefits of $1.5 million related to the re-measurement and reversal of certain income tax reserves as a result of a federal income tax audit of fiscal 2012, the reassessment of state research and development tax credits and the release of income tax reserves due to the expiration of statute of limitations from U.S. and foreign tax jurisdictions. These benefits are included within the discrete tax benefits in the above table.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is (in thousands):



	Fiscal years ended September 30,
	2016			2015			2014
Unrecognized tax benefits at beginning of fiscal year	$	1,618		$	2,301		$	3,332
Increases related to:
Prior year income tax positions	107			110			181
Current year income tax positions	240			144			148
Decreases related to:
Prior year income tax positions	(71		)	(255		)	(1,105		)
Settlements	(30		)	(74		)	(95		)
Expiration of statute of limitations	(156		)	(608		)	(160		)
Unrecognized tax benefits at end of fiscal year	$	1,708		$	1,618		$	2,301

The total amount of unrecognized tax benefits at September 30, 2016 that, if recognized, would affect our effective tax rate is $1.6 million. We expect that it is reasonably possible that the total amounts of unrecognized tax benefits will decrease approximately $0.7 million over the next 12 months due to the expiration of various statutes of limitations.

Of the $1.7 million of unrecognized tax benefits, $1.3 million is included in non-current income taxes payable and $0.4 million is included with non-current deferred tax assets on the consolidated balance sheet at September 30, 2016.

We recognize interest and penalties related to income tax matters in income tax expense. During fiscal 2016 and 2015, there were insignificant amounts of interest and penalties related to income tax matters in income tax expense. We had accrued interest and penalties related to unrecognized tax benefits of $0.2 million at September 30, 2016 and $0.3 million at September 30, 2015. These accrued interest and penalties are included in our non-current income taxes payable on our consolidated balance sheets.

We operate in multiple tax jurisdictions both in the U.S. and outside of the U.S and face audits from various tax authorities regarding transfer pricing, tax credits, and other matters. Accordingly, we must determine the appropriate allocation of income to each of these jurisdictions. This determination requires us to make several estimates and assumptions. Tax audits associated with the allocation of this income, and other complex issues, may require an extended period of time to resolve and may result in adjustments to our income tax balances in those years that are material to our consolidated balance sheet and results of operations. With a few exceptions, we are no longer subject to income tax examination for tax years prior to fiscal 2013. For state tax authorities, most notably in California and Texas, generally we are no longer subject to income tax examination for tax years before fiscal 2012, and for Minnesota for tax years prior to fiscal 2014. We do not anticipate significant changes to our unrecognized tax benefits as a result of these examinations.

11. INCOME TAXES (CONTINUED)

At September 30, 2016, we had approximately $31.5 million of accumulated undistributed foreign earnings, for which we have not accrued additional U.S. tax. Our policy is to reinvest earnings of our foreign subsidiaries indefinitely to fund current operations and provide for future international expansion opportunities, and only repatriate earnings to the extent that U.S. taxes have already been recorded. Although we have no current need or intention to repatriate historical earnings in the form of cash to the United States, if we change our assertion from indefinitely reinvesting undistributed foreign earnings, we would have to accrue applicable taxes. The amount of any taxes and the application of any tax credits would be determined based on the income tax laws at the time of such repatriation. Under current tax laws, we estimate the unrecognized deferred tax liability to be up to $0.6 million.