Income Taxes

Domestic and foreign pre-tax income (loss) is as follows (in thousands):



	For the Years Ended December 31,
	2016			2015			2014
Domestic	$	(12,040	)	$	(15,822	)	$	(29,891	)
Foreign	4,223			2,886			4,802
Total pre-tax loss	$	(7,817	)	$	(12,936	)	$	(25,089	)

The income tax provision consists of the following (in thousands):



	For the Years Ended December 31,
	2016			2015			2014
Current provision:
Federal	$	—		$	—		$	—
State	78			30			21
Foreign	2,225			1,772			2,127
Total current provision	2,303			1,802			2,148
Deferred provision (benefit):
Federal	(86		)	35			(73		)
State	(4		)	2			(3		)
Foreign	221			(97		)	420
Total deferred provision	131			(60		)	344
Total income tax provision	$	2,434		$	1,742		$	2,492

The income tax provision (benefit) differs from the amount computed by applying the statutory federal income tax rate to pretax income as a result of the following differences (dollar amounts in thousands):



	For the Years Ended December 31,
	2016					2015					2014
	$			%		$			%		$			%
Statutory federal tax (benefit) rate	$	(2,736	)	35.0	%	$	(4,526	)	35.0	%	$	(8,781	)	35.0	%
Increase (decrease) in rates resulting from:
State taxes	(67		)	0.9		609			(4.7	)	(246		)	1.0
Foreign dividends and unremitted earnings	1,745			(22.3	)	1,493			(11.5	)	(586		)	2.3
Valuation allowance	1,596			(20.4	)	2,456			(19.0	)	7,367			(29.4	)
Taxes on foreign income that differ from U.S. tax rate	(901		)	11.5		(405		)	3.1		2,488			(9.9	)
Executive Compensation limitation	1,005			(12.9	)	—			—		—			—
Non-deductible stock-based compensation expense	135			(1.7	)	1,104			(8.5	)	1,206			(4.8	)
Expiration of attributes	1,478			(18.9	)	893			(6.9	)	330			(1.3	)
Uncertain tax positions	120			(1.5	)	435			(3.4	)	362			(1.4	)
Other	59			(0.8	)	(317		)	2.4		352			(1.4	)
Effective tax rate	$	2,434		(31.1	)%	$	1,742		(13.5	)%	$	2,492		(9.9	)%

The components of deferred taxes consist of the following (in thousands):



	December 31, 2016			December 31, 2015
Deferred tax assets:
Accrued warranty	$	657		$	919
Inventory	3,631			2,697
Net operating loss carryforwards	57,294			59,784
Tax credit carryforwards	22,075			22,817
Stock-based compensation	1,995			2,142
Fixed assets	1,808			952
Goodwill	1,603			2,109
Deferred revenue	2,906			2,950
Subsidiary service accruals	1,702			—
Other	2,082			2,748
Total deferred tax assets	95,753			97,118
Less: valuation allowance	(88,566		)	(86,752		)
Net deferred tax assets	7,187			10,366
Deferred tax liabilities:
Intangible assets	(5,603		)	(7,582		)
Other	(467		)	(1,611		)
Total deferred tax liabilities	(6,070		)	(9,193		)
Total net deferred tax assets	$	1,117		$	1,173

At December 31, 2016, the Company's unrecognized tax benefits associated with uncertain tax positions were $3.5 million, of which $3.2 million, if recognized, would favorably affect the effective tax rate.

The Company's ongoing practice is to recognize potential accrued interest and penalties related to unrecognized tax benefits within its global operations in income tax expense. During 2016, the Company recognized a net increase of approximately $0.1 million in potential interest and penalties associated with uncertain tax positions in the Consolidated Statements of Operations. The Company had approximately $0.7 million and $0.3 million of interest and penalties associated with uncertain tax positions at December 31, 2016, which are excluded from the unrecognized tax benefits table below.

The Company’s total amounts of unrecognized tax benefits at the beginning and end of the period are as follows (in thousands):



	Total
Balance as of December 31, 2014	$	3,688
Additions based on tax positions related to the current year	329
Additions for tax positions of prior years	67
Reductions for tax positions of prior years	(204		)
Reductions as a result of a lapse of applicable statute of limitations	(70		)
Reductions due to settlements	(28		)
Other	$	(102	)
Balance as of December 31, 2015	$	3,680
Additions based on tax positions related to the current year	245
Additions for tax positions of prior years	24
Reductions for tax positions of prior years	(240		)
Reductions as a result of a lapse of applicable statute of limitations	(80		)
Reductions due to settlements	(6		)
Other	(74		)
Balance as of December 31, 2016	$	3,549

The Company and its subsidiaries are subject to federal income tax as well as income tax of multiple state and foreign jurisdictions. The Company's statutes of limitations are closed for all federal and state income tax years before 2013 and 2012. The statutes of limitations for the Company's other foreign subsidiaries are closed for all income tax years before 2005.

However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods where net operating losses and credits were generated and carried forward, and make adjustments up to the net operating loss and credit carryforward amounts. It is reasonably possible that the Company's uncertain tax positions, including interest and penalties, could decrease by approximately $0.4 million in the next twelve months.

The Company is currently under examination in India. The periods covered by the examination are the Company's financial years 2005, 2006, 2008 and 2011. The examination is in various stages of appellate proceedings and all material uncertain tax positions associated with the examination have been taken into account in the ending balance of the unrecognized tax benefits at December 31, 2016. The Company is also currently under examination in Canada. The periods covered by the examination include the Company's fiscal years 2013 and 2014. No adjustments have been proposed.

The Company has recorded valuation allowances of $88.6 million and $86.8 million as of December 31, 2016 and 2015. This represents a full valuation allowance against the Company's U.S. net deferred tax assets as well as a partial valuation allowance against the Company's Canadian net deferred tax assets. In evaluating its valuation allowance, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance.

At December 31, 2016 the Company had total available federal and state net operating loss carryforwards of approximately $167.6 million and $61.5 million. The federal and state net operating loss carryforwards expire between 2017 and 2036. The net operating losses from acquisitions are stated net of limitations pursuant to Section 382 of the Internal Revenue Code. The Company also had net operating loss carryforwards of approximately $4.1 million from the United Kingdom (“U.K.”), China and Malaysia. The U.K. and Malaysian net operating losses may be carried forward indefinitely provided certain requirements are met. The Chinese tax losses may be carried forward 5 years.

The Company has federal and state research and development tax credit and other federal credit carryforwards of approximately $15.4 million at December 31, 2016, to reduce future income tax liabilities. The federal and Oregon credits expire between 2017 and 2031. The California research and development credits do not expire. The credits from acquisitions are stated net of limitations pursuant to Section 383 of the Internal Revenue Code. The Company's Canadian subsidiary also has approximately $4.5 million in investment tax credit, $16.0 million of unclaimed scientific research and experimental expenditures to be carried forward and applied against future income in Canada.

Realization of the Company's foreign deferred tax assets is dependent on generating sufficient taxable income prior to the expiration of the net operating loss and tax credit carryforwards. Although realization is not assured, management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the balance of the deferred tax assets, net of the valuation allowance, as of December 31, 2016. The amount of the net deferred tax assets that is considered realizable, however, could be reduced if estimates of future taxable income during the carryforward periods are reduced. Should management determine that the Company would not be able to realize all or part of the net deferred tax assets in the future, adjustments to the valuation allowance for deferred tax assets may be required.

The company has provided a deferred tax liability of $2.1 million related to $6.4 million of unremitted earnings of certain foreign subsidiaries. The Company plans to indefinitely reinvest approximately $9.9 million of the undistributed earnings of certain foreign subsidiaries. Should the Company repatriate any foreign earnings from the remaining subsidiaries in the future, it may be required to establish an income tax liability and recognize additional income tax expense related to such earnings.