Income Taxes

Income tax expense (benefit) for the years ended December 31, 2012, 2011, and 2010 attributable to income (loss) from operations is presented below.



	Current			Deferred			Total
Year ended December 31, 2012
Federal	$	715		$	2,036		$	2,751
State	146			254			400
Foreign	248			(137		)	111
	$	1,109		$	2,153		$	3,262
Year ended December 31, 2011
Federal	$	(16	)	$	120		$	104
State	179			(955		)	(776		)
Foreign	212			(24		)	188
	$	375		$	(859	)	$	(484	)
Year ended December 31, 2010
Federal	$	217		$	(2,142	)	$	(1,925	)
State	136			(998		)	(862		)
Foreign	154			21			175
	$	507		$	(3,119	)	$	(2,612	)

The actual income tax expense (benefit) differs from the “expected” income tax expense (benefit) computed by applying the United States Federal corporate income tax rate of 35% to income before tax expense (benefit) as follows:



	Year Ended December 31,
	2012			2011			2010
Computed “expected” tax expense	$	2,395		$	131		$	1,981
Decrease in income taxes resulting from:
State income tax expense, net of federal benefit	674			83			636
State research and development, investment credits	(301		)	(1,006		)	(342		)
Non-deductible expenses	116			101			268
Foreign tax rate differential	(27		)	(42		)	(28		)
Federal research and development credits	—			(351		)	(378		)
Adjustments to operating loss carry-forwards and other deferred taxes, net	(33		)	(44		)	(346		)
Stock-based compensation	(30		)	306			146
Change in valuation allowance	468			338			(4,549		)
Net income tax expense (benefit)	$	3,262		$	(484	)	$	(2,612	)

The components of results of income from operations before income tax expense (benefit) determined by tax jurisdiction, are as follows:



	Year Ended December 31,
	2012			2011			2010
United States	$	7,917		$	971		$	5,458
Denmark	(295		)	(161		)	390
Norway	570			726			61
Brazil	(1,375		)	(1,210		)	(260		)
Singapore	25			49			12
Japan	1			—			—
Total	$	6,843		$	375		$	5,661

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities as of the dates presented are as follows:



	December 31,
	2012			2011
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts	$	313		$	355
Inventories	289			283
Operating loss carry-forwards	1,011			2,674
Stock-based compensation expense	1,194			1,197
Intangible assets due to differences in amortization	74			56
Research and development, alternative minimum tax credit carry-forwards	3,507			3,838
Foreign tax credit carry-forwards	1,111			1,146
State tax credit carry-forwards	2,228			2,415
Accrued expenses	688			741
Gross deferred tax assets	10,415			12,705
Less valuation allowance	(2,136		)	(2,576		)
Total deferred tax assets	8,279			10,129
Deferred tax liabilities:
Purchased intangible assets	(433		)	(543		)
Property and equipment, due to differences in depreciation	(3,176		)	(2,900		)
Total deferred tax liabilities	(3,609		)	(3,443		)
Net deferred tax assets	$	4,670		$	6,686
Net deferred tax asset—current	$	1,146		$	1,281
Net deferred tax asset—noncurrent	$	3,524		$	5,405

As of December 31, 2012, the Company had federal net operating loss carry-forwards available to offset future taxable income of $521. The Company also had foreign net operating loss carry-forwards available to offset future foreign income of $2,936. The federal net operating loss carry-forwards expire in years 2024 through 2031. The foreign net operating loss carry-forwards have no expiration. The tax benefit related to $521 of federal net operating loss carry-forwards would occur upon utilization of these deferred tax assets to reduce taxes payable and would result in a credit to additional paid-in capital within stockholders’ equity rather than the provision for income taxes.

As of December 31, 2012, the Company had federal research and development tax credit carry-forwards in the amount of $3,916 that expire in years 2021 through 2031, and foreign tax credit carry-forwards in the amount of $1,146 that expire in years 2015 through 2021. The Company also had alternative minimum tax credits of $223 that have no expiration date. As of December 31, 2012, the Company had state research and development tax credit carry-forwards in the amount of $2,936 that expire in years 2012 through 2018. The Company also had other state tax credit carry-forwards of $714 available to reduce future state tax expense that expire in years 2012 through 2018. The tax benefit related to $1,870 of federal and state tax credits would occur upon utilization of these deferred tax assets to reduce taxes payable and would result in a credit to additional paid-in capital within stockholders’ equity rather than the provision for income taxes.

The Company’s ability to utilize these net operating loss carry-forwards and tax credit carry-forwards may be limited in the future if the Company experiences an ownership change pursuant to Internal Revenue Code Section 382. An ownership change occurs when the ownership percentages of 5% or greater stockholders change by more than 50% over a three-year period.

For the years ended December 31, 2012, 2011, and 2010, the Company generated income before income taxes of $6,843, $375 and $5,661, respectively. In assessing the realizability of its net deferred tax assets, the Company considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends upon the generation of future taxable income during the periods in which those temporary differences become deductible. As of December 31, 2012, based upon an evaluation of the positive and negative evidence, the Company concluded that a reduction of $440 of the deferred tax asset valuation allowance was appropriate, resulting in a remaining valuation allowance of $2,136 as of December 31, 2012. The net decrease in valuation allowance of $440 resulted in additional tax expense of $267 primarily from net operating losses incurred in 2012 that the Company does not expect to realize the tax benefit. The valuation allowance change also includes the expiration of previously reserved state tax credit carryforwards, and a decrease in net operating losses and credit carryforwards attributed to tax deductions in excess of recognized stock compensation expense that did not impact tax expense. For the year ended December 31, 2012, the Company has recorded valuation allowances of approximately $1,086 against certain state tax credits and foreign net operating loss carryforwards, and intends to maintain the valuation allowance until sufficient evidence exists to support the reversal of all or a portion of these valuation allowances.

In addition, the Company continues to maintain a $1,050 valuation allowance against net operating losses and credits carryforwards attributed to tax deductions in excess of recognized compensation cost from employee stock compensation awards that existed as of the adoption of ASC 718. The Company will recognize the net deferred tax asset and corresponding benefit to additional paid-in capital for these windfall tax benefits once such amounts reduce income taxes payable, in accordance with the requirements of ASC 718.

The Company's income taxes currently payable for federal and state purposes have been reduced by the benefit of the tax deduction in excess of recognized compensation cost from employee stock compensation transactions in the amount of $619 which has been recorded as an increase to additional paid-in capital for the year ended December 31, 2012.

As of December 31, 2012, the Company has not provided for U.S. deferred income taxes on undistributed earnings of its foreign subsidiaries of approximately $1,692 since these earnings are expected to be indefinitely reinvested. Upon distribution of those earnings in the form of dividends or otherwise, the Company will be subject to additional U.S. and state income taxes (less foreign tax credits), as well as withholding taxes in its foreign locations. The amount of taxes attributable to the undistributed earnings is not practicably determinable.

On January 2, 2013, the President signed into law The American Taxpayer Relief Act of 2012. Under the prior law, a taxpayer was entitled to a research tax credit for qualifying amounts paid or incurred on or before December 31, 2011. The 2012 American Taxpayer Relief Act extends the research credit for two years to December 31, 2013. The extension of the research credit is retroactive and includes amounts paid or incurred after December 31, 2011. As a result of the retroactive extension, we expect to recognize a benefit of approximately $128 for qualifying amounts incurred in 2012. The benefit will be recognized in the period of enactment, which is the first quarter of 2013.

The Company establishes reserves for uncertain tax positions based on management’s assessment of exposure associated with tax deductions, permanent tax differences and tax credits. The tax reserves are analyzed periodically and adjustments are made as events occur to warrant adjustment to the reserve.

The Company did not have any material unrecognized tax benefits at December 31, 2012, 2011 or 2010. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company’s tax jurisdictions include the United States, Denmark, Brazil, Norway, Singapore and Japan. In general, the statute of limitations with respect to the Company’s United States federal income taxes has expired for years prior to 2008, and the relevant state and foreign statutes vary. However, preceding years remain open to examination by United States federal and state and foreign taxing authorities to the extent of future utilization of net operating losses and research and development tax credits generated in each preceding year. The Company is no longer subject to income tax examinations by the Danish tax authorities for years prior to 2009.