Income Taxes

Income tax expense (benefit) for the years ended December 31, 2014, 2013, and 2012 attributable to income (loss) from operations is presented below.



	Current			Deferred			Total
Year ended December 31, 2014
Federal	$	325		$	(623	)	$	(298	)
State	(2		)	1,036			1,034
Foreign	1,640			(1,092		)	548
	$	1,963		$	(679	)	$	1,284
Year ended December 31, 2013
Federal	$	1,793		$	(497	)	$	1,296
State	242			(52		)	190
Foreign	901			(237		)	664
	$	2,936		$	(786	)	$	2,150
Year ended December 31, 2012
Federal	$	715		$	2,036		$	2,751
State	146			254			400
Foreign	249			(137		)	112
	$	1,110		$	2,153		$	3,263

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



	Year Ended December 31,
	2014			2013			2012
Computed “expected” tax expense	$	451		$	2,339		$	2,395
(Decrease) increase in income taxes resulting from:
State income tax expense, net of federal benefit	(31		)	336			674
State research and development, investment credits	(365		)	(309		)	(301		)
Non-deductible meals & entertainment	37			31			22
Non-deductible stock compensation expense	29			178			95
Non-deductible deferred compensation expense	87			—			—
Non-deductible transaction costs	73			170			—
Subpart F income, net of foreign tax credits	296			162			—
Manufacturing deduction	(123		)	—			—
Nontaxable interest income	(105		)	(86		)	—
Foreign tax rate differential	(289		)	(369		)	(27		)
Federal research and development credits	(453		)	(746		)	—
Uncertain tax positions	97			—			—
Provision to tax return adjustments	(317		)	—			(29		)
Change in tax rates	235			—			—
Change in valuation allowance	1,665			491			468
Other	$	(3	)	$	(47	)	$	(34	)
Net income tax expense	$	1,284		$	2,150		$	3,263

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



	Year Ended December 31,
	2014		2013		2012
United States	$	907	$	5,500	$	7,917
Foreign	418		1,183		(1,074		)
Total	$	1,325	$	6,683	$	6,843

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,
	2014			2013
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts	$	664		$	641
Inventories	531			436
Operating loss carry-forwards	1,939			1,392
Stock-based compensation expense	1,743			1,515
Property and equipment, due to difference in depreciation	1,334			—
Research and development, alternative minimum tax credit carry-forwards	3,313			2,600
Foreign tax credit carry-forwards	725			1,442
State tax credit carry-forwards	2,176			2,094
Warranty reserve	682			—
Accrued expenses	505			722
Gross deferred tax assets	13,612			10,842
Less valuation allowance	(4,157		)	(2,700		)
Total deferred tax assets	9,455			8,142
Deferred tax liabilities:
Purchased intangible assets	(6,917		)	(3,129		)
Property and equipment, due to differences in depreciation	(2,410		)	(2,548		)
Other	(130		)	(30		)
Total deferred tax liabilities	(9,457		)	(5,707		)
Net deferred tax (liability) asset	$	(2	)	$	2,435
Net deferred tax asset—current	$	2,772		$	3,060
Net deferred tax asset—noncurrent	$	2,690		$	—
Net deferred tax liability—noncurrent	$	(5,464	)	$	(625	)

As of December 31, 2014, the Company had foreign net operating loss carry-forwards available to offset future foreign income of $6,000. The foreign net operating loss carry-forwards have no expiration.

As of December 31, 2014, the Company had federal research and development tax credit carry-forwards in the amount of $3,379 that expire in years 2026 through 2034, and foreign tax credit carry-forwards in the amount of $762 that expire in years 2018 through 2024. The Company also had alternative minimum tax credits of $132 that have no expiration date. As of December 31, 2014, the Company had state research and development tax credit carry-forwards in the amount of $3,367 that expire in years 2015 through 2021. The Company also had other state tax credit carry-forwards of $256 available to reduce future state tax expense that expire in years 2015 through 2021. The tax benefit related to $1,702 of federal and state tax credits would result in a credit to additional paid-in capital when these deferred tax assets reduce taxes payable.

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.

In assessing the reliability 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. As of December 31, 2014, the Company concluded that a net increase of $1,457 of the valuation allowance was appropriate. As part of the Company’s analysis, the Company evaluated, among other factors, its recent history of generating taxable income and its near-term forecasts of future taxable income. The net increase in valuation allowance of $1,457 is composed of expense of $1,665, a decrease of $223 related to the expiration of previously reserved state tax credit carry-forwards, and an increase of $15 related to the use of net operating loss and credit carryforwards attributed to tax deductions in excess of recognized compensation expense from employee stock compensation awards that existed as of the adoption of ASC 718, Compensation - Stock Compensation. $1,243 of the valuation allowance is attributable 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.

As of December 31, 2014, the Company has not provided for U.S. deferred income taxes on undistributed earnings of its foreign subsidiaries of approximately $3,464 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.

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's policy is to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense.

During the years ended December 31, 2014, 2013, and 2012, the aggregate changes in the total gross amount of unrecognized tax benefits are summarized as follows:



	Year Ended December 31,
	2014		2013		2012
Unrecognized tax benefits as of January 1	$	—	$	—	$	—
Gross increases—tax positions in prior years	—		—		—
Gross increases—tax positions in current year	14		—		—
Settlements with taxing authorities	—		—		—
Lapse of statute of limitations	—		—		—
Gross increase from current year acquisition of Videotel	2,473		—		—
Ending balance	$	2,487	$	—	$	—

The Company had gross unrecognized tax benefits of $2,487, $0, and $0 as of December 31, 2014, 2013, and 2012. At December 31, 2014, $1,172 represents the amount of unrecognized tax benefits that, if recognized, would result in a reduction of the Company's effective tax rate.

As of December 31, 2014, the combined amount of accrued interest and penalties related to tax positions taken on our tax returns and included in non-current income taxes payable was approximately $1,067.

The timing of any resolution of income tax examinations is highly uncertain, as are the amounts and timing of any settlement payment. These events could cause fluctuations in the balance sheet classification of current and non-current assets and liabilities. The Company expects a reduction of approximately $2,684 of unrecognized tax benefits within the next twelve months. $2,473 of the expected decrease is attributable to tax positions related to the Videotel acquisition that the Company anticipates will be resolved with taxing authorities during 2015. $211 of the expected decrease is related to temporary differences that the Company anticipates will reverse during 2015.

The Company’s tax jurisdictions include the United States, the UK, Denmark, Cyprus, Norway, Brazil, Singapore, Belgium, Bermuda, the Netherlands, Hong Kong, 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 2011, 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.