Income Taxes

Income tax expense for the years ended December 31, 2015, 2014, and 2013 attributable to income from operations is presented below.



	Current			Deferred			Total
Year ended December 31, 2015
Federal	$	(555	)	$	(94	)	$	(649	)
State	120			765			885
Foreign	295			(118		)	177
	$	(140	)	$	553		$	413
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

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 34% to income before tax expense (benefit) as follows:



	Year Ended December 31,
	2015			2014			2013
Computed “expected” tax expense	$	906		$	451		$	2,339
(Decrease) increase in income taxes resulting from:
State income tax expense, net of federal benefit	(37		)	(31		)	336
State research and development, investment credits	(317		)	(365		)	(309		)
Non-deductible meals & entertainment	33			37			31
Non-deductible stock compensation expense	181			29			178
Non-deductible deferred compensation expense	260			87			—
Non-deductible transaction costs	—			73			170
Subpart F income, net of foreign tax credits	61			296			162
Manufacturing deduction	(102		)	(123		)	—
Nontaxable interest income	(106		)	(105		)	(86		)
Foreign tax rate differential	(792		)	(289		)	(369		)
Federal research and development credits	(348		)	(453		)	(746		)
Uncertain tax positions	(413		)	97			—
Provision to tax return adjustments	80			(317		)	—
Change in tax rates	(313		)	235			—
Change in valuation allowance	1,392			1,665			491
Foreign research and development incentives	(59		)	—			—
Other	(13		)	(3		)	(47		)
Net income tax expense	$	413		$	1,284		$	2,150

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



	Year Ended December 31,
	2015			2014		2013
United States	$	(570	)	$	907	$	5,500
Foreign	3,236			418		1,183
Total	$	2,666		$	1,325	$	6,683

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



	December 31,
	2015			2014
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts	$	900		$	664
Inventories	562			531
Operating loss carry-forwards	2,094			1,939
Stock-based compensation expense	1,981			1,743
Property and equipment, due to difference in depreciation	209			1,334
Research and development, alternative minimum tax credit carry-forwards	3,111			3,313
Foreign tax credit carry-forwards	—			725
State tax credit carry-forwards	2,228			2,176
Warranty reserve	675			682
Accrued expenses	424			505
Gross deferred tax assets	12,184			13,612
Less valuation allowance	(4,688		)	(4,157		)
Total deferred tax assets	7,496			9,455
Deferred tax liabilities:
Purchased intangible assets	(4,944		)	(6,917		)
Property and equipment, due to differences in depreciation	(2,849		)	(2,410		)
Other	(114		)	(130		)
Total deferred tax liabilities	(7,907		)	(9,457		)
Net deferred tax liability	$	(411	)	$	(2	)
Net deferred tax asset—current	$	—		$	2,772
Net deferred tax asset—non-current	$	4,686		$	2,690
Net deferred tax liability—non-current	$	(5,097	)	$	(5,464	)

As of December 31, 2015, the Company had foreign net operating loss carry-forwards available to offset future foreign income of $6,176. The foreign net operating loss carry-forwards have no expiration.

As of December 31, 2015, the Company had federal research and development tax credit carry-forwards in the amount of $3,752 and other general business credits of $9 that expire in years 2026 through 2035. The Company also had alternative minimum tax credits of $132 that have no expiration date. As of December 31, 2015, the Company had state research and development tax credit carry-forwards in the amount of $3,472 that expire in years 2016 through 2023. The Company also had other state tax credit carry-forwards of $242 available to reduce future state tax expense that expire in years 2018 through 2019. The tax benefit related to $1,716 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, 2015, the Company concluded that a net increase of $531 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 $531 is composed of expense of $1,392, a decrease of $330 related to the expiration of previously reserved state tax credit carry-forwards, and a decrease of $531 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. $712 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, 2015, the Company has not provided for U.S. deferred income taxes on undistributed earnings of its foreign subsidiaries of approximately $11,913 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, 2015, 2014, and 2013, the aggregate changes in the total gross amount of unrecognized tax benefits are summarized as follows:



	Year Ended December 31,
	2015			2014		2013
Unrecognized tax benefits as of January 1	$	2,487		$	—	$	—
Gross increase in unrecognized tax benefits - prior year tax positions	168			—		—
Gross decrease in unrecognized tax benefits due to currency fluctuations - prior year tax positions	(116		)	—		—
Gross increase in unrecognized tax benefits - current year tax position	13			14		—
Settlements with taxing authorities	(1,569		)	—		—
Lapse of statute of limitations	—			—		—
Positions assumed in Videotel transaction	—			2,473		—
Ending balance	$	983		$	2,487	$	—

The Company had gross unrecognized tax benefits of $983 and $2,487 as of December 31, 2015 and 2014, respectively. The Company did not have any material unrecognized tax benefits at December 31, 2013. $983, $1,172, and $0 represent the amount of unrecognized tax benefits that, if recognized, would result in a reduction of the Company's effective tax rate at December 31 2015, 2014, and 2013, respectively.

The Company recorded interest and penalties of $78, $84, and $0 in its statement of operations for the years ended December 31, 2015, 2014, and 2013, respectively. 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 $468, $1,067, and $0 as of December 31, 2015, 2014, and 2013, respectively.

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 $849 of unrecognized tax benefits within the next twelve months. $788 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 2016. $61 of the expected decrease is related to amended tax returns that the Company anticipates it will file during 2016.

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 2012, 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.