Income Taxes

Income tax expense (benefit) for the years ended December 31, 2016, 2015, and 2014 attributable to income (loss) from operations is presented below.



	Current			Deferred			Total
Year ended December 31, 2016
Federal	$	227		$	3,197		$	3,424
State	144			457			601
Foreign	2,770			(1,248		)	1,522
	$	3,141		$	2,406		$	5,547
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

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,
	2016			2015			2014
Computed “expected” tax expense	$	(670	)	$	906		$	451
Increase (decrease) in income taxes resulting from:
State income tax expense, net of federal benefit	(156		)	(37		)	(31		)
State research and development, investment credits	(363		)	(317		)	(365		)
Non-deductible meals & entertainment	49			33			37
Non-deductible stock compensation expense	216			181			29
Non-deductible deferred compensation expense	116			260			87
Non-deductible transaction costs	—			—			73
Subpart F income, net of foreign tax credits	523			61			296
Foreign branch income	52			—			—
Manufacturing deduction	—			(102		)	(123		)
Nontaxable interest income	(162		)	(106		)	(105		)
Foreign tax rate differential	(1,258		)	(792		)	(289		)
Federal research and development credits	(395		)	(348		)	(453		)
Uncertain tax positions	283			(413		)	97
Provision to tax return adjustments	(95		)	80			(317		)
Change in tax rates	14			(313		)	235
Change in valuation allowance	7,425			1,392			1,665
Foreign research and development incentives	(45		)	(59		)	—
Other	13			(13		)	(3		)
Net income tax expense	$	5,547		$	413		$	1,284

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



	Year Ended December 31,
	2016			2015			2014
United States	$	(7,775	)	$	(570	)	$	907
Foreign	5,805			3,236			418
Total	$	(1,970	)	$	2,666		$	1,325

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,
	2016			2015
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts	$	1,104		$	900
Inventories	792			562
Operating loss carry-forwards	3,078			2,094
Stock-based compensation expense	1,231			1,981
Property and equipment, due to difference in depreciation	148			209
Research and development, alternative minimum tax credit carry-forwards	3,031			3,111
Foreign tax credit carry-forwards	754			—
State tax credit carry-forwards	2,277			2,228
Warranty reserve	822			675
Accrued expenses	432			424
Gross deferred tax assets	13,669			12,184
Less valuation allowance	(11,567		)	(4,688		)
Total deferred tax assets	2,102			7,496
Deferred tax liabilities:
Purchased intangible assets	(3,197		)	(4,944		)
Property and equipment, due to differences in depreciation	(2,003		)	(2,849		)
Other	(11		)	(114		)
Total deferred tax liabilities	(5,211		)	(7,907		)
Net deferred tax liability	$	(3,109	)	$	(411	)
Net deferred tax asset—non-current	$	24		$	4,686
Net deferred tax liability—non-current	$	(3,133	)	$	(5,097	)

As of December 31, 2016, the Company had federal research and development tax credit carry-forwards in the amount of $3,875 and other general business credits of $9 that expire in years 2026 through 2036. The Company also had alternative minimum tax credits of $54 that have no expiration date. As of December 31, 2016, the Company had state research and development tax credit carry-forwards in the amount of $3,529 that expire in years 2016 through 2023. The Company also had other state tax credit carry-forwards of $241 available to reduce future state tax expense that expire in years 2018 through 2019. The tax benefit related to $1,571 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, 2016, the Company concluded that a net increase of $6,879 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 $6,879 is composed of expense of $7,425, a decrease of $287 related to the expiration of previously reserved state tax credit carry-forwards, and a decrease of $258 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. Approximately $454 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, 2016, the Company has not provided for U.S. deferred income taxes on undistributed earnings of its foreign subsidiaries of approximately $14,543 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, 2016, 2015, and 2014, the aggregate changes in the total gross amount of unrecognized tax benefits are summarized as follows:



	Year Ended December 31,
	2016			2015			2014
Unrecognized tax benefits as of January 1	$	983		$	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	(131		)	(116		)	—
Gross increase in unrecognized tax benefits - current year tax position	293			13			14
Settlements with taxing authorities	(330		)	(1,569		)	—
Lapse of statute of limitations	—			—			—
Positions assumed in Videotel transaction	—			—			2,473
Ending balance	$	815		$	983		$	2,487

The Company had gross unrecognized tax benefits of $815, $983, and $2,487 as of December 31, 2016, 2015, and 2014, respectively. $815, $983, and $1,172 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, 2016, 2015, and 2014, respectively.

The Company recorded interest and penalties of $40, $78, and $84 in its statement of operations for the years ended December 31, 2016, 2015, and 2014, 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 $545, $468, and $1,067 as of December 31, 2016, 2015, and 2014, 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 does not expect a reduction of unrecognized tax benefits within the next twelve months.

The Company’s tax jurisdictions include the United States, the UK, Denmark, Cyprus, Norway, Brazil, Singapore, Belgium, Bermuda, the Netherlands, Hong Kong, Japan, and India. In general, the statute of limitations with respect to the Company's United States federal income taxes has expired for years prior to 2013, 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.