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Income Taxes

For the years ended December 31, 2015, 2014, and 2013, income before income taxes consists of the following:

	2015		2014		2013
	(In thousands)
U.S. Operations	$	25,536	$	25,338	$	21,882
Foreign Operations		1,824		2,754		2,606
	$	27,360	$	28,092	$	24,488

Income tax expense consisted of the following components:

	2015			2014		2013
	(In thousands)
Federal:
Current	$	9,955		$	8,578	$	7,169
Deferred		(1,232	)		99		195
Total	$	8,723		$	8,677	$	7,364

Foreign:
Current	$	455		$	714	$	716
Deferred		(23	)		34		(7	)
Total	$	432		$	748	$	709

State:
Current	$	680		$	448	$	1,020
Deferred		(85	)		63		(89	)
Total	$	595		$	511	$	931

Total	$	9,750		$	9,936	$	9,004

The difference between the Company’s income tax expense as reported in the accompanying consolidated financial statements and the income tax expense that would be calculated applying the U.S. federal income tax rate of 35% for 2015, 2014, and 2013 on pretax income was as follows:

	2015			2014			2013
	(In thousands)
Expected federal income taxes	$	9,576		$	9,832		$	8,571
Foreign tax rate differential		(139	)		(239	)		(226	)
State income taxes, net of federal benefit and state tax credits		391			332			605
Federal tax credits		(150	)		(150	)		(217	)
Uncertain tax positions		93			182			(43	)
Deferred tax adjustment due to change in state tax law		39			58			--
Recapitalization expenses		--			--			182
Release of valuation allowance		--			1,124			14
Expiration of capital loss carryforward		--			(1,124	)		--
Other		(60	)		(79	)		118
Total	$	9,750		$	9,936		$	9,004

Deferred tax assets and liabilities at December 31, 2015 and 2014, were comprised of the following:

	2015			2014
	(In thousands)
Deferred tax assets:
Allowance for doubtful accounts	$	58		$	71
Accrued expenses		578			529
Share based compensation		1,796			1,239
Accrued bonuses		618			--
Other		94			38
Deferred tax assets		3,144			1,877

Deferred tax liabilities:
Prepaid expenses		261			251
Property and equipment		943			1,319
Intangible assets		7,616			7,308
Other		68			82
Deferred tax liabilities		8,888			8,960
Net deferred tax liabilities	$	(5,744	)	$	(7,083	)

At December 31, 2015 and 2014, net deferred tax assets of $1.1 million and $349,000 respectively, were included in current deferred income taxes. At December 31, 2015 and 2014, net deferred tax liabilities of $6.8 million and $7.4 million, respectively, were included in long term deferred income taxes.

In assessing the realizability of deferred tax assets, the Company considers 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 is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers projected future taxable income, carry-back opportunities, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, the Company believes it is more likely than not that it will realize the benefits of these deductible differences. Therefore, the Company has not recorded a valuation allowance as of December 31, 2015 or 2014. The net impact on income tax expense related to changes in the valuation allowance for 2014 and 2013 were $1.1 million and $14,000 respectively.

The Company had domestic capital loss carryforwards that expired in 2014. The total $3.1 million of the capital loss carryforwards related to the pre-acquisition periods of acquired companies, and the Company had provided a $1.1 million valuation allowance against the $1.1 million tax benefit associated with the capital loss carryforwards.

The undistributed foreign earnings of the Company’s foreign subsidiary of approximately $14.1 million are considered to be indefinitely reinvested. Accordingly, no provision for U.S. federal and state income taxes or foreign withholding taxes has been provided for such undistributed earnings. The Company estimated at December 31, 2015, that an additional tax liability of $534,000 would become due if repatriation of undistributed earnings would occur.

The Company had an unrecognized tax benefit at December 31, 2015 and 2014, of $450,000 and $360,000, respectively, excluding interest of $10,000 and $8,000, respectively, and penalties in 2015 and 2014 of $7,000. Of these amounts, $244,000 and $210,000 at December 31, 2015 and 2014, respectively, represents the net unrecognized tax benefits that, if recognized, would favorably impact the effective income tax rate. The remaining $206,000 and $150,000 at December 31, 2015 and 2014, respectively, would have no impact on the effective tax rate, if recognized. The Company accrues interest and penalties related to uncertain tax position in the statements of income as income tax expense.

The change in the unrecognized tax benefits for 2015 and 2014 is as follows:

	(In thousands)
Balance of unrecognized tax benefits at December 31, 2013	$	188
Reductions due to lapse of applicable statute of limitations		(26	)
Additions based on tax positions of prior years		10
Additions based on tax positions related to the current year		188
Balance of unrecognized tax benefits at December 31, 2014	$	360

Reductions due to lapse of applicable statute of limitations		(24	)
Reductions based on tax positions of prior years		(3	)
Additions based on tax positions related to the current year		117
Balance of unrecognized tax benefits at December 31, 2015	$	450

The Company files a U.S. federal income tax return, various state jurisdictions and a Canada federal and provincial income tax return. The 2012 to 2015 U.S. federal and state returns remain open to examination. The Company is currently under a United States federal tax examination for the tax year ended December 31, 2013. The 2011 to 2015 Canada federal and provincial income tax returns remain open to examination.