(

)

Income Taxes

For

the years ended

December

31,

2016,

2015,

and

2014,

income before income taxes consists of the following:

	201 6		20 15		201 4
	(In thousands)
U.S. Operations	$	29,848	$	25,536	$	25,338
Foreign Operations		1,508		1,824		2,754
Income before income taxes	$	31,356	$	27,360	$	28,092

Income tax expense consisted of the following components

	201 6			201 5			201 4
	(In thousands)
Federal :
Current	$	8,930		$	9,955		$	8,578
Deferred		847			(1,232	)		99
Total	$	9,777		$	8,723		$	8,677

Foreign :
Current	$	409		$	455		$	714
Deferred		(18	)		(23	)		34
Total	$	391		$	432		$	748

State :
Current	$	634		$	680		$	448
Deferred		36			(85	)		63
Total	$	670		$	595		$	511

Total	$	10,838		$	9,750		$	9,936

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

for

2016,

2015,

and

2014

on pretax income was as follows:

	20 16			20 15			20 14
	( In thousands)
Expected federal income taxes	$	10,975		$	9,576		$	9,832
Foreign tax rate differential		(129	)		(139	)		(239	)
State income taxes, net of federal benefit and state tax credits		436			391			332
Federal tax credits		(165	)		(150	)		(150	)
Uncertain tax positions		6			93			182
Deferred tax adjustment due to change in state tax law		--			39			58
Share based compensation		(441	)		--			--
Expiration of capital loss carryforward		--			--			1,124
Release of valuation allowance		--			--			(1,124	)
Other		156			(60	)		(79	)
Total	$	10,838		$	9,750		$	9,936

Deferred tax assets and liabilities at

December

31,

2016

and

2015,

were comprised of the following:

	2016			2015
	(In thousands)
Deferred tax assets:
Allowance for doubtful accounts	$	62		$	58
Accrued expenses		580			578
Share based compensation		2,357			1,796
Accrued bonuses		84			618
Other		53			94
Deferred tax assets		3,136			3,144

Deferred tax liabilities:
Prepaid expenses		270			261
Property and equipment		1,206			943
Intangible assets		6,521			7,616
Other		--			68
Deferred tax liabilities		7,997			8,888
Net deferred tax liabilities	$	(4,861	)	$	(5,744	)

November

2015,

the FASB issued

Accounting Standards Update (“ASU”)

2015

17,

Balance Sheet Classification of Deferred Taxes

(“ASU

2015

17”).

ASU

2015

amends the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will now be required to classify all deferred tax assets and liabilities as noncurrent. The Company adopted ASU

2015

retrospectively effective

January

2016

and reclassified

$1.1

million of current deferred tax assets to noncurrent, which was netted with deferred tax liabilities on the

December

31,

2015

consolidated balance sheet.

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,

2016

2015.

The net impact on income tax expense related to changes in the valuation allowance for

2014

was

$1.1

million.

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

$15.2

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,

2016,

that an additional tax liability of

$536,000

would become due if repatriation of undistributed earnings would occur.

The Company had an unrecognized tax benefit at

December

31,

201

and

2015,

$463,000

and

$450,000,

respectively, excluding interest of

$4,000

and

$10,000

December

31,

2016

and

2015,

respectively, and penalties of

7,000

at both

December

31,

2016

and

2015.

Of these amounts,

$119,000

and

$244,000

December

31,

2016

and

2015,

respectively, represents the net unrecognized tax benefits that, if recognized, would favorably impact the effective income tax rate. The remaining

$344,000

and

$206,000

December

31,

2016

and

2015,

respectively, would have no impact on the effective tax rate, if recognized. The Company accrues interest and penalties related to uncertain tax positions in the statements of income as income tax expense. The interest change (reduced) increased income tax expense by

($6,000)

and

$2,000

2016

and

2015,

respectively.

The change in the unrecognized tax benefits for

2016

and

2015

is as follows:

	(In thousands)
Balance of unrecognized tax benefits at December 31, 201 4	$	360

Reductions due to lapse of applicable statute of limitations		(24	)
Reductions due to tax positio ns of prior years		(3	)
Additions based on tax positions related to the current year		117
Balance of unrecognized tax benefits at December 31, 201 5	$	450

Reductions due to lapse of applicable statute of limitations		(147	)
Additions based on tax positions of prior years		5
Additions based on tax positions related to the current year		155
Balance of unrecognized tax benefits at December 31, 201 6	$	463

The Company files a U.S. federal income tax return, various state jurisdictions and

a Canada federal and provincial income tax return.

All years prior to

2014

are now closed for US federal income tax and for years prior to

2013

for state income tax returns, and no exposure items exist for these years.

The Company completed a United States federal tax examination for the tax year ended

December

31,

2013

in the

first

quarter of

2016.

The

2012

2016

Canada federal and provincial income tax returns remain open to examination.