Income Taxes

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

Income Taxes

9. Income Taxes

“Income (loss) from continuing operations before income taxes” in the Consolidated Statements of Operations included the following components for the periods presented (in thousands):

	Years Ended December 31,
	2016		2015			2014
U.S.	$	23,818	$	(30,402	)	$	11,533
Foreign		4,890		1,060			992
Income (loss) from continuing operations before income taxes	$	28,708	$	(29,342	)	$	12,525

“Income tax expense (benefit)” in the Consolidated Statements of Operations consisted of the following for the periods presented (in thousands):

	Years Ended December 31,
	2016			2015			2014
Current
Federal	$	7,008		$	(2,616	)	$	260
State		949			81			405
Foreign		1,910			719			613
Total — Current		9,867			(1,816	)		1,278
Deferred
Federal		1,346			(8,303	)		3,847
State		269			(1,155	)		545
Foreign		(367	)		(120	)		(180	)
Total — Deferred		1,248			(9,578	)		4,212
Income tax expense (benefit)	$	11,115		$	(11,394	)	$	5,490

We recorded income tax benefits of $0.2 million and $1.2 million during the years ended December 31, 2015 and 2014, respectively, related to our discontinued operations.

The provision for income taxes differed from the amount computed by applying the U.S. federal statutory rate to “Income (loss) from continuing operations before income taxes” due to the effects of the following:

	Years Ended December 31,
	2016			2015			2014
Expected taxes at federal statutory tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal income tax benefit		3.8			3.2			7.6
Research tax credits		(0.2	)		2.8			—
Change in valuation allowance		(0.7	)		(0.4	)		(1.9	)
Non-deductible business expenses		1.5			(1.2	)		2.8
Foreign rate differential		(1.4	)		0.3			(0.8	)
Other		0.7			(0.9	)		1.1
Total		38.7	%		38.8	%		43.8	%

The significant components of deferred tax assets and liabilities were as follows (in thousands):

	At December 31,
	2016			2015
Deferred tax assets :
Accounts receivable	$	287		$	215
Inventories		567			111
Deferred revenue		341			187
Accrued expenses and reserves		4,064			3,946
Stock based compensation		2,277			2,697
Tax credits and loss carryforwards		1,610			4,372
Other		9			15
Total gross deferred tax assets		9,155			11,543
Less: Valuation allowance		(711	)		(911	)
Total deferred tax assets		8,444			10,632
Deferred tax liabilities:
Property and equipment		(4,638	)		(5,102	)
Intangibles		(2,196	)		(2,550	)
Foreign employment tax subsidy		(1,083	)		(1,178	)
Prepaid expenses		(881	)		(914	)
Other		(198	)		(168	)
Total deferred tax liabilities		(8,996	)		(9,912	)
Net deferred tax assets (liabilities)	$	(552	)	$	720

The table of deferred tax assets does not include certain deferred tax assets as of December 31, 2015 which arose from tax deductions related to equity compensation which were greater than the compensation recognized for financial reporting. During the tax year ended December 31, 2016, the deferred tax assets were realized and equity was increased by $0.2 million. We apply ASC 740 ordering when determining when excess tax benefits have been realized.

The valuation allowance relates to certain state net operating loss carryforwards and other state deferred tax assets generated by subsidiaries in a cumulative loss position. The valuation allowance decreased by $0.2 million during the year ended December 31, 2016 primarily due to both utilization of state net operating losses and revaluing of state deferred tax assets.

Current deferred tax liabilities relating primarily to foreign employment tax subsidy of $0.6 million and $0.6 million at December 31, 2016 and 2015, respectively, included in the table above, were included as part of “Accrued expenses and other current liabilities” on our Consolidated Balance Sheets.

At December 31, 2016, we had federal net operating loss carryforwards of $0.6 million, which begin to expire at the end of 2024, and state net operating loss carryforwards of $23.9 million, of which $0.5 million expire between 2017 and 2019, and the remainder expire between 2020 and 2031. Included in these amounts are $0.6 million of federal net operating loss carryforwards and $3.4 million of state net operating loss carryforwards which relate to an acquired subsidiary and are subject to annual limitations as to their use under IRC Section 382. As such, the extent to which these losses may offset future taxable income may be limited. At December 31, 2016, we had state research tax credits of $0.7 million, which have no expiration date.

Cumulative undistributed earnings of our Canadian subsidiaries for which no U.S. income taxes have been provided approximated $12.7 million at December 31, 2016. Deferred U.S. income taxes on these earnings have not been provided as these amounts are considered to be permanently reinvested. At the present time, it is not practicable to estimate the amount of tax that may be payable if these earnings were repatriated.

Unrecognized Tax Benefits

ASC 740 clarifies the accounting for uncertainty in tax positions by subscribing the recognition threshold a tax position is required to meet before being measured and then recognized in the financial statements. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We elected to classify interest and penalties related to income tax liabilities, when applicable, as part of our “Interest expense, net” in our Consolidated Statements of Operations rather than as a component of income tax expense.

There were no unrecognized tax benefits during 2014. Activity relating to our unrecognized tax benefits were as follows (in thousands):

	Years Ended December 31,
	2016		2015
Beginning balance	$	420	$	—
Additions to tax positions		54		420
Ending balance	$	474	$	420

Although it is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next twelve months due to tax examination changes, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities, we do not anticipate any significant changes to unrecognized tax benefits over the next 12 months. During the years ended December 31, 2016 and 2015, no interest or penalties were required to be recognized relating to unrecognized tax benefits.

We are subject to U.S. and foreign income tax examinations for years subsequent to 2012, and state income tax examinations for years following 2011. However, to the extent allowable by law, the tax authorities may have a right to examine prior periods when net operating losses or tax credits were generated and carried forward for subsequent utilization, and make adjustments up to the amount of the net operating losses or credit carryforwards.