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INCOME TAXES

We are subject to Federal and certain state income taxes. In addition, we are taxed in certain foreign countries. As of December 31, 2015 and 2014, there were no cumulative undistributed earnings of our foreign subsidiaries for which U.S. income taxes have not been provided.

Earnings before income taxes was as follows:

	Years Ended December 31,
	2015		2014
Domestic	$	1,868	$	4,061
Foreign		715		848

Total	$	2,583	$	4,909

Income tax expense (benefit) was as follows:

	Years Ended December 31,
	2015			2014
Current
Domestic -- Federal	$	523		$	1,073
Domestic -- state		45			78
Foreign		(14	)		1
Total	$	554		$	1,152
Deferred
Domestic -- Federal	$	12		$	401
Domestic -- state		(9	)		256
Foreign		165			(339	)
Total		168			318
Income tax expense	$	722		$	1,470

Deferred income taxes reflect the net tax effect of net operating loss and credit carryforwards as well as temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following is a summary of the significant components of our deferred tax assets and liabilities as of December 31, 2015 and 2014:

	December 31,
Deferred tax assets:	2015			2014
Depreciation of property and equipment	$	580		$	596
Intangibles		279			224
Net operating loss ("NOL") (state and foreign)		264			513
Inventories		186			184
Accrued vacation pay and stock-based compensation		151			126
Tax credit carryforwards (foreign, research and AMT)		-			92
Allowance for doubtful accounts		55			56
Acquisition costs		31			34
Accrued warranty		5			6
Other		13			21
Total		1,564			1,852
Valuation allowance		(15	)		(100	)
Deferred tax assets		1,549			1,752
Deferred tax liabilities:
Net intangible assets		(222	)		(232	)
Unremitted earnings of foreign subsidiaries		(82	)		(107	)
Deferred tax liabilities		(304	)		(339	)
Net deferred tax asset	$	1,245		$	1,413

The net change in the valuation allowance for the years ended December 31, 2015 and 2014 were decreases of $85 and $187, respectively. In assessing the ability to realize the deferred tax assets, we consider 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 periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. In order to fully realize the total deferred tax assets, we will need to generate future taxable income prior to the expiration of net operating loss and credit carryforwards which expire in various years through 2035.

An analysis of the effective tax rate for the years ended December 31, 2015 and 2014 and a reconciliation from the expected statutory rate of 34% is as follows:

	Years Ended December 31,
	2015			2014
Expected income tax provision at U.S. statutory rate	$	878		$	1,669
Increase (decrease) in tax from:
Current year tax credits (foreign and research)		(207	)		(179	)
Changes in valuation allowance		(85	)		(187	)
Domestic production activities deduction		(68	)		(130	)
Foreign income tax rate differences		(64	)		(63	)
Deemed dividend from foreign subsidiaries		151			208
NOL carryforwards utilized		99			93
Domestic tax expense, net of Federal benefit		33			52
Nondeductible expenses		15			7
Other		(30	)		-
Income tax expense	$	722		$	1,470

In accounting for income taxes, we follow the guidance in ASC Topic 740 (Income Taxes) regarding the recognition and measurement of uncertain tax positions in our financial statements. Recognition involves a determination of whether it is more likely than not that a tax position will be sustained upon examination with the presumption that the tax position will be examined by the appropriate taxing authority having full knowledge of all relevant information. Our policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the statement of operations. As of December 31, 2015 and 2014, we did not have an accrual for uncertain tax positions.

We file U.S. income tax returns and multiple state and foreign income tax returns. With few exceptions, the U.S. and state income tax returns filed for the tax years ending on December 31, 2012 and thereafter are subject to examination by the relevant taxing authorities.