14. Income taxes

12 Months Ended

Dec. 31, 2011

Income Tax Disclosure [Text Block]

14. Income taxes

The components of the income tax provision are as follows:

	Year Ended December 31,
(In thousands)	2011		2010		2009
Current:
Federal	$	1,695	$	1,297	$	53
State		74		51		13
Foreign		44		35		5
		1,813		1,383		71
Deferred:
Federal		448		457		891
State		71		82		110
Foreign		-		1		1
		519		540		1,002
Income tax provision	$	2,332	$	1,923	$	1,073

At December 31, 2011, we have no federal or state net operating loss carryforwards.  We also have approximately $71,000 in state tax credit carryforwards that began to expire in 2011.  Foreign income (loss) before taxes was $68,000, $35,000 and ($49,000) in 2011, 2010 and 2009, respectively.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the Consolidated Financial Statements.  Our gross deferred tax assets and liabilities were comprised of the following:

	December 31,
(In thousands)	2011			2010
Deferred tax assets:
Net operating losses	$	149		$	114
Capitalized research and development		204			273
Inventory reserves		1,169			1,210
Deferred revenue		98			176
Warranty reserve		148			87
Stock compensation expense		810			586
Foreign tax and other credits		47			65
Other liabilities and reserves		595			562
Gross deferred tax assets		3,220			3,073
Valuation allowance		(176	)		(125	)
Net deferred tax assets		3,044			2,948
Gross deferred tax liabilities:
Depreciation		422			392
Other		96			62
Net deferred tax liabilities		518			454
Total net deferred tax assets	$	2,526		$	2,494

The following table summarizes the activity recorded in the valuation allowance on the deferred tax assets:

	Year ended December 31,
(In thousands)	2011		2010			2009
Balance, beginning of period	$	125	$	76		$	26
Additions charged to income tax provision		51		55			50
Reductions credited to income tax provision		-		(6	)		-
Balance, end of period	$	176	$	125		$	76

Differences between the U.S. statutory federal income tax rate and our effective income tax rate are analyzed below:

	Year Ended December 31,
	2011			2010			2009
Federal statutory tax rate		34.0	%		34.0	%		34.0	%
State income taxes, net of federal income taxes		1.4			1.5			2.5
Tax benefit from tax credits, net of valuation allowance		(2.7	)		(2.9	)		(4.5	)
Valuation allowance and tax accruals		0.7			0.8			0.8
Permanent items		(0.4	)		(0.2	)		0.7
Other		0.3			(0.2	)		-
Effective tax rate		33.3	%		33.0	%		33.5	%

At December 31, 2011 and 2010, we had approximately $228,000 and $201,000 of total gross unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods.  We are not aware of any events that could occur within the next twelve months that could cause a significant change in the total amount of unrecognized tax benefits.  A tabular reconciliation of the gross amounts of unrecognized tax benefits at the beginning and end of the year is as follows:

(In thousands)	2011			2010
Unrecognized tax benefits as of January 1	$	201		$	189
Tax positions taken during the current period		53			61
Lapse of statute of limitations		(26	)		(49	)
Unrecognized tax benefits as of December 31	$	228		$	201

We are subject to U.S. federal income tax as well as income tax of certain state and foreign jurisdictions.  We have substantially concluded all U.S. federal income tax, state and local, and foreign tax matters through 2003.  During 2008, a limited scope examination of our 2005 and 2006 federal tax returns was completed.  However, our federal tax returns for the years 2004 through 2010 remain open to examination.  Various state and foreign tax jurisdiction tax years remain open to examination as well, though we believe that any additional assessment would be immaterial to the Consolidated Financial Statements.  No federal, state or foreign tax jurisdiction income tax returns are currently under examination.

We do not anticipate that the total unrecognized tax benefits will significantly change due to the settlement of audits and the expiration of statute of limitations prior to December 31, 2012.

We recognize interest and penalties related to uncertain tax positions in the income tax provision.  As of December 31, 2011 and 2010, we have approximately $23,000 and $4,000, respectively, of accrued interest and penalties related to uncertain tax positions.