13. Income taxes

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

13. Income taxes

The components of the income tax provision are as follows:

	Year Ended December 31,
(In thousands)	2013		2012		2011
Current:
Federal	$	1,479	$	1,973	$	1,695
State		38		46		74
Foreign		33		40		44
		1,550		2,059		1,813
Deferred:
Federal		80		(116)		448
State		(34)		21		71
Foreign		-		-		-
		46		(95)		519
Income tax provision	$	1,596	$	1,964	$	2,332

Our effective tax rates were 24.4%, 35.2% and 33.3% for the years ended December 31, 2013, 2012 and 2011, respectively.  Our effective tax rate for 2013 is unusually low because it includes: 1) a $224,000 reduction in tax liabilities for unrecognized tax benefits resulting from the completion of an audit of our 2010 federal income tax return and 2) the benefit from the 2012 federal research and development credit (“R&D credit”) of approximately $220,000 as this credit was not renewed until January 2, 2013 as a component of the American Taxpayer Relief Act of 2012.

At December 31, 2013, we have no federal or state net operating loss carryforwards.  We have approximately $67,000 in state tax credit carryforwards that begin to expire in 2014.  Foreign (loss) income before taxes was $(29,000), $92,000 and $68,000 in 2013, 2012 and 2011, respectively.

13. Income taxes (continued)

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)	2013		2012
Deferred tax assets:
Foreign net operating losses	$	242	$	186
Capitalized research and development		68		136
Inventory reserves		1,050		961
Deferred revenue		59		79
Warranty reserve		127		96
Stock compensation expense		956		1,036
Foreign tax and other credits		45		34
Other liabilities and reserves		491		705
Gross deferred tax assets		3,038		3,233
Valuation allowance		(242)		(216)
Net deferred tax assets		2,796		3,017
Deferred tax liabilities:
Depreciation		175		365
Other		46		37
Net deferred tax liabilities		221		402
Total net deferred tax assets	$	2,575	$	2,615

A valuation allowance of $242,000 has been established for foreign net operating loss carryforwards that are not expected to be used.The following table summarizes the activity recorded in the valuation allowance on the deferred tax assets:

	Year ended December 31,
(In thousands)	2013		2012		2011
Balance, beginning of period	$	216	$	176	$	125
Additions charged to income tax provision		56		40		51
Reductions credited to income tax provision		(30)		-		-
Balance, end of period	$	242	$	216	$	176

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

	Year Ended December 31,
	2013		2012		2011
Federal statutory tax rate		34.0%		34.0%		34.0%
State income taxes, net of federal income taxes		0.1		0.8		1.4
Tax benefit from tax credits, net of valuation allowance		-		-		(2.7)
Valuation allowance and tax accruals		0.9		0.9		0.7
Permanent items		(8.3)		(0.8)		(0.4)
Other		(2.3)		0.3		0.3
Effective tax rate		24.4%		35.2%		33.3%

At December 31, 2013 and 2012, we had approximately $106,000 and $251,000 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)	2013		2012
Unrecognized tax benefits as of January 1	$	251	$	228
Tax positions taken during the current period		79		23
Lapse of statute of limitations		(224)		-
Unrecognized tax benefits as of December 31	$	106	$	251

13. Income taxes (continued)

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 2009.  During 2008, a limited scope examination of our 2005 and 2006 federal tax returns was completed and during 2013, an examination of our 2010 federal tax return was completed.   However, our federal tax returns for the years 2010 through 2012 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.

We do not anticipate that the total unrecognized tax benefits of approximately $106,000 will significantly change due to the settlement of audits and the expiration of statute of limitations prior to December 31, 2014.

We recognize interest and penalties related to uncertain tax positions in the income tax provision.  As of December 31, 2013 and 2012, we have approximately $10,000 and $46,000, respectively, of accrued interest and penalties related to uncertain tax positions.