13. Income taxes

12 Months Ended

Dec. 31, 2014

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)	2014		2013		2012
Current:
Federal	$	176	$	1,479	$	1,973
State		15		38		46
Foreign		12		33		40
		203		1,550		2,059
Deferred:
Federal		(1,653)		80		(116)
State		17		(34)		21
Foreign		-		-		-
		(1,636)		46		(95)
Income tax (benefit) provision	$	(1,433)	$	1,596	$	1,964

Our effective tax rates were 37.2%, 24.4%, and 35.2% for 2014, 2013 and 2012, respectively.  Our effective tax rate for 2013 was unusually low because it included: 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, 2014, we have no federal or state net operating loss carryforwards.  We have approximately $104,000 in R&D credit carryforwards that expire in 2034 and approximately $3,000 in state tax credit carryforwards that begin to expire in 2019.  Foreign (loss) income before taxes was $(56,000), $(29,000), and $92,000 in 2014, 2013, and 2012, 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 deferred tax assets and liabilities were comprised of the following:

	December 31,
(In thousands)	2014		2013
Deferred tax assets:
Foreign net operating losses	$	282	$	242
Capitalized research and development		-		68
Accrued lawsuit settlement expenses		1,262		-
Inventory reserves		1,063		1,050
Deferred revenue		56		59
Warranty reserve		100		127
Stock compensation expense		1,049		956
Other accrued compensation		406		-
Foreign tax and other credits		106		45
Other liabilities and reserves		312		491
Gross deferred tax assets		4,636		3,038
Valuation allowance		(282)		(242)
Net deferred tax assets		4,354		2,796
Deferred tax liabilities:
Depreciation		142		175
Other		76		46
Net deferred tax liabilities		218		221
Total net deferred tax assets		4,136	$	2,575

A valuation allowance of $282,000 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)	2014		2013		2012
Balance, beginning of period	$	242	$	216	$	176
Additions charged to income tax provision		40		56		40
Reductions credited to income tax provision		-		(30)		-
Balance, end of period	$	282	$	242	$	216

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

	Year Ended December 31,
	2014		2013		2012
Federal statutory tax rate		34.0%		34.0%		34.0%
R&D credit		6.0		-		-
State income taxes, net of federal income taxes		(0.5)		0.1		0.8
Valuation allowance and tax accruals		(1.1)		0.9		0.9
Uncertain tax positions		(1.0)		-		-
Miscellaneous permanent items		(0.3)		(8.3)		(0.8)
Other		0.1		(2.3)		0.3
Effective tax rate		37.2%		24.4%		35.2%

At December 31, 2014 and 2013, we had approximately $124,000 and $106,000 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)	2014		2013
Unrecognized tax benefits as of January 1	$	106	$	251
Tax positions taken during the current period		18		79
Lapse of statute of limitations		-		(224)
Unrecognized tax benefits as of December 31	$	124	$	106

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 2010.  During 2013, an examination of our 2010 federal tax return was completed.   However, our federal tax returns for the years 2011 through 2013 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 $124,000 will significantly change due to the settlement of audits and the expiration of statute of limitations prior to December 31, 2015.

We recognize interest and penalties related to uncertain tax positions in the income tax provision.  As of December 31, 2014 and 2013, we have approximately $20,000 and $10,000, respectively, of accrued interest and penalties related to uncertain tax positions.