Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

Income Taxes

14. Income Taxes

Income before income taxes was generated in the United States and globally as follows:

($ in thousands)	2012		2011
Domestic	$	13,745	$	8,770
Foreign		1,618		2,913
	$	15,363	$	11,683

The Company has not recorded deferred income taxes on the undistributed earnings of its foreign subsidiaries because of management’s intent to indefinitely reinvest such earnings. At December 31, 2012, the aggregate undistributed earnings of the foreign subsidiaries amounted to $4.0 million. Upon distribution of these earnings in the form of dividends or otherwise, the Company may be subject to U.S. income taxes and foreign withholding taxes. Determination of the amount of any unrecognized deferred income tax liability on this temporary difference is not practicable.

Income tax provision consisted of the following for the years ended December 31:

($ in thousands)	2012			2011
Current:
Federal	$	2,765		$	2,280
State		805			391
Foreign		489			227
		4,059			2,898
Deferred:
Federal		377			213
State		110			129
Foreign		(33	)		171
		454			513
	$	4,513		$	3,411

The income tax provision differs from the statutory rate due to the following:

($ in thousands)	2012			2011
Tax expense at statutory rate	$	5,223		$	3,975
Increase (decrease) in tax resulting from:
State income tax, net of federal benefit		694			460
Domestic Production Activities deduction		(415	)		(134	)
Change in uncertain tax position reserves		110			(34	)
Permanent differences		95			285
Intangible tax basis valuation adjustment		0			(546	)
Impact of foreign rate differences and adjustments		(94	)		(665	)
Foreign permanent differences		—			70
Prior year R&D tax credits		(1,100	)		—
	$	4,513		$	3,411

The Company is completing a study to identify research and development expenditures over the last three years that qualify for the Federal R&D tax credit. As of March 14, 2013, that study is not yet complete; however, preliminary information indicates that $1.1 million of credit will be available upon filing amendments to income tax returns for 2009-2011. Additional credits may be identified as the study progresses. Additional credit may also be identified for 2012; however, the Federal tax credit had not been available until a January 3, 2013 retrospective reinstatement of the credit back into 2012. As such, any available credits for 2012 will not be recorded until at least the first quarter of 2013. The cost of the study is included in selling and administrative expenses.

Deferred income taxes reflect the future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and tax credit carryforwards. The net deferred tax assets consisted of the following at December 31:

($ in thousands)	2012			2011
Gross deferred tax assets:
Accrued expenses	$	105		$	143
Reserves on assets		634			709
Inventory		19			19
Stock-based compensation awards		256			211
Minimum pension/post retirement		1,491			1,497
Goodwill and intangibles		—			538
State and local net operating loss carry-forwards		151			184
Deferred state taxes		68			—
Valuation allowances		(120	)		(141	)
		2,604			3,160
Gross deferred tax liabilities:
Deferred state taxes		—			(8	)
Foreign deferral on assets		(138	)		(171	)
Depreciation		(1,084	)		(1,145	)
Goodwill and intangibles		(612	)		19
Prepaid expenses		(561	)		(642	)
		(2,395	)		(1,966	)
Net deferred tax assets	$	209		$	1,194

Reconciliation to amounts reported in the balance sheet follows:

($ in thousands)	2012			2011
Net current deferred tax assets included in other current assets	$	475		$	517
Net non-current deferred tax assets		—			848
Net current deferred tax liabilities included in accounts payable and accrued expenses		(138	)		(171	)
Net non-current deferred tax liabilities		(128	)		—
Net deferred tax asset	$	209		$	1,194

As of December 31, 2012, the Company has state and local net operating loss carry forwards of $2.3 million which expire from 2017 to 2030. The Company has recorded a valuation allowance on $1.7 million of these state and local net operating loss carry forwards to reflect expected realization.

In assessing the realizability of deferred tax assets, management considers 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 the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carry forward periods), projected future taxable income, and tax-planning strategies in making this assessment. Based on this assessment, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at December 31, 2012. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.

The Company accounts for uncertain tax positions pursuant to FASB Accounting Standards Codification Topic 740. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. A reconciliation of the beginning and ending amount of uncertain tax position reserves is as follows:

($ in thousands)	2012			2011
Balance as of January 1, 2012	$	49		$	83
Additions for tax positions current year		134			19
Reductions for expirations on tax positions of prior years		(21	)		(53	)
Balance as of December 31, 2012	$	162		$	49

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. During the years ended December 31, 2012 and 2011, the Company recognized approximately $6,000 and $2,000 respectively, in interest, resulting in additions to other liabilities of $6,000 and $2,000 after expirations, as of December 31, 2012 and 2011, respectively. The favorable settlement of all uncertain tax positions would impact the Company’s effective income tax rate. Tax years going back to 2009 remain open for examination by Federal and all significant state authorities.