13. Income Taxes

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


	2013		2012
Domestic	$	5,442	$	13,745
Foreign		1,013		1,618

	$	6,455	$	15,363

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, 2013, the aggregate undistributed earnings of the foreign subsidiaries amounted to $3.3 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:


	2013			2012
Current:
Federal	$	(1,660	)	$	2,765
State		(191	)		805
Foreign		623			489

		(1,228	)		4,059

Deferred:
Federal		1,000			377
State		178			110
Foreign		(52	)		(33	)

		1,126			454

	$	(102	)	$	4,513

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


	2013			2012
Tax expense at statutory rate	$	2,194		$	5,223
Increase (decrease) in tax resulting from:
State income tax, net of federal benefit		311			694
Domestic Production Activities deduction		(295	)		(415	)
Change in uncertain tax position reserves		599			110
Foreign permanent differences		510			—
Impact of foreign rate differences and adjustments		(295	)		(94	)
Current and prior years R&D tax credits		(3,649	)		(1,100	)
Other		112			95
Nondeductible transaction costs		411			—

	$	(102	)	$	4,513

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 carry forwards. The net deferred tax assets consisted of the following at December 31:


	2013			2012
Gross deferred tax assets:
Accrued expenses	$	120		$	98
Reserves on assets		805			593
Inventory		—			18
Stock-based compensation awards		552			239
Minimum pension/post retirement		—			1,481
Net operating loss carry-forwards		242			100
Valuation allowances		(149	)		(79	)

		1,570			2,450

Gross deferred tax liabilities:
Foreign deferral on assets		(348	)		(138	)
Depreciation		(3,215	)		(1,014	)
Goodwill and intangibles		(23,530	)		(573	)
Prepaid expenses		(551	)		(516	)
Inventory		(790	)		—
Revaluation of debt		(283	)		—
Minimum pension / post retirement		(1,423	)		—

		(30,140	)		(2,241	)

Net deferred tax (liabilities) assets	$	(28,570	)	$	209

Reconciliation to amounts reported in the balance sheet follows:


	2013			2012
Net current deferred tax assets included in other current assets	$	699		$	475
Net non-current deferred tax assets		66			—
Net current deferred tax liabilities included in accounts payable and accrued expenses		—			(138	)
Net non-current deferred tax liabilities		(29,335	)		(128	)

Net deferred tax asset	$	(28,570	)	$	209

As of December 31, 2013, the Company has state and local net operating loss carry forwards of $2.2 million which expire from 2018 to 2031. 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. The Company also has net operating loss carry forwards in overseas jurisdictions totaling $3.1 million. A valuation allowance of $2.9 million has been established against these losses.

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, 2013. 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 included in other liabilities on the Consolidated Balance Sheets is as follows:


	2013		2012
Balance as of January 1,	$	162	$	49
Additions for tax positions current year		120		134
Additions for tax positions taken in prior years		481		—
Reductions for expirations on tax positions of prior years		—		(21	)

Balance as of December 31,	$	763	$	162

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. 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 and foreign authorities.