Income Taxes

12 Months Ended

Jan. 31, 2013

Income Taxes [Abstract]

Income Taxes

Note 8—Income Taxes

The components of income from continuing operations before income taxes are as follows:

	Years Ended January 31,
	2013		2012
(In thousands)
Domestic	$	1,850	$	(1,103	)
Foreign		1,035		1,747
	$	2,885	$	644

The components of the provision (benefit) for income taxes from continuing operations are as follows:

	Years Ended January 31,
	2013			2012
(In thousands)
Current:
Federal	$	425		$	(371	)
State		(237	)		11
Foreign		366			516
		554			156
Deferred:
Federal		253			(248	)
State		38			(28	)
Foreign		2			23
		293			(253	)
	$	847		$	(97	)

The provision (benefit) for income taxes from continuing operations differs from the amount computed by applying the statutory federal income tax rate of 35% in fiscal 2013 and 34% in fiscal 2012 to income before income taxes due to the following:

	Years Ended January 31,
	2013			2012
(In thousands)
Income tax provision at statutory rate	$	1,010		$	219
State taxes, net of federal tax effect		114			(12	)
Officers life insurance		4			(93	)
Change in valuation allowance		(49	)		35
Change in reserves related to ASC 740 liability		(197	)		61
Meals and entertainment		55			40
Domestic product deduction		(60	)		—
Share-based compensation		26			54
Tax-exempt income		(16	)		(27	)
Prior year tax filing true up adjustment		90			(157	)
R&D credits		(106	)		(175	)
Foreign rate differential		(22	)		(39	)
Other, net		(2	)		(3	)
	$	847		$	(97	)

The components of deferred income tax expense arise from various temporary differences and relate to items included in the statement of income. The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities are as follows:

	January 31,
	2013			2012
(In thousands)
Deferred Tax Assets:
Inventory	$	1,258		$	1,515
Stock-Based Compensation		403			380
R&D Credits		231			280
Vacation Accrual		349			355
ASC 740 Liability Federal Benefit		361			336
Deferred Service Contract Revenue		106			126
Warranty Reserve		135			132
Reserve for Doubtful Accounts		117			150
Other		166			336
		3,126			3,610
Deferred Tax Liabilities:
Accumulated Tax Depreciation in Excess of Book Depreciation		532			907
Currency Translation Adjustment		189			155
Lease Amortization		—			70
Other		63			63
		784			1,195
Subtotal		2,342			2,415
Valuation Allowance		(231	)		(280	)
Net Deferred Tax Assets	$	2,111		$	2,135

At January 31, 2013, we have state net operating loss carryforwards of $131,000, which can be used to offset future tax liabilities and expire at various dates beginning in fiscal 2024. At January 31, 2013 we have state research and development credit carryforwards of approximately $349,000, which can be used to offset future tax liabilities and expire at various dates beginning in fiscal 2013.

The valuation allowance at January 31, 2013 relates to certain state research and development tax credit carryforwards which are expected to expire unused. The change in the valuation allowance is a decrease of approximately $49,000 and represents a reduction in the reserve due to the expiration of research and development credits expiring during the current year net of federal benefit.

The Company reasonably believes that it is possible that some unrecognized tax benefits, accrued interest and penalties could decrease income tax expense in the next year due to either the review of previously filed tax returns or the expiration of certain statutes of limitation. A reconciliation of unrecognized tax benefits, excluding interest and penalties follows:

	2013			2012
(In thousands)
Balance at February 1		$780			$727
Increases in prior period tax positions		16			31
Increases in current period tax positions		386			79
Reductions related to lapse of statute of limitations		(241	)		(57	)
Balance at January 31	$	941		$	780

If the $941,000 is recognized, $580,000 would decrease the effective tax rate in the period in which each of the benefits is recognized and the remainder would be offset by a reversal of deferred tax assets.

During fiscal 2013 and 2012 the Company recognized $105,000 of benefit and $33,000 of expense, respectively, related to interest and penalties, which are included as a component of income tax expense in the accompanying statement of income. At January 31, 2013 and 2012, the Company had accrued potential interest and penalties of $348,000 and $453,000, respectively.

The Company and its subsidiaries file income tax returns in U.S. federal jurisdictions, various state jurisdictions, and various foreign jurisdictions. The Company is no longer subject to U.S. federal examinations prior to 2009.

At January 31, 2013, the Company has indefinitely reinvested $3,143,000 of the cumulative undistributed earnings of its foreign subsidiary in Germany, all of which would be subject to U.S. taxes if repatriated to the U.S. Through January 31, 2013, the Company has not provided deferred income taxes on the undistributed earnings of this subsidiary because such earnings are considered to be indefinitely reinvested. Non-U.S. income taxes are, however, provided on these undistributed earnings.