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9. INCOME TAXES

12 Months Ended

Dec. 31, 2013

9.

INCOME TAXES

The Company accounts for income taxes in accordance with the accounting standard for “Income Taxes”, which requires an asset and liability approach to financial accounting and reporting for income taxes. Accordingly, deferred income taxes have been provided for the temporary differences between the financial reporting and the income tax basis of the Company’s assets and liabilities by applying enacted statutory tax rates applicable to future years to the basis differences.

A breakdown of our income tax expense is as follows:

	Years Ended December 31,
	2013			2012			2011
Federal:
Current	$	2,540,701		$	3,946,096		$	2,585,271
Deferred		778,213			307,639			366,042
Total Federal		3,318,914			4,253,735			2,951,313

State & local:
Current		109,254			26,073			259,034
Deferred		(29,619	)		(242,227	)		230,018
Total State & local		79,635			(216,154	)		489,052

Foreign
Current		42,450			197,538			298,752
Deferred		1,769			(2,465	)		(11,548	)
Total Foreign		44,219			195,073			287,204

Total	$	3,442,768		$	4,232,654		$	3,727,569

A reconciliation of recorded Federal income tax expense to the expected expense computed by applying the applicable Federal statutory rate for all periods to income before income taxes follows:

	Years Ended December 31,
	2013			2012			2011
Expected expense at statutory rate	$	3,775,418		$	4,523,826		$	4,170,152

Increase (decrease) in income taxes resulting from:

Exempt income from Dominican Republic operations due to tax holiday		(1,871,847	)		(1,180,971	)		(1,237,418	)
Tax on repatriated earnings from Dominican Republic operations		1,592,238			879,884			472,863
Impact of Canadian deemed dividend		9,712			57,847			43,389
State and local income taxes		45,948			(203,178	)		327,741
Section 199 manufacturing deduction		(51,396	)		(62,704	)		(103,918	)
Meals and entertainment		76,465			59,092			65,506
Nondeductible penalties		1,500			4,614			84
Provision to return filing adjustments and other		(135,270	)		154,244			(10,830	)
Total	$	3,442,768		$	4,232,654		$	3,727,569

Deferred income taxes recorded in the consolidated balance sheets at December 31, 2013 and 2012 consist of the following:

	December 31,
	2013			2012
Deferred tax assets:
Asset valuation allowances and accrued expenses	$	1,094,449		$	1,009,659
Inventories		735,528			653,931
State and local income taxes		345,583			355,949
Pension and deferred compensation		94,599			94,568
Net operating losses		565,088			521,567
Total deferred tax assets		2,835,247			2,635,674
Valuation allowances		(562,776	)		(513,527	)
Total deferred tax assets		2,272,471			2,122,147

Deferred tax liabilities:
Fixed assets		(875,542	)		(393,106	)
Intangible assets		(11,192,160	)		(10,875,800	)
Other assets		(472,166	)		(370,273	)
Tollgate tax on Lifestyle earnings		(379,271	)		(379,271	)
Total deferred tax liabilities		(12,919,139	)		(12,018,450	)

Net deferred tax liability	$	(10,646,668	)	$	(9,896,303	)

Deferred income taxes - current	$	1,104,050		$	1,252,030
Deferred income taxes - non-current		(11,750,718	)		(11,148,333	)
	$	(10,646,668	)	$	(9,896,303	)

The valuation allowance is related to certain state and local income tax net operating loss carry forwards.

We have provided Puerto Rico tollgate taxes on approximately $3,684,000 of accumulated undistributed earnings of Lifestyle prior to the fiscal year ended June 30, 1994, that would be payable if such earnings were repatriated to the United States. In 2001, we received abatement for Puerto Rico tollgate taxes on all earnings subsequent to June 30, 1994, thus no other provision for tollgate tax has been made on earnings after that date. If we repatriate the earnings from Lifestyle, approximately $379,000 of tollgate tax would be due.

As of December 31, 2013, we had approximately $16,332,000 of undistributed earnings from non-U.S. subsidiaries that are intended to be permanently reinvested in non-U.S. operations. Because these earnings are considered permanently reinvested, no U.S. tax provision has been accrued related to the repatriation of these earnings. If the Five Star undistributed earnings were distributed to the Company in the form of dividends, the related taxes on such distributions would be approximately $5,716,000.

We file income tax returns in the U.S. Federal jurisdiction and various state and foreign jurisdictions. We are no longer subject to U.S. Federal tax examinations for years before 2010. State jurisdictions that remain subject to examination range from 2009 to 2012. Foreign jurisdiction (Canada and Puerto Rico) tax returns that remain subject to examination range from 2007 to 2012.

Our policy is to accrue interest and penalties on any uncertain tax position as a component of income tax expense. As of December 31, 2013 no such expenses were recognized during the year. We do not believe there will be any material changes in our uncertain tax positions over the next 12 months.

Accounting for uncertainty in income taxes requires financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. Under this guidance, income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of the standard. The Company did not have any unrecognized tax benefits and there was no effect on its financial condition or results of operations as a result of implementing this standard.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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