10. INCOME TAXES

The components of the income tax expense (benefit) are as follows:

	2013		2012		2011
Current
Federal	$	11,308,000	$	9,787,000	$	2,347,000
State		(202,000)		132,000		777,000
Total Current		11,106,000		9,919,000		3,124,000

Deferred
Federal	$	(863,000)	$	(1,210,000)	$	5,446,000
State		(25,000)		(127,000)		569,000
Total Deferred		(888,000)		(1,337,000)		6,015,000

Total Income Tax Expense	$	10,218,000	$	8,582,000	$	9,139,000

Deferred tax assets (liabilities) consisted of the following at December 31,

	2013		2012		2011

Deferred compensation		-		-		301,000
Reserves on inventory and sales		332,000		336,000		242,000
Credit and loss carryforwards		413,000		692,000		545,000
Stock compensation		896,000		-		-
Accrued expenses and deferred costs		1,260,000		690,000		516,000
Inventory capitalization		337,000		526,000		555,000
Sales tax accrual		337,000		1,228,000		-
Total deferred tax assets		3,575,000		3,472,000		2,159,000

Unrealized gain/loss on investments		(476,000)		(333,000)		(250,000)
Prepaid expenses		(710,000)		(752,000)		(426,000)
Depreciation		(7,091,000)		(7,729,000)		(8,075,000)
Stock compensation		-		(105,000)		(109,000)
Total deferred tax liabilities		(8,277,000)		(8,919,000)		(8,860,000)

Net deferred tax liabilities	$	(4,702,000)	$	(5,447,000)	$	(6,701,000)

The differences between the United States federal statutory tax rate and the Company's effective tax rate are as follows:

	2013				2012					2011
Statutory federal tax	$	11,965,000	35.0	%	$	8,559,000	35.0	%	$	9,688,000	35.0	%
State income taxes, net of federal benefit		304,000	0.9	%		679,000	2.8	%		1,015,000	3.7	%
Domestic manufacturer deduction		(979,000)	-2.9	%		(902,000)	-3.7	%		(248,000)	-0.9	%
FTC settlement		-	0.0	%		1,389,000	5.7	%		-
Other permanent differences		173,000	0.5	%		(190,000)	-0.8	%		71,000	0.3	%
Research and development and jobs credits		(459,000)	-1.3	%		(267,000)	-1.1	%		(336,000)	-1.2	%
Other state income tax benefits		(707,000)	-2.1	%		(686,000)	-2.8	%		(1,051,000)	-3.9	%
Other		(79,000)	-0.2	%		-				-
	$	10,218,000	29.9	%	$	8,582,000	35.1	%	$	9,139,000	33.0	%

The 2013, 2012 and 2011 effective tax rates were impacted by the Company’s extensive state income tax planning. This planning includes taking advantage of Maryland’s apportionment methodology. As a manufacturing entity based in Maryland, the Company utilizes the single sales factor apportionment method in addition to claiming new state jobs credits and research & development credits. These benefits were offset in 2012 by a $3.7 million FTC nondeductible settlement. In addition, in 2013 the Company benefited from research and development credits effective January 1, 2013, applicable retroactively to 2012 activity.

The Company has federal capital loss carry forwards of approximately $79,000 that can be carried forward for five years and will expire in 2016 through 2017. Separate company state net operating loss carry forwards totaling $2.2 million start expiring in 2027. Maryland state credits carry forwards totaling $237,000 and a Pennsylvania credit carry forward totaling $29,000 will expire in 2017.