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INCOME TAXES | 12 Months Ended
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Dec. 31, 2013
INCOME TAXES [Abstract] |
INCOME TAXES | NOTE 8: INCOME TAXES The components of the Company’s income (loss) before income taxes are attributable to the following jurisdictions for the years ended December 31 (in thousands):
|  | 2013 |  |  | 2012 |
United States |  | $ | 702 |  |  | $ | (778 | )
Foreign |  |  | 2,107 |  |  |  | 478 |
|  | $ | 2,809 |  |  | $ | (300 | )
The components of the Company’s income tax provision (benefit) for the years ended December 31 are as follows (in thousands):
Current provision (benefit): |  | 2013 |  |  | 2012 |
Federal |  | $ | 124 |  |  | $ | (743 | )
State |  |  | 144 |  |  |  | 7 |
Foreign |  |  | 1,434 |  |  |  | 1,437 |
|  |  | 1,702 |  |  |  | 701 |
Deferred provision (benefit): |  |  |  |  |  |  |  |
Federal |  |  | (1,883 | ) |  |  | — |
State |  |  | — |  |  |  | — |
Foreign |  |  | (184 | ) |  |  | 387 |
|  |  | (2,067 | ) |  |  | 387 |
|  | $ | (365 | ) |  | $ | 1,088 |
A reconciliation of the Company’s effective income tax rate and the United States federal statutory income tax rate is summarized as follows, for the years ended December 31:
|  | 2013 |  |  | 2012 |
Federal statutory income taxes |  |  | 35.0 | % |  |  | 35.0 | %
State income taxes, net of federal benefit |  |  | 1.3 |  |  |  | 2.6 |
Difference in foreign and United States tax on foreign operations |  |  | (11.6 | ) |  |  | (194.0 | )
Effect of changes in valuation allowance for net operating loss carryforwards |  |  | (55.9 | ) |  |  | (106.2 | )
Effect of change in uncertain tax positions (net) |  |  | (17.0 | ) |  |  | 315.2 |
Federal Sub-Part F Income from foreign operations |  |  | 11.8 |  |  |  | (170.2 | )
Other |  |  | 23.4 |  |  |  | (245.5 | )
|  |  | (13.0 | )% |  |  | (363.1 | )%
For the years ended December 31, 2013 and 2012, the Company’s effective tax rate was (13.0)% and (363.1)% respectively. For 2013, the effective income tax rate was lower than what would be expected if the federal statutory income tax rate were applied to income before taxes primarily because of the tax benefit recognized based the IRS tax audit settlement, reversal of valuation allowances against net deferred tax assets and differences from foreign operations. Excluding the release of uncertain income tax positions in connection with the settlement of the IRS audit, the effective tax rate for twelve months ended December 31, 2013 would have been 23.5%. For 2012, the Company had a provision for income tax despite the pre-tax losses primarily because of increases in the valuation allowance for deferred tax assets, increases in uncertain income tax positions, and differences from foreign operations. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities consisted of the following at December 31 (in thousands):
Deferred tax assets: |  | 2013 |  |  | 2012 |
Current: |  |  |  |  |  |
Deferred revenue |  | $ | (26 | ) |  | $ | 7 |
Inventory capitalization |  |  | 228 |  |  |  | 429 |
Inventory reserves |  |  | 644 |  |  |  | 457 |
Accrued expenses |  |  | 917 |  |  |  | 935 |
Other |  |  | 108 |  |  |  | 66 |
Total current deferred tax assets |  |  | 1,871 |  |  |  | 1,894 |
Noncurrent: |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 1,834 |  |  |  | 1,508 |
Net operating loss(1) |  |  | 5,078 |  |  |  | 6,255 |
Deferred royalty |  |  | 39 |  |  |  | 119 |
Non-cash accounting charges related to stock options and warrants |  |  | 520 |  |  |  | 491 |
Accrued expenses |  |  | 366 |  |  |  | 409 |
Other |  |  | 843 |  |  |  | 1,117 |
Total noncurrent deferred tax assets |  |  | 8,680 |  |  |  | 9,899 |
Total deferred tax assets |  |  | 10,551 |  |  |  | 11,793 |
Valuation allowance |  |  | (5,264 | ) |  |  | (8,519 | )
Total deferred tax assets, net of valuation allowance |  | $ | 5,287 |  |  | $ | 3,274 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |
Prepaid expenses |  | $ | 396 |  |  | $ | 576 |
Other |  |  | 5 |  |  |  | 0 |
Total current deferred tax liabilities |  |  | 401 |  |  |  | 576 |
Noncurrent: |  |  |  |  |  |  |  |
Internally-developed software |  |  | 15 |  |  |  | 37 |
Depreciation and amortization |  |  | 2 |  |  |  | 2 |
Sub-Part F Income Deferred |  |  | 2,163 |  |  |  | 1,830 |
Other |  |  | (52 | ) |  |  | (53 | )
Total noncurrent deferred tax liabilities |  |  | 2,128 |  |  |  | 1,816 |
Total deferred tax liabilities |  | $ | 2,529 |  |  | $ | 2,392 |
(1) | The Company’s net operating loss will expire as follows (dollar amounts in thousands):
Jurisdiction |  | Gross NOL |  |  | Tax Effected NOL |  |  | Expiration Years |
Canada |  | $ | 20 |  |  |  | 5 |  |  | 2043 |
Cyprus |  |  | 25 |  |  |  | 3 |  |  | 2018 |
Denmark |  |  | 2 |  |  |  | 0 |  |  | Indefinite |
Mexico |  |  | 9,003 |  |  |  | 2,701 |  |  | 2020-2023 |
Norway |  |  | 743 |  |  |  | 184 |  |  | Indefinite |
Singapore |  |  | 54 |  |  |  | 9 |  |  | Indefinite |
Sweden |  |  | 576 |  |  |  | 127 |  |  | Indefinite |
Switzerland |  |  | 1,490 |  |  |  | 137 |  |  | 2016-2020 |
Taiwan |  |  | 7,268 |  |  |  | 1,236 |  |  | 2016-2023 |
Ukraine |  |  | 725 |  |  |  | 138 |  |  | Indefinite |
United States (states) |  |  | 21,499 |  |  |  | 537 |  |  | 2015-2032 |
At December 31, 2013 and 2012, the Company’s valuation allowance was $5.3 million and $8.5 million, respectively. The provisions of ASC Topic 740 require a company to record a valuation allowance when the “more likely than not” criterion for realizing a deferred tax asset cannot be met. A company is to use judgment in reviewing both positive and negative evidence of realizing a deferred tax asset. Furthermore, the weight given to the potential effect of such evidence is commensurate with the extent the evidence can be objectively verified. The valuation allowances presented below (in millions) at December 31, 2013 and 2012, represented a reserve against the Company’s net deferred tax asset the Company believed the “more likely than not” criterion for recognition purposes could not be met.
Country |  | 2013 |  |  | 2012 |
Mexico |  | $ | 2,701 |  |  | $ | 2,276 |
Norway |  |  | 184 |  |  |  | 208 |
Sweden |  |  | 127 |  |  |  | 132 |
Switzerland |  |  | 38 |  |  |  | 1,043 |
Taiwan |  |  | 1,237 |  |  |  | 1,192 |
Ukraine |  |  | 138 |  |  |  | — |
United States |  |  | 839 |  |  |  | 3,668 |
Total |  | $ | 5,264 |  |  | $ | 8,519 |
At December 31, 2013 and 2012, the Company did not record a provision for any United States or foreign withholding taxes on its undistributed earnings related to its foreign subsidiaries because it is the intention of the Company to reinvest its undistributed earnings indefinitely in its foreign operations. Generally, such earnings become subject to United States income tax upon the remittance of dividends and under certain other circumstances. At December 31, 2013, it is not practicable to estimate the amount of deferred tax liability on such undistributed earnings. Deferred tax assets (liabilities) are classified in the accompanying Consolidated Balance Sheets of December 31 as follows (in thousands):
|  | 2013 |  |  | 2012 |
Current deferred tax assets |  | $ | 1,578 |  |  | $ | 561 |
Noncurrent deferred tax assets |  |  | 1,303 |  |  |  | 502 |
Current deferred tax liabilities |  |  | (114 | ) |  |  | (179 | )
Other long-term liabilities |  |  | (9 | ) |  |  | (2 | )
Net deferred tax assets |  | $ | 2,758 |  |  | $ | 882 |
On January 1, 2007, the Company adopted FIN 48, which was codified into Topic 740, which prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements, uncertain tax positions that it has taken or expects to take on a tax return. Topic 740 requires that a company recognize in its financial statements the impact of tax positions that meet a “more likely than not” threshold, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. As of December 31, 2013, the Company recorded $0.1 million in current liabilities and $0.7 million in other long-term liabilities related to uncertain income tax positions and income tax reserves associated with various audits. At December 31, 2013, the Company had gross tax-affected unrecognized tax benefits of $0.7 million that, if recognized, would impact the effective tax rate. The Company recognizes penalties and interest charges related to unrecognized tax benefits in current tax expense. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows, for the years ended December 31, 2013 and 2012 (in thousands):
|  | 2013 |  |  | 2012 |
Balance as of January 1 |  | $ | 3,039 |  |  | $ | 3,984 |
Additions for tax positions related to the current year |  |  | 436 |  |  |  | 81 |
Additions for tax positions of prior years |  |  | 292 |  |  |  | 58 |
Reductions of tax positions of prior years |  |  | (3,029 | ) |  |  | (1,084 | )
Balance as of December 31 |  | $ | 738 |  |  | $ | 3,039 |
The examination of our 2005-2009 tax years by the IRS for U.S. federal tax purposes was settled during the second quarter of 2013. In connection with the audit, the IRS and the Company agreed to a net tax deficiency of $0.8 million and the payment of interest accrued through June 30, 2013 of $0.2 million, without any penalties, which was paid during the third quarter of 2013. In connection with the settlement of the audit, the Company reclassified amounts owed to the IRS and previously recorded as uncertain tax positions as taxes payable, resulting in a $1.0 million tax benefit during the year of 2013. The Company files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. As of December 31, 2013, the tax years that remained subject to examination by a major tax jurisdiction for the Company’s most significant subsidiaries were as follows:
Jurisdiction |  | Open Years
Australia |  | 2009-2013
Canada |  | 2007-2013
Denmark |  | 2010-2013
Japan |  | 2008-2013
Mexico |  | 2011-2013
Norway |  | 2011-2013
Republic of Korea |  | 2008-2013
Singapore |  | 2010-2013
South Africa |  | 2010-2013
Sweden |  | 2011-2013
Switzerland |  | 2010-2013
Taiwan |  | 2008-2013
United Kingdom |  | 2007-2013
United States |  | 2007-2013

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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