NOTE H: INCOME TAXES

Pretax earnings (loss) for the years ended December 31, 2013, 2012 and 2011 were taxed in the following jurisdictions:


	Year Ended December 31,
	2013			2012			2011
	(In thousands)
Domestic	$	648		$	(807	)	$	(500	)
Foreign		(1,142	)		(1,788	)		(641	)

	$	(494	)	$	(2,595	)	$	(1,141	)

The provision (benefit) for income taxes in each of 2013, 2012 and 2011 is summarized below:


	Year Ended December 31,
	2013			2012			2011
	(In thousands)
Current
Federal	$	—		$	—		$	—
State		90			61			67
Foreign		1			(409	)		(166	)

		91			(348	)		(99	)
Deferred
Federal		216			(171	)		(178	)
State		87			—			—
Foreign		(251	)		(62	)		22

		52			(233	)		(156	)

	$	143		$	(581	)	$	(255	)

Deferred tax assets (liabilities) were comprised of the following at December 31:


	2013			2012
	(In thousands)
Deferred tax assets
Inventory	$	1,155		$	1,187
Bad debt provision		60			49
Property, plant and equipment		95			109
Deferred credits		1,280			1,281
Loss carryforwards		1,031			1,054
Rent		148			162
Other		812			817

Gross deferred tax assets		4,581			4,659
Less valuation allowance⁽²⁾		(1,369	)		(1,376	)

		3,212			3,283

Deferred tax liabilities
Property, plant and equipment		(84	)		(61	)
Unremitted earnings of foreign affiliates		(53	)		(58	)
Other		—			(30	)

Gross deferred tax liabilities		(137	)		(149	)

Net deferred tax assets⁽¹⁾	$	3,075		$	3,134

(1)	$1,849,000 of the total deferred tax assets at December 31, 2013 and 2012 were included in current assets and $1,226,000 and $1,285,000 in 2013 and 2012 were included in other long-term assets at December 31, 2013 and 2012, respectively.

(2)	The deferred tax valuation allowance decreased by $7,000 during 2013, $163,000 during 2012 and $15,000 during 2011.

Set forth below is a reconciliation between actual tax expense (benefit) and expected tax expense (benefit) for the respective periods presented below:


	Year Ended December 31,
	2013			2012			2011
	(In thousands)
Loss before income taxes	$	(494	)	$	(2,595	)	$	(1,141	)

Expected income tax expense at 34%	$	(168	)	$	(882	)	$	(388	)
Difference in rates on earnings of foreign operations		148			83			80
Stock-based compensation and other nondeductible expenses		33			27			43
State taxes and credits (net of federal benefit)		134			50			40
Change in valuation allowance		(7	)		—			7
Unremitted earnings of foreign subsidiaries		(5	)		(19	)		(1	)
Exclusion of earnings of foreign affiliates		(22	)		(54	)		(12	)
Foreign dividend		—			192			—
Shortfall on vested restricted shares that exceed pool of windfall tax benefits		32
Other		(2	)		22			(24	)

Income tax provision (benefit)	$	143		$	(581	)	$	(255	)

Deferred income taxes have been provided on the undistributed earnings of certain foreign subsidiaries where it is contemplated that earnings will not be reinvested.

At December 31, 2013, the operating loss carryforwards available for federal, state and foreign income tax purposes were $1,324,000, $3,949,000 and $1,960,274, respectively. The earliest year during which any of the carryforwards begin to expire is 2016. At December 31, 2013, foreign tax credit carryforwards available for federal income tax purposes totaled $328,000, which expire in 2015. State targeted tax area credit carryforwards of $1,245,000 are available with no expiration dates.

It is our policy to classify interest and penalties as a component of tax expense. At December 31, 2013 we had $273,000 of unrecognized tax benefits, of which $10,000 impacted our effective tax rate. Interest and penalties totaled $131,000, which was accrued on the balance sheet at December 31, 2013.

The Company and its domestic subsidiaries file income tax returns in the US federal jurisdiction and in various state jurisdictions. The Company’s foreign subsidiaries file income tax returns in the respective jurisdictions in which they are based. With few exceptions, we are no longer subject to tax examinations by taxing authorities for years before 2007. We do not expect total unrecognized tax benefits to change significantly during the year ended December 31, 2013 due to the expiration of any statutes of limitations.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:


Unrecognized Tax Benefits (in thousands):	2013		2012
Balance as of January 1,	$	263	$	260
Additions for tax positions related to the current year		10		3
Reductions for tax positions of prior years		—		—

Balance as of December 31,	$	273	$	263