NOTE H: INCOME TAXES

Pretax earnings (loss) for the years ended December 31, 2014, 2013 and 2012 were taxed in the following jurisdictions:


	Year Ended December 31,
	2014			2013			2012
	(In thousands)
Domestic	$	869		$	648		$	(807	)
Foreign		(1,344	)		(1,142	)		(1,788	)

	$	(475	)	$	(494	)	$	(2,595	)

The provision (benefit) for income taxes in each of 2014, 2013 and 2012 is summarized below:


	Year Ended December 31,
	2014			2013			2012
	(In thousands)
Current
Federal	$	74		$	—		$	—
State		79			90			61
Foreign		(14	)		1			(409	)

		139			91			(348	)
Deferred
Federal		168			216			(171	)
State		34			87			—
Foreign		(293	)		(251	)		(62	)

		(91	)		52			(233	)

	$	48		$	143		$	(581	)

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


	2014			2013
	(In thousands)
Deferred tax assets
Inventory	$	1,112		$	1,155
Bad debt provision		47			60
Property and equipment		81			95
Deferred credits		1,280			1,280
Loss carryforwards		1,203			1,031
Rent		121			148
Other		802			812

Gross deferred tax assets		4,646			4,581
Less valuation allowance⁽²⁾		(1,354	)		(1,369	)

		3,292			3,212

Deferred tax liabilities
Property and equipment		(79	)		(84	)
Unremitted earnings of foreign affiliates		(29	)		(53	)

Gross deferred tax liabilities		(108	)		(137	)

Net deferred tax assets⁽¹⁾	$	3,184		$	3,075

(1)	$1,755,000 and $1,849,000 of the total deferred tax assets at December 31, 2014 and 2013 were included in current assets and $1,429,000 and $1,226,000 were included in other long-term assets at December 31, 2014 and 2013, respectively.

(2)	The deferred tax valuation allowance decreased by $15,000 during 2014 and $7,000 during 2013.

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,
	2014			2013			2012
	(In thousands)
Loss before income taxes	$	(475	)	$	(494	)	$	(2,595	)

Expected income tax expense at 34%	$	(162	)	$	(168	)	$	(882	)
Difference in rates on earnings of foreign operations		185			148			83
Stock-based compensation and other nondeductible expenses		43			33			27
State taxes and credits (net of federal benefit)		63			134			50
Change in valuation allowance		(15	)		(7	)		—
Unremitted earnings of foreign subsidiaries		(24	)		(5	)		(19	)
Exclusion of earnings of foreign affiliates		(30	)		(22	)		(54	)
Foreign dividend		—			—			192
Shortfall on vested restricted shares that exceed pool of windfall tax benefits		—			32
Intercompany profit elimination		(14	)		—			—
Other		2			(2	)		22

Income tax provision (benefit)	$	48		$	143		$	(581	)

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, 2014, the operating loss carryforwards available for federal, state and foreign income tax purposes were $963,000, $3,787,000 and $4,281,000, respectively. The earliest year during which any of the carryforwards begin to expire is 2016. At December 31, 2014, 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, 2014 we had $254,000 of unrecognized tax benefits, of which $19,000 impacted our effective tax rate. Interest and penalties totaled $133,000, which was accrued on the balance sheet at December 31, 2014.

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 2008. We do not expect total unrecognized tax benefits to change significantly during the year ended December 31, 2014 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):	2014			2013
Balance as of January 1,	$	273		$	263
Additions for tax positions related to the current year		3			10
Additions for tax positions related to prior years		15			—
Reductions for tax positions of prior years		(37	)		—

Balance as of December 31,	$	254		$	273