Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes
12 Months Ended
Dec. 31, 2012
Income Taxes [Abstract]  


The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets are reduced, if deemed necessary, by a valuation allowance for the amount of tax benefits which are not expected to be realized. Investment tax credits are recognized on the flow through method.

The FASB issued ASC Topic 740-10 Overall—Uncertainty in Income Taxes (“ASC Topic 740-10”) which clarifies the accounting and disclosure for uncertainty in tax positions, as defined. ASC Topic 740-10 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. The Company is subject to the provisions of ASC Topic 740-10 and has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions.

Should the Company need to accrue a liability for uncertain tax benefits, any interest associated with that liability will be recorded as interest expense. Penalties, if any, would be recognized as operating expenses. There are no penalties or interest liability accrued as of December 31, 2012 or 2011, nor are any penalties or interest costs included in expense for each of the years ended December 31, 2012, 2011 and 2010. The years under which we conducted our evaluation coincided with the tax years currently still subject to examination by major federal and state tax jurisdictions, those being 2010 through 2012 for federal purposes and 2009 through 2012 for state purposes.


Pretax income from the Company’s foreign subsidiaries amounted to $1.0 million, $0.9 million and $0.1 million for 2012, 2011 and 2010, respectively. The balances of pretax earnings for each of those years were domestic.

The provision (benefit) for income taxes consists of the following:


(In thousands)   2012     2011     2010  



US Federal

  $ 11,173     $ 6,840     $ 5,327  


    78       114       131  


    2       47       38  


    (1,544     423       1,385  









    $ 9,709     $ 7,424     $ 6,881  










The effective tax rates differ from the statutory federal income tax rate as follows:


    2012     2011     2010  

Statutory Federal Income Tax Rate

    35.0     35.0     35.0

Permanent Items, Net

    (1.8 )%      (2.1 )%      (1.3 )% 

Foreign Tax Benefits

    (1.2 )%      (1.0 )%      (0.1 )% 

State Income Tax (Benefits), Net of Federal Income Tax Benefit

    (0.1 )%      1.4     0.6

Research and Development Tax Credits

    (1.1 )%      (6.1 )%      (3.0 )% 


    (0.1 )%      (1.6 )%      0.3










Effective Tax Rate

    30.7     25.6     31.5










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 as of December 31, are as follows:


(In thousands)   2012     2011  

Deferred Tax Assets:


Goodwill and Intangible Assets

  $ 6,918     $ 7,226  

Asset Reserves

    4,901       3,633  

Deferred Compensation

    6,656       3,907  

State Investment Tax Credit Carryforwards, Net of Federal Tax

    665       657  

Customer Advanced Payments and Deferred Revenue

    1,113       476  

State Net Operating Loss Carryforwards and Other

    729       567  







Total Gross Deferred Tax Assets

    20,982       16,466  

Valuation Allowance for State and Foreign Deferred Tax Assets and Tax Credit Carryforwards, Net of Federal Tax

    (2,190     (1,898







Deferred Tax Assets

    18,792       14,568  







Deferred Tax Liabilities:



    4,806       4,322  







Deferred Tax Liabilities

    4,806       4,322  







Net Deferred Tax Asset

  $ 13,986     $ 10,246  







The net deferred tax assets and liabilities presented in the Consolidated Balance Sheets are as follows at December 31:


(In thousands)   2012     2011  

Deferred Tax Asset — Current

  $ 4,967     $ 3,207  

Deferred Tax Asset — Long-term

    9,019       7,039  







Net Deferred Tax Asset

  $ 13,986     $ 10,246  







At December 31, 2012, state and foreign tax credit carryforwards amounted to approximately $1.4 million. These state and foreign tax credit carryforwards will expire from 2015 through 2027.

Due to the uncertainty as to the Company’s ability to generate sufficient taxable income in certain states in the future and utilize certain of the Company’s state operating loss carryforwards before they expire, the Company has recorded a valuation allowance accordingly. These state net operating loss carryforwards amount to approximately $13.2 million and expire at various dates from 2027 through 2032. The excess tax benefits associated with stock option exercises are recorded directly to shareholders’ equity only when realized. As a result, the excess tax benefits included in certain state net operating loss carryforwards but not reflected in deferred tax assets was approximately $5.0 million.


We have unrecognized tax benefits which, if ultimately recognized, will reduce our annual effective tax rate. Reserves for uncertain income tax positions have been recorded pursuant to ASC Topic 740-10. An estimate of the range of possible change during 2013 to the reserves cannot be made as of December 31, 2012. A reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties which are insignificant, is as follows:


(in thousands)   2012     2011     2010  

Balance at Beginning of the Year

  $ 880     $ 1,470     $ 940  

Decreases as a Result of Tax Positions Taken in Prior Years

    (220     (1,090     (270

Increases as a Result of Tax Positions taken in the Current Year

    180       500       800  










Balance at End of the Year

  $ 840     $ 880     $ 1,470  










In January 2013, the American Taxpayer Relief Act of 2012 extended the research and development tax credits for the year ended December 31, 2012. As the new law was not enacted until 2013, the 2012 tax provision contains no estimated benefit for research and development tax credits. Had the law been enacted in 2012, the company would have recognized approximately $0.7 million in tax benefits (net of a $0.7 million reserve). The Company will recognize this benefit in the first quarter of 2013.