Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes
12 Months Ended
Dec. 31, 2014
Income Tax Disclosure [Abstract]  
Income Taxes


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.

ASC Topic 740-10, Overall - Uncertainty in Income Taxes (“ASC Topic 740-10”), clarifies the accounting and disclosure for uncertainty in tax positions. 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.

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


(In thousands)    2014      2013      2012  



U.S. Federal

   $ 22,705       $ 10,904       $ 11,173   


     3,797         682         78   


     1,112         81         2   


     (4,677      (722      (1,544









$ 22,937    $ 10,945    $ 9,709   










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


     2014     2013     2012  

Statutory Federal Income Tax Rate

     35.0     35.0     35.0

Permanent Items


Non-deductible Stock Compensation Expense

     0.6     1.0     1.1

Domestic Production Activity Deduction

     (2.6 )%      (3.0 )%      (3.0 )% 

Non-deductible Acquisition Costs

     —       1.0     —  


     0.1     —       0.1

Foreign Tax Benefits

     (1.7 )%      (0.3 )%      (1.2 )% 

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

     2.6     (0.1 )%      (0.1 )% 

Research and Development Tax Credits

     (4.3 )%      (5.0 )%      (1.1 )% 


     (0.7 )%      —       (0.1 )% 










Effective Tax Rate

  29.0   28.6   30.7











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.

No provision has been made for U.S. federal or foreign taxes on that portion of certain foreign subsidiaries’ undistributed earnings ($8.0 million at December 31, 2014) considered to be permanently reinvested. It is not practicable to determine the amount of tax that would be payable if these amounts were repatriated to the U.S.

Significant components of the Company’s deferred tax assets and liabilities as of December 31, are as follows:


(In thousands)    2014      2013  

Deferred Tax Assets:


Goodwill and Intangible Assets

   $ 2,470       $ 3,367   

Asset Reserves

     4,497         5,780   

Deferred Compensation

     8,895         6,564   

Capital Lease Basis Difference

     1,935         —     

State Investment Tax Credit Carryforwards, Net of Federal Tax

     1,028         665   

Customer Advanced Payments and Deferred Revenue

     1,795         956   

State Net Operating Loss Carryforwards and Other

     2,853         2,639   







Total Gross Deferred Tax Assets

  23,473      19,971   

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

  (3,134   (2,509







Deferred Tax Assets

  20,339      17,462   







Deferred Tax Liabilities:


  8,586      7,164   

Intangible Assets

  23,693      27,742   


  1,237      2,465   







Deferred Tax Liabilities

  33,516      37,371   







Net Deferred Tax Liabilities

$ (13,177 $ (19,909







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


(In thousands)    2014      2013  

Deferred Tax Asset — Current

   $ 7,762       $ 5,291   

Deferred Tax Liabilities — Current

     —           (970

Deferred Tax Liabilities — Long-term

     (20,939      (24,230







Net Deferred Tax Liabilities

$ (13,177 $ (19,909







At December 31, 2014, state and foreign tax credit carryforwards amounted to approximately $1.4 million. These state and foreign tax credit carryforwards will expire from 2015 through 2029.

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 $23.3 million and expire at various dates from 2028 through 2034. The excess tax benefits associated with stock option exercises are recorded directly to shareholders’ equity only when realized and amounted to approximately $5.3 million and $1.2 million for the years ended December 31, 2014 and 2013, respectively.

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 2015 to the reserves cannot be made as of December 31, 2014. A reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties which are insignificant, is as follows:


(in thousands)    2014      2013      2012  

Balance at Beginning of the Year

   $ 1,940       $ 840       $ 880   

Increases (Decreases) as a Result of Tax Positions Taken in Prior Years

     (1,901      145         (220

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

     142         955         180   










Balance at End of the Year

$ 181    $ 1,940    $ 840   











There are no penalties or interest liabilities accrued as of December 31, 2014 or 2013, nor are any penalties or interest costs included in expense for each of the years ended December 31, 2014, 2013 and 2012. 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 2012 through 2014 for federal purposes and 2011 through 2014 for state purposes.

Pretax income from the Company’s foreign subsidiaries amounted to $4.3 million, $0.2 million and $1.0 million for 2014, 2013 and 2012, respectively. The balance of pretax earnings for each of those years were domestic.

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) for the year ended December 31, 2012. The Company recognized a total benefit of $1.1 million in 2013 related to the 2012 credit.