NOTE 10: INCOME TAXES

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

	2013		2012			2011
Current
Federal	$	2,488,953	$	2,010,929		$	2,106,753
State		311,905		290,461			299,616
Foreign		163,921		201,565			135,327
		2,964,779		2,502,955			2,541,696
Deferred
Federal		790,748		1,112,827			429,442
State		42,539		98,191			37,892
Foreign		22,392		(13,364	)		(28,265	)
		855,679		1,197,654			439,069
Provision for taxes	$	3,820,458	$	3,700,609		$	2,980,765

Deferred income taxes reflect the net tax effect 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 net deferred tax assets (liabilities) were as follows:

	January 31,
	2013			2012
Deferred tax assets
Inventory cost capitalization	$	155,301		$	110,306
Pension cost		3,577,115			3,964,282
Management incentive		34,131			262,612
Stock options		656,650			458,468
Interest rate swap		111,191			135,526
Other		434,910			446,576
Total deferred tax assets		4,969,298			5,377,770

Deferred tax liabilities
Property, plant and equipment		2,396,065			2,348,541
Inventory – LIFO		318,222			320,759
Prepaid expenses		266,431			205,501
Goodwill		4,106,338			3,839,091
Total deferred tax liabilities		7,087,056			6,713,892
Net deferred tax liabilities	$	(2,117,758	)	$	(1,336,122	)

The Company has not recorded incremental deferred income taxes on the undistributed earnings of its foreign subsidiaries because it is management's intention to reinvest such earnings for the foreseeable future. At January 31, 2013, the undistributed earnings of foreign subsidiaries amounted to approximately $3.5 million. Upon distribution of these earnings in the form of dividends or otherwise, the Company would be subject to U.S. income taxes and foreign withholding taxes, reduced by certain foreign tax credits. If all these earnings were to be repatriated at one time, the incremental income tax would be immaterial.

A reconciliation of the federal statutory rate and the Company's effective tax rate is presented as follows:

	2013					2012					2011
Computed expected federal tax expense	$	4,034,330		34.0	%	$	3,683,665		34.0	%	$	3,100,765		34.0	%
Manufacturing exemption		(271,862	)	(2.3	)		(205,457	)	(1.9	)		(207,968	)	(2.3	)
State income taxes,net of federal income tax benefit		282,226		2.3			289,895		2.7			235,638		2.6
Research and development tax credits		(153,689	)	(1.3	)		(149,728	)	(1.4	)		(143,361	)	(1.5	)
Stock option tax expense		75,880		.7			78,473		.7			20,076		.2
Stock option modification		(110,311	)	(.9	)		-		-			-		-
Other		(36,116	)	(.3	)		3,761		-			(24,385	)	(.3	)
Effective income taxes	$	3,820,458		32.2	%	$	3,700,609		34.1	%	$	2,980,765		32.7	%

The Company follows the provisions of FASB ASC Topic 740, "Income Taxes", and recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company applies ASC Topic 740 to all tax positions for which the statute of limitations remains open.

As of January 31, 2012, the Company had an unrecognized tax benefit of $49,000 to account for state tax matters in the U. S. as a result of changes in tax positions with relevant tax authorities. The Company filed returns with the relevant state tax authorities during fiscal 2013 upon which the $49,000 unrecognized tax benefit was determined, thereby concluding that it did not have an unrecognized tax benefit. The Company has determined that there have been no additional changes in its tax positions in the fiscal year ended January 31, 2013.

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

	2013
Balance at February 1, 2012	$	49,000
Increases in tax positions for prior years		-
Decreases in tax positions for prior years		(49,000	)
Increases in tax positions for current year		-
Balance at January 31, 2013	$	-

The Company and its subsidiaries are subject to income taxes in the U.S. federal jurisdiction, various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The following table summarizes tax years that remain subject to examination by major jurisdictions:

	Open Tax Year
	Examination in Progress	Examination Not Yet Initiated
United States
Federal	n/a	2010 – 2013
State	n/a	2008 – 2013
Canada	n/a	2007 – 2013
The Netherlands	n/a	2008 – 2013
People's Republic of China	n/a	2011 – 2013
Chile	n/a	2012 – 2013