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INCOME TAXES | 12 Months Ended
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Dec. 31, 2011
INCOME TAXES [Abstract] |
INCOME TAXES |
8. | INCOME TAXES
At December 31, 2011 and 2010, the Company has approximately $4.1 million and $3.8 million, respectively, of liabilities for uncertain tax positions ($0 and $0.9 million, respectively, included in income taxes payable and $4.1 million and $2.9 million, respectively, included in liability for uncertain tax positions) all of which, if recognized, would reduce the Company's effective tax rate. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is no longer subject to U.S. federal examinations by tax authorities for years before 2007 and for state examinations before 2005. Regarding foreign subsidiaries, the Company is no longer subject to examination by tax authorities for years before 2003 in Asia and generally 2005 in Europe. During September 2010 and April 2011, the Company was notified of an Internal Revenue Service (“IRS”) tax audit for the years ended December 31, 2004 through 2009. The Company believes the audit is a result of various carryback claims to the years ended December 31, 2004, 2005 and 2006. As the statute of limitations for the years 2004, 2005 and 2006 has expired, any tax adjustment proposed by the IRS for these years would be limited to the amount of the carryback claims of approximately $2.5 million. As a result of the expiration of the statute of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized benefits for tax positions taken regarding previously filed tax returns may change materially from those recorded as liabilities for uncertain tax positions in the Company's condensed consolidated financial statements. At December 31, 2011, a total of $1.0 million of previously recorded liabilities for uncertain tax positions relates to the 2007 tax year. The statute of limitations related to this liability, which was scheduled to expire on September 15, 2011, was extended until September 2013. A reconciliation of the beginning and ending amount of the liability for uncertain tax positions is as follows (dollars in thousands):
|  | 2011 |  |  | 2010 |  |  | 2009 |
Liability for uncertain tax positions - January 1 |  | $ | 3,835 |  |  | $ | 4,722 |  |  | $ | 7,345 |
Additions based on tax positions |  |  |  |  |  |  |  |  |  |  |  |
related to the current year |  |  | 297 |  |  |  | 948 |  |  |  | 1,277 |
Expiration of statutes of limitations |  |  | - |  |  |  | (1,835 | ) |  |  | (3,900 | )
Liability for uncertain tax positions - December 31 |  | $ | 4,132 |  |  | $ | 3,835 |  |  | $ | 4,722 |
The Company's policy is to recognize interest and penalties related to unrecognized tax benefits arising from uncertain tax positions as a component of the current provision for income taxes. During the years ended December 31, 2011, 2010 and 2009, the Company recognized approximately $0.2 million, $0.2 million and $0.1 million, respectively, of such interest and penalties in the consolidated statements of operations. The Company has approximately $0.7 million and $0.4 million accrued for the payment of interest and penalties at December 31, 2011 and 2010, respectively, which is included in both income taxes payable and liability for uncertain tax positions in the Company's consolidated balance sheets. The Company's total earnings (loss) before provision (benefit) for income taxes included earnings from domestic operations of $9.6 million, $3.6 million and $6.8 million for 2011, 2010 and 2009, respectively, and earnings (loss) from foreign operations of ($1.7) million, $12.0 million and ($16.5) million for 2011, 2010 and 2009, respectively. The provision (benefit) for income taxes consists of the following (dollars in thousands):
|  | Years Ended December 31, |
|  | 2011 |  |  | 2010 |  |  | 2009 |
Current: |  |  |  |  |  |  |  |  |
Federal |  | $ | 2,585 |  |  | $ | 221 |  |  | $ | (5,383 | )
Foreign |  |  | 478 |  |  |  | 804 |  |  |  | 12 |
State |  |  | 362 |  |  |  | 182 |  |  |  | (18 | )
|  |  | 3,425 |  |  |  | 1,207 |  |  |  | (5,389 | )
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 599 |  |  |  | (133 | ) |  |  | 4,229 |
State |  |  | 102 |  |  |  | 189 |  |  |  | 302 |
Foreign |  |  | (18 | ) |  |  | 668 |  |  |  | (527 | )
|  |  | 683 |  |  |  | 724 |  |  |  | 4,004 |
|  | $ | 4,108 |  |  | $ | 1,931 |  |  | $ | (1,385 | )
A reconciliation of taxes on income computed at the federal statutory rate to amounts provided is as follows (dollars in thousands):
|  | Years Ended December 31, |
|  | 2011 |  |  | 2010 |  |  | 2009 |
|  | $ |  |  |  | % |  |  | $ |  |  |  | % |  |  | $ |  |  |  | % |
Tax provision (benefit) computed at the |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
federal statutory rate |  | $ | 2,676 |  |  |  | 34 | % |  | $ | 5,297 |  |  |  | 34 | % |  | $ | (3,296 | ) |  |  | 34 | %
Increase (decrease) in taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Different tax rates and permanent differences |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
applicable to foreign operations |  |  | 1,526 |  |  |  | 20 | % |  |  | (2,377 | ) |  |  | -15 | % |  |  | 720 |  |  |  | -8 | %
Increase in (reversal of) liability for uncertain |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
tax positions - net |  |  | 297 |  |  |  | 4 | % |  |  | (887 | ) |  |  | -6 | % |  |  | (2,623 | ) |  |  | 27 | %
Permanent tax differences related to goodwill |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
impairment with no tax benefit |  |  | - |  |  |  | 0 | % |  |  | - |  |  |  | 0 | % |  |  | 4,378 |  |  |  | -45 | %
Utilization of research and development and foreign |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
tax credits |  |  | (762 | ) |  |  | -10 | % |  |  | (549 | ) |  |  | -4 | % |  |  | (674 | ) |  |  | 7 | %
State taxes, net of federal benefit |  |  | 341 |  |  |  | 4 | % |  |  | 309 |  |  |  | 2 | % |  |  | 290 |  |  |  | -3 | %
Other, including qualified production activity credits, |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
SERP/COLI income, fair value of vested stock awards, |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
overaccruals and amortization of purchase |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
accounting intangibles |  |  | 30 |  |  |  | 0 | % |  |  | 138 |  |  |  | 1 | % |  |  | (180 | ) |  |  | 2 | %
Tax provision (benefit) computed at the Company's |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
effective tax rate |  | $ | 4,108 |  |  |  | 52 | % |  | $ | 1,931 |  |  |  | 12 | % |  | $ | (1,385 | ) |  |  | 14 | %
As of December 31, 2011, the Company has gross foreign income tax net operating losses (“NOL”) and capital loss carryforwards of $2.3 million The Company has established a valuation allowance of $0.4 million against the deferred tax asset related to this amount. In addition, the Company has gross state income tax NOLs, capital loss carryforwards and credit carryforwards of $3.5 million. The Company has established a valuation allowance of $0.8 million against the deferred tax asset related to this amount. The foreign NOL's can be carried forward indefinitely and the state NOL's expire at various times during 2013 - 2029. In connection with the Cinch acquisition, the Company acquired certain tax assets and liabilities. Cinch Europe had net operating loss and capital loss carryforwards in the amounts of $0.6 million and $0.2 million, respectively, as of the acquisition date. The related tax benefits were $0.2 million and $0.1 million, respectively. The capital loss carryforward was acquired with a valuation allowance, which the Company maintained at December 31, 2011. During the year ended December 31, 2010, the entire $0.6 million net operating loss was utilized. Additionally, Cinch Europe had a deferred tax liability in the amount of $0.1 million for various timing differences and $0.1 million in refundable income taxes. At the time of the acquisition, Cinch U.S. had a deferred tax asset in the amount of $0.1 million relating to vacation accruals. Cinch Mexico was acquired with a refundable income tax in the amount of $0.1 million, which was applied to current year income tax for 2010. The Company has received a fair market value report of property, plant and equipment, and intangibles related to Cinch Europe and Cinch Mexico which resulted in the establishment of deferred tax liabilities at the date of acquisition in the amounts of $0.4 million and an immaterial amount, respectively. At December 31, 2011, a deferred tax liability of $0.3 million remains on the consolidated balance sheet. None of the reversals of the deferred tax asset or deferred tax liabilities or use of NOL carryforwards acquired from the Cinch acquisition will impact the consolidated statement of operations. The Company has made an election under IRC Section 338(h)(10) to step-up the tax basis of the Cinch U.S. assets and IRC Section 338(g) to step-up the tax basis of assets for the Cinch Mexico and Cinch U.K. entities acquired to fair value. The elections made under Section 338(h)(10) and Section 338(g) only affect U.S. income taxes (not those of the foreign countries where non-U.S. Cinch entities are incorporated). Management's intention is to permanently reinvest the majority of the earnings of foreign subsidiaries in the expansion of its foreign operations. Unrepatriated earnings, upon which U.S. income taxes have not been accrued, are approximately $93.4 million at December 31, 2011. Such unrepatriated earnings are deemed by management to be permanently reinvested. The estimated federal income tax liability (net of estimated foreign tax credits) related to unrepatriated foreign earnings is $21.2 million under the current tax law. The Company repatriated $0.5 million during 2011. On August 10, 2010, President Obama signed into law the “Education Jobs & Medicaid Assistance Act” (H.R. 1586) (the “Act”). The Act's international tax provisions place certain restrictions on the use of foreign tax credits. The Company has evaluated the newly-enacted international tax provisions and determined that they do not materially affect the Company's operating results or financial condition. The Company continues to monitor proposed legislation affecting the taxation of transfers of U.S. intangible property and other potential tax law changes. Components of deferred income tax assets are as follows (dollars in thousands).
|  | December 31, |
|  | 2011 |  |  | 2010 |
|  | Tax Effect |  |  | Tax Effect |
Deferred Tax Assets - current: |  |  |  |  |  |
State tax credits |  | $ | 766 |  |  | $ | 519 |
Reserves and accruals |  |  | 1,195 |  |  |  | 923 |
Valuation allowance |  |  | (666 | ) |  |  | (419 | )
|  | $ | 1,295 |  |  | $ | 1,023 |
Deferred Tax Assets - noncurrent: |  |  |  |  |  |  |  |
Unfunded pension liability |  | $ | 941 |  |  | $ | 635 |
Depreciation |  |  | (369 | ) |  |  | 161 |
Amortization |  |  | 243 |  |  |  | 526 |
Federal, state and foreign net operating loss |  |  |  |  |  |  |  |
and credit carryforwards |  |  | 566 |  |  |  | 1,060 |
Restructuring expenses |  |  | - |  |  |  | 193 |
Other accruals |  |  | 1,999 |  |  |  | 1,670 |
Valuation allowances |  |  | (566 | ) |  |  | (1,044 | )
|  | $ | 2,814 |  |  | $ | 3,201 |
The Company holds an offshore business license from the government of Macao. With this license, a Macao offshore company named Bel Fuse (Macao Commercial Offshore) Limited has been established to handle all of the Company's sales to third-party customers in Asia. Sales by this company consist of products manufactured in the People's Republic of China (“PRC”). This company is not subject to Macao corporate profit taxes which are imposed at a tax rate of 12%.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 + Details
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