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9. INCOME TAXES
 12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Text Block]
9. INCOME TAXES

The Company accounts for income taxes in accordance with the accounting standard for “Income Taxes”, which requires an asset and liability approach to financial accounting and reporting for income taxes. Accordingly, deferred income taxes have been provided for the temporary differences between the financial reporting and the income tax basis of the Company’s assets and liabilities by applying enacted statutory tax rates applicable to future years to the basis differences.


F-15

A breakdown of our income tax expense is as follows:


    Years Ended December 31,  
    2012     2011     2010  
Federal:                        
Current   $ 3,946,096     $ 2,585,271     $ 2,854,818  
Deferred     307,639       366,042       236,444  
Total Federal     4,253,735       2,951,313       3,091,262  
                         
State & local:                        
Current     26,073       259,034       103,993  
Deferred     (242,227 )     230,018       115,386  
Total State & local     (216,154 )     489,052       219,379  
                         
Foreign                        
Current     197,538       298,752       275,476  
Deferred     (2,465 )     (11,548 )     (12,630 )
Total Foreign     195,073       287,204       262,846  
                         
Total   $ 4,232,654     $ 3,727,569     $ 3,573,487  

A reconciliation of recorded Federal income tax expense to the expected expense computed by applying the applicable Federal statutory rate for all periods to income before income taxes follows:


    Years Ended December 31,  
    2012     2011     2010  
Expected expense at statutory rate   $ 4,523,826     $ 4,170,152     $ 3,924,136  
                         
Increase (decrease) in income taxes resulting from:                
                         
Exempt income from Dominican Republic                        
operations due to tax holiday     (1,180,971 )     (1,237,418 )     (1,034,742 )
Tax on repatriated earnings from Dominican                        
Republic operations     879,884       472,863       465,992  
Impact of Canadian deemed dividend     57,847       43,389       164,956  
State and local income taxes     (203,178 )     327,741       142,596  
Section 199 manufacturing deduction     (62,704 )     (103,918 )     (91,327 )
Meals and entertainment     59,092       65,506       70,236  
Nondeductible penalties     4,614       84       1,990  
Provision to return filing adjustments and other     154,244       (10,830 )     (70,350 )
Total   $ 4,232,654     $ 3,727,569     $ 3,573,487  

F-16

Deferred income taxes recorded in the consolidated balance sheets at December 31, 2012 and 2011 consist of the following:


    December 31,  
    2012     2011  
Deferred tax assets:                
Asset valuation allowances and accrued expenses   $ 1,009,659     $ 959,464  
Inventories     653,931       631,192  
State and local income taxes     355,949       440,728  
Pension and deferred compensation     94,568       94,325  
Net operating losses     521,567       510,097  
Total deferred tax assets     2,635,674       2,635,806  
Valuation allowances     (513,527 )     (507,211 )
Total deferred tax assets     2,122,147       2,128,595  
                 
Deferred tax liabilities:                
Fixed assets     (393,106 )     (208,435 )
Intangible assets     (10,875,800 )     (10,792,180 )
Other assets     (370,273 )     (582,064 )
Tollgate tax on Lifestyle earnings     (379,271 )     (379,271 )
Total deferred tax liabilities     (12,018,450 )     (11,961,950 )
                 
Net deferred tax liability   $ (9,896,303 )   $ (9,833,355 )
                 
                 
Deferred income taxes - current   $ 1,252,030     $ 1,154,040  
Deferred income taxes - non-current     (11,148,333 )     (10,987,395 )
    $ (9,896,303 )   $ (9,833,355 )

The valuation allowance is related to certain state and local income tax net operating loss carry forwards.


We have provided Puerto Rico tollgate taxes on approximately $3,684,000 of accumulated undistributed earnings of Lifestyle prior to the fiscal year ended June 30, 1994, that would be payable if such earnings were repatriated to the United States. In 2001, we received abatement for Puerto Rico tollgate taxes on all earnings subsequent to June 30, 1994, thus no other provision for tollgate tax has been made on earnings after that date. If we repatriate the earnings from Lifestyle, approximately $379,000 of tollgate tax would be due.


As of December 31, 2012, we had approximately $15,569,000 of undistributed earnings from non-U.S. subsidiaries that are intended to be permanently reinvested in non-U.S. operations. Because these earnings are considered permanently reinvested, no U.S. tax provision has been accrued related to the repatriation of these earnings. If the Five Star undistributed earnings were distributed to the Company in the form of dividends, the related taxes on such distributions would be approximately $5,450,000.


We file income tax returns in the U.S. Federal jurisdiction and various state and foreign jurisdictions. We are no longer subject to U.S. Federal tax examinations for years before 2009. State jurisdictions that remain subject to examination range from 2008 to 2011. Foreign jurisdiction (Canada and Puerto Rico) tax returns that remain subject to examination range from 2006 to 2011.


F-17

Our policy is to accrue interest and penalties on any uncertain tax position as a component of income tax expense. As of December 31, 2012 no such expenses were recognized during the year. We do not believe there will be any material changes in our uncertain tax positions over the next 12 months.


Accounting for uncertainty in income taxes requires financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements.  Under this guidance, income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of the standard.  The Company did not have any unrecognized tax benefits and there was no effect on its financial condition or results of operations as a result of implementing this standard.