Income taxes. Each quarter, the Company estimates the annual effective income tax rate ("ETR") for the full year and applies that rate to the income (loss) before income taxes in determining its provision for income taxes for the interim periods. The determination of the consolidated provision for income taxes, deferred tax assets and liabilities and related valuation allowances requires management to make judgments and estimates. As a company with subsidiaries in foreign jurisdictions, the process of calculating income taxes involves estimating current tax obligations and exposures in each jurisdiction as well as making judgments regarding the future recoverability of deferred tax assets. Income earned in the United Arab Emirates ("U.A.E.") is not subject to local country income tax. Additionally, the relative proportion of taxable income earned domestically versus internationally can fluctuate significantly from period to period. Changes in the estimated level of annual pre-tax income, tax laws and the results of tax audits can affect the overall effective income tax rate, which impacts the level of income tax expense and net income. Judgments and estimates related to the Company's projections and assumptions are inherently uncertain; therefore, actual results could differ materially from projections.

The Company's consolidated ETR was 1,174.4% and (14.8)% for the nine months ended October 31, 2011 and 2010, respectively. The October 31, 2011 computation of the projected annual tax rate has been significantly impacted by a loss in the U.A.E. for which no tax benefit can be provided. The modest pre-tax profit realized year-to-date caused the Company's permanent and discrete tax items to have an exaggerated percentage impact. In July 2011, the Company recorded a one-time $1.8 million discrete tax expense associated with a $3.1 million repatriation of foreign earnings. This tax expense included a payment of $0.5 million to the foreign tax authority and an accrual of $1.3 million U.S. tax on foreign source income. No cash will be paid for this tax in the U.S. since the Company has a net operating loss carryforward for federal income tax. These foreign earnings were previously considered to be indefinitely reinvested outside the United States. The Company has not provided Federal tax on unremitted earnings of its international subsidiaries. The Company anticipates that unremitted earnings will be reinvested overseas to fund current working capital requirements and expansion in foreign markets. Accordingly, a provision for income tax expense in excess of foreign jurisdiction income tax requirements relative to such unremitted earnings has not been provided in the accompanying financial statements.

Net operating losses must be utilized before a foreign tax credit can be used. Realization of this deferred tax asset is dependent upon generating sufficient foreign sourced U.S. taxable income in the future. Currently management is uncertain such foreign income will be generated. A deferred tax asset of $1.1 million has been recognized with an offsetting valuation allowance of $1.1 million for U.S. foreign tax credits attributed to repatriated foreign earnings. The excess foreign tax credits are subject to a ten-year carryforward and will expire in 2022.

The Company periodically to review the adequacy of its valuation allowance in all of the tax jurisdictions in which it operates and may make further adjustments based on management's outlook for continued profits in each jurisdiction.