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Income Taxes
 12 Months Ended
Dec. 31, 2011
Income Taxes [Abstract]  
Income Taxes

Note 8—Income Taxes

The provision for income taxes expense (benefit) consists of:

 

      September 30,       September 30,       September 30,  
    December 31,     December 31,     December 31,  
    2011     2010     2009  
       

Current—Continuing Operations:

                        

Federal

   $ —       $ (582 )    $ 17  

State

     32       25       14  

Foreign

     —         —         —    
   

 

 

    

 

 

    

 

 

  
       
      32       (557 )      31  
   

 

 

    

 

 

    

 

 

  
       

Current—Discontinued Operations:

                        

Federal

   $ —       $ —       $ —    

State

     —         2       —    
   

 

 

    

 

 

    

 

 

  
       
      —         2       —    
   

 

 

    

 

 

    

 

 

  
       

Deferred—Continuing Operations:

                        

Federal

     277       258       171  

State

     —         —         —    

Foreign

     219       —         —    
   

 

 

    

 

 

    

 

 

  
       
      496       258       171  
   

 

 

    

 

 

    

 

 

  
       

Deferred—Discontinued Operations:

                        

Federal

     —         (373 )      189  

State

     —         —         —    
   

 

 

    

 

 

    

 

 

  
       
      —         (373 )      189  
   

 

 

    

 

 

    

 

 

  

Total

   $ 528     $ (670 )    $ 391  
   

 

 

    

 

 

    

 

 

  

We reflected a tax expense of $528 for the year ended December 31, 2011. The 2011 tax provision is principally a result of the increase in the net deferred tax liability related to liabilities generated from goodwill and certain intangible assets that cannot be predicted to reverse for book purposes during our loss carryforward periods. In addition, we incurred state and foreign income taxes in 2011.

We reflected a tax benefit of $670 for the year ended December 31, 2010. The 2010 tax benefit is principally a result of our realization of a current tax benefit related to our election in 2010 to carry back the 2009 net operating loss to the prior five tax years. This amount was partially offset by state income taxes due for 2010. This election resulted in us receiving a refund of any alternative minimum taxes paid in the prior five years. In addition, we realized a deferred tax benefit as a result of the reassessment of the net required deferred tax liability. This reassessment was required due to the impairment of certain goodwill and other intangible assets by us in 2010.

We reflected a tax provision of $391 for the year ended December 31, 2009. The 2009 tax provision is principally a result of the increase in the net deferred tax liability related to liabilities generated from goodwill and certain intangible assets that cannot be predicted to reverse for book purposes during our loss carryforward periods. The current federal tax provision relates to additional 2008 income tax that was paid in 2009. We were not subject to the alternative minimum tax in the U.S. in 2009.

 

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 amount used for income tax purposes. Significant components of our deferred tax liabilities and assets are as follows:

 

      September 30,       September 30,  
    December 31,     December 31,  
    2011     2010  

Deferred tax liabilities:

                

Property, plant and equipment

   $ 763     $ 661  

Intangible assets and other

     4,437       3,789  
   

 

 

    

 

 

  

Total deferred tax liabilities

     5,200       4,450  
   

 

 

    

 

 

  
     

Deferred tax assets:

                

Net operating loss carryforwards

     17,578       16,146  

Intangible assets

     5,079       5,423  

Accrued expenses, reserves and other

     4,531       5,101  

Investments

     342       342  
   

 

 

    

 

 

  

Total deferred tax assets

     27,530       27,012  
     

Valuation allowance for deferred tax assets

     (26,526 )      (26,260 ) 
   

 

 

    

 

 

  

Net deferred tax assets

     1,004       752  
   

 

 

    

 

 

  
     

Net deferred tax liability

   $ (4,196 )    $ (3,698 ) 
   

 

 

    

 

 

  

The $4,196 net deferred tax liability for the year ended December 31, 2011 is comprised of a current deferred tax liability of $187 and a long-term deferred tax liability of $4,170, offset in part by a current deferred tax asset of $161. The $3,698 net deferred tax liability for the year ended December 31, 2010 is comprised of a long-term deferred tax liability of $3,906, offset in part by a current deferred tax asset of $208.

In 2011, 2010 and 2009, in the U.S. and the U.K., we continue to report a valuation allowance for our deferred tax assets that cannot be offset by reversing temporary differences. This results from the conclusion that it is more likely than not that we would not utilize our U.S. and U.K. NOL’s that had accumulated over time. The recognition of a valuation allowance on our deferred tax assets resulted from our evaluation of all available evidence, both positive and negative. The assessment of the realizability of the NOL’s was based on a number of factors including, our history of net operating losses, the volatility of our earnings, our historical operating volatility, our historical inability to accurately forecast earnings for future periods and the continued uncertainty of the general business climate as of the end of 2011. We concluded that these factors represent sufficient negative evidence and have concluded that we should record a full valuation allowance under FASB’s guidance on the accounting for income taxes. In 2010 and 2009, we reported a valuation allowance for our deferred tax assets in China. As a result of our assessment at December 31, 2011, there is no longer a need to record a valuation allowance for the Chinese deferred tax assets as we determined that it is more likely than not that they will be realized. We are more likely than not to fully utilize the NOL in China and therefore have removed the immaterial valuation allowance during 2011. We continually assess the carrying value of this asset based on relevant accounting standards.

As of December 31, 2011, we have foreign and domestic NOL’s totaling approximately $57,977 available to reduce future taxable income. Foreign loss carryforwards of approximately $11,479 can be carried forward indefinitely. The domestic NOL carryforward of $46,498 expires from 2019 through 2031. The domestic NOL carryforward includes approximately $2,949 for which a benefit will be recorded in capital in excess of par value when realized.

We have determined that a change in ownership, as defined under Internal Revenue Code Section 382, occurred during 2005 and 2006. As such, the domestic NOL carryforward will be subject to an annual limitation estimated to be in the range of approximately $12,000 to $14,500. The unused portion of the annual limitation can be carried forward to subsequent periods. We believe such limitation will not impact our ability to realize the deferred tax asset. In addition, certain of our NOL carryforwards are subject to U.S. alternative minimum tax such that carryforwards can offset only 90% of alternative minimum taxable income. This limitation did not have an impact on income taxes determined for 2011, 2010 and 2009. The use of our U.K. NOL carryforwards may be limited due to the change in the U.K. operation during 2008 from a manufacturing and assembly center to primarily a distribution and service center.

 

 

For financial reporting purposes, income (loss) from continuing operations before income taxes is as follows:

 

      September 30,       September 30,       September 30,  
    December 31,     December 31,     December 31,  
    2011     2010     2009  
       

United States

   $ 3,747     $ 12,295     $ (2,353 ) 

Foreign

     (1,655 )      (1,426 )      (2,650 ) 
   

 

 

    

 

 

    

 

 

  
       

Total

   $ 2,092     $ 10,869     $ (5,003 ) 
   

 

 

    

 

 

    

 

 

  

There are no undistributed earnings of our foreign subsidiaries, at December 31, 2011 or December 31, 2010.

We have been granted a tax holiday in China. As a result of new legislation effective for 2008, ABLE’s corporate income rate increased to 9%, which was 50% of the 2008 tax rate of 18%. For 2009, ABLE’s corporate income rate increased to 10%, which was 50% of the normal 20% tax rate for the jurisdiction in which we operate. Thereafter, our tax rate in China will be phased in until ultimately reaching a rate of 25% in 2012. During the years ended December 31, 2011, 2010 and 2009, we realized no tax benefits from the tax holiday due to taxable losses.

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to income (loss) from continuing operations before income taxes as follows:

 

      September 30,       September 30,       September 30,  
    December 31,     December 31,     December 31,  
    2011     2010     2009  
       

Provision/(benefit) computed using the statutory rate

     34.0 %      34.0 %      (34.0 )% 
       

Increase (reduction) in taxes resulting from:

                        

State tax, net of federal benefit

     1.0       (0.1 )      0.2  

Foreign

     26.8       4.4       11.0  

Valuation allowance/deferred impact

     (46.5 )      (42.8 )      17.0  

Compensation

     8.7       1.7       7.3  

Other

     1.2       0.1       2.5  
   

 

 

    

 

 

    

 

 

  

Provision (benefit) for income taxes

     25.2 %      (2.7 )%      4.0 % 
   

 

 

    

 

 

    

 

 

  

In 2011, the provision for income taxes was higher than what would be expected if the statutory rate were applied to pretax income. This is due to the continuation of reflecting a full valuation allowance for our U.S. and U.K. deferred tax assets, and as a result of the mix of earnings in foreign jurisdictions.

In 2010, the benefit for income taxes was lower than what would be expected if the statutory rate were applied to pretax income. This is due primarily to three factors. The first factor is the continuation of reflecting a full valuation allowance for our U.S, U.K. and China deferred tax assets, resulting generally in no recognition of a tax benefit for the losses in 2010. The second factor is principally a result of our realization of a current tax benefit related to our election in 2010 to carry back the 2009 net operating loss to the prior five tax years. This election resulted in us receiving a refund of alternative minimum taxes paid in the prior five years. The third factor was that we realized a deferred tax benefit as a result of the reassessment of the net required deferred tax liability. This reassessment was required due to the impairment of certain goodwill and other intangible assets for us in 2010.

In 2009, the provision for income taxes was higher than what would be expected if the statutory rate were applied to pretax income. This is due to the continuation of reflecting a full valuation allowance for our U.S, U.K. and China deferred tax assets.

Accounting for Uncertainty in Income Taxes

We have adopted FASB’s guidance for the Accounting for Uncertainty in Income Taxes. As a result of the implementation of this guidance, there was no cumulative effect adjustment for unrecognized tax benefits, which would have been accounted for as an adjustment to the January 1, 2007 balance of retained earnings.

 

Our unrecognized tax benefits related to uncertain tax positions at December 31, 2011 relate to Federal and various state jurisdictions. The following table summarizes the activity related to our unrecognized tax benefits:

 

      September 30,       September 30,       September 30,  
    Years ended December 31,  
    2011     2010     2009  
       

Balance at beginning of the year

   $ —       $ —       $ —    

Increases related to the current year tax positions

     6,779       —         —    

Increases related to prior year tax positions

     —         —         —    

Decreases related to prior year tax positions

     —         —         —    

Expiration of statute of limitations for assessment of taxes

     —         —         —    

Settlements

     —         —         —    

Balance at the end of the year

     —         —         —    
   

 

 

    

 

 

    

 

 

  
    $ 6,779     $ —       $ —    
   

 

 

    

 

 

    

 

 

  

The total unrecognized tax benefit balance at December 31, 2011 is comprised of tax benefits that, if recognized, would result in a deferred tax asset and a corresponding increase in our valuation allowance. As a result, because the benefit would be offset by an increase in the valuation allowance, there would be no effect on the effective tax rate.

We are not required to accrue interest and penalties as the unrecognized tax benefits have been recorded as a decrease in our NOL. Interest and penalties would begin to accrue in the period in which the NOL’s related to the uncertain tax positions are utilized. We do not expect our unrecognized tax benefits to change significantly over the next twelve months.

As a result of our operations, we file income tax returns in various jurisdictions including U.S. federal, U.S. State and foreign jurisdictions. We are routinely subject to examination by taxing authorities in these various jurisdictions. Our U.S. tax matters for the years 1999 through 2011 remain subject to examination by the Internal Revenue Service (“IRS”) due to our NOL carryforwards. Our U.S. tax matters for the years 1999 through 2011 remain subject to examination by various state and local tax jurisdictions due to our NOL carryforwards. Our tax matters for the years 2006 through 2011 remain subject to examination by the respective foreign tax jurisdiction authorities. The IRS has completed the examination of our 2009 US Federal income tax return, with no resulting material effect to our financial position or results of operations.