NOTE I — INCOME TAXES

The provision (benefit) for income taxes consists of:


	Year Ended December 31,
	2011			2010			2009
	(in thousands)
Current:
Federal	$	4,657		$	4,269		$	162
State and local		2,063			1,437			984
Foreign		618			565			—

Deferred		(1,216	)		(1,669	)		734

Income tax provision	$	6,122		$	4,602		$	1,880

Deferred income taxes reflect the net tax effects 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 Company’s deferred income tax assets are as follows:


	December 31,
	2011		2010
	(in thousands)
Deferred income tax assets:
Deferred rent expense	$	3,038	$	2,799
Translation adjustment		2,205		1,981
Stock options		2,743		1,619
Inventory		1,624		1,296
Operating loss carry-forward		2,120		2,618
Accounts receivable allowances		270		—
Accrued compensation		580		545
Other		674		529

Total deferred income tax assets	$	13,254	$	11,387

Significant components of the Company’s net deferred income tax liability are as follows:


	December 31,
	2011			2010
	(in thousands)
Deferred income tax liabilities:
Depreciation and amortization	$	(4,867	)	$	(4,035	)
Accounts receivable allowances		—			(102	)
Intangibles		(6,679	)		(2,450	)
Convertible Senior Notes		—			(216	)
Equity in earnings		(998	)		(657	)
Other		(535	)		—

Total deferred income tax liabilities		(13,079	)		(7,460	)

Net deferred income tax (liability) asset		175			3,927

Valuation allowance		(3,085	)		(4,232	)

Net deferred income tax liabilities	$	(2,910	)	$	(305	)

As of December 31, 2010, the Company had fully utilized federal net operating loss and other credit carryforwards generated in previous years. The Company has generated various state net operating loss carryforwards of which $22.0 million remains at December 31, 2011 that begin to expire in 2014. The Company has net operating losses in foreign jurisdictions of $2.6 million at December 31, 2011 that begin to expire in 2016. The Company has offset its total deferred tax assets with certain deferred tax liabilities that are expected to reverse in the carryforward period. As of December 31, 2011, management had determined that it was “more likely than not” that its deferred tax assets would be realized and the corresponding valuation allowance had been released based on the Company’s ability to utilize deferred tax assets currently and the expected future use of temporary differences in the carryback periods. The valuation allowance which remains as of December 31, 2011 relates to certain state net operating losses and foreign currency translation adjustments.

The provision for income taxes differs from the amounts computed by applying the applicable federal statutory rates as follows:


	Year Ended December 31,
	2011			2010			2009
Provision for federal income taxes at the statutory rate		35.0	%		35.0	%		35.0	%
Increases (decreases):
State and local income taxes, net of Federal income tax benefit		6.4			5.6			37.9
Non-deductible stock options		0.1			1.2			11.5
Non-deductible expenses		3.4			0.1			6.4
Valuation allowance		(8.2	)		(19.8	)		(19.3	)
Other		(0.3	)		1.3			6.1

Provision for income taxes		36.4	%		23.4	%		77.6	%

The estimated values of the Company’s gross uncertain tax positions at December 31, 2011, 2010 and 2009 are liabilities of $134,000, $356,000 and $335,000, respectively, and consist of the following:


	Year Ended December 31,
	2011			2010			2009
	(in thousands)
Balance at January 1	$	356		$	335		$	498
Additions based on tax positions related to the current year		—			—			—
Additions for tax positions of prior years		76			200			28
Reductions for tax position of prior years		—			—			—
Settlements		(298	)		(179	)		(191	)

Balance at December 31	$	134		$	356		$	335

The Company had approximately $34,000 and $71,000, net of federal tax benefit, accrued at December 31, 2011 and 2010, respectively, for the payment of interest. The Company’s policy for recording interest and penalties is to record such items as a component of income taxes.

If the Company’s tax positions are ultimately sustained, the Company’s liability, including interest, would be reduced by $134,000, all of which would impact the Company’s tax provision. On a quarterly basis, the Company evaluates its tax positions and revises its estimates accordingly. The Company believes that it is reasonably possible that $134,000 of its tax positions will be resolved within the next twelve months.

The Company has identified the following jurisdictions as “major” tax jurisdictions: U.S. Federal, California, Massachusetts, Pennsylvania, New York and New Jersey. The Company is no longer subject to U.S. Federal income tax examinations for the years prior to 2009. The periods subject to examination for the Company’s major state jurisdictions are the years ended 2007 through 2010.