(22)

Income Taxes

The Company accounts for income taxes under the liability method. Accordingly, deferred income taxes have been provided for temporary differences between the recognition of revenue and expenses for financial and income tax reporting purposes and between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements.

The components of income (loss) from continuing operations before taxes are as follows (in thousands):


	Years ended December 31,
	2011			2010

Domestic	$	(2,770	)	$	(13,307	)
Foreign		13,826			4,603


	$	11,056		$	(8,704	)

The components of income tax expense (benefit) applicable to continuing operations are as follows (in thousands):


	Years ended December 31,
	2011		2010
Current:
Federal	$	176	$	(219	)
State		11		(64	)
Foreign		1,926		683


Total current income tax expense		2,113		400

Deferred:
Federal		—		3,067
State		—		419
Foreign		508		(2,882	)


Total deferred income tax expense		508		604


	$	2,621	$	1,004

The Company files a consolidated federal income tax return which includes all domestic subsidiaries. State income taxes paid in the U.S. during 2011 and 2010 totaled $78,000 and $591,000, respectively. Foreign income taxes paid during 2011 and 2010 totaled $1,230,000 and $1,313,000, respectively. There were no foreign refunds received in 2011, and refunds of $3,200,000 were received in 2010. The 2010 foreign refund included $724,000 of interest and inflationary adjustments. There were no federal taxes paid in 2011 and 2010, and there were no federal refunds received in 2011. The Company received federal refunds of $261,000 in 2010. At December 31, 2011, the Company had $96,352,000 of federal net operating loss carryforwards available to offset future federal taxable income, which will expire in various amounts from 2024 to 2031.

At December 31, 2011, the Company had $31,212,000 of state net operating loss carryforwards available to offset future state taxable income, the majority of which relates to Florida. Such carryforwards reflect income tax losses incurred which will expire on December 31 of the following years (in thousands):


2018	$	464
2026		627
2027		3,520
2028		8,316
2029		2,784
2030		7,621
2031		7,880


	$	31,212

The following is a reconciliation of income tax expense applicable to continuing operations to that computed by applying the federal statutory rate to loss from continuing operations before income taxes (in thousands):


	Years ended December 31,
	2011			2010

Federal tax expense (benefit) at the statutory rate	$	3,665		$	(3,046	)
Current year permanent differences		(500	)		(251	)
State income taxes, net of federal tax impact		(562	)		(519	)
Dividend from foreign subsidiary		2,593			—
Mexican minimum taxes		—			252
Effect of tax rates of foreign subsidiaries		(758	)		(1,395	)
Currency translation effect on temporary differences		123			(364	)
Valuation allowance		(2,172	)		6,639
Prior year adjustment		208			—
Other		24			(312	)


	$	2,621		$	1,004

Deferred income tax assets and liabilities are as follows (in thousands):


	December 31,
	2011			2010

Deferred tax assets:
Compensation and benefit accruals	$	2,900		$	2,884
Inventory valuation		3,318			3,436
Federal and state net operating loss carryforwards		39,198			39,133
Deferred revenue		4,520			6,789
Accounts receivable allowance		138			215
Defined benefit pension plan		3,769			2,427
Foreign deferred revenue and other provisions		7,096			11,190
AMT credits		185			185
Other		1,457			668

		62,581			66,927
Domestic valuation allowance		(51,215	)		(50,756	)
Foreign valuation allowance		(1,492	)		(4,320	)


Total deferred tax assets		9,874			11,851

Deferred tax liabilities:
Depreciation		(4,270	)		(4,981	)


Total deferred tax liabilities		(4,270	)		(4,981	)


Net deferred tax asset	$	5,604		$	6,870

ASC 740, Income Taxes, requires that a valuation allowance be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. The domestic loss incurred in the year ended December 31, 2011, and the net cumulative loss for the current and prior two years, represents negative evidence under the provisions of ASC 740 requiring the Company to establish a valuation allowance against domestic deferred tax assets. This valuation allowance offsets assets associated with future tax deductions and carryforward items. Until an appropriate level and characterization of profitability is attained, the Company expects to continue to maintain a valuation allowance on its net deferred tax assets related to future U.S. and certain non-U.S. tax benefits.

The gross deferred tax asset for the Company's Mexican subsidiary was $7,096,000 and $11,190,000 as of December 31, 2011 and 2010, respectively. Included in this balance is a deferred tax asset associated with the impairment of marketable securities, which was the result of losses recorded for book purposes on the portion of such marketable securities allocated to the Mexican subsidiary. A full valuation allowance of $1,492,000 and $4,320,000 was applied to this specific deferred tax asset as of December 31, 2011 and 2010, respectively.

The net deferred tax asset balances of $5,604,000 and $6,870,000 at December 31, 2011 and 2010, respectively, are attributable to the Mexican subsidiary. The Company has been profitable in Mexico in the past and anticipates continuing profitability in the future.

The ASC Income Tax topic includes guidance for the accounting for uncertainty in income taxes recognized in an enterprise's financials. Specifically, the guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The total amount of gross unrecognized tax benefits as of December 31, 2011 and 2010 was $200,000. There were no changes to the unrecognized tax benefit balance during the years ended December 31, 2011 and December 31, 2010.

If the Company's positions are sustained by the taxing authority in favor of the Company, the entire balance at December 31, 2011 would reduce the Company's effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. The Company recognizes accrued interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2011 and 2010, the Company does not have an accrual for the payment of tax-related interest and penalties.

The Company files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The Internal Revenue Service (IRS) is not currently examining the Company's U.S. income tax returns for 2008 through 2011, for which the statute has yet to expire. In addition, open tax years related to state and foreign jurisdictions remain subject to examination.

No provision has been made for U.S. federal and state income taxes or foreign taxes that may result from future remittances of the undistributed earnings of foreign subsidiaries because it is expected that such earnings will be reinvested outside the U.S. indefinitely. The cumulative amount of unremitted income for which income taxes have not been provided totaled $8.0 million at December 31, 2011. Determination of the amount of any unrecognized deferred income tax liability on these unremitted earnings is not practicable.