NOTE H: INCOME TAXES

Pretax income (loss) for the years ending December 31, 2011, 2010 and 2009 was taxed in the following jurisdictions:


	Year Ended December 31,
	2011			2010			2009
	(In thousands)
Domestic	$	(500	)	$	(383	)	$	(691	)
Foreign		(641	)		952			895

	$	(1,141	)	$	569		$	204

The provision (benefit) for income taxes in each of 2011, 2010 and 2009 is summarized below:


	Year Ended December 31,
	2011			2010			2009
	(In thousands)
Current
Federal	$	—		$	—		$	(1	)
State		67			86			85
Foreign		(166	)		273			317

		(99	)		359			401
Deferred
Federal		(178	)		(30	)		(231	)
State		—			13			(43	)
Foreign		22			75			(22	)

		(156	)		58			(296	)

	$	(255	)	$	417		$	105

Deferred tax assets (liabilities) were comprised of the following at December 31:


	2011			2010
	(In thousands)
Deferred tax assets
Inventory	$	1,185		$	1,195
Bad debt provision		85			134
Property, plant and equipment		59			53
Deferred credits		1,281			1,282
Loss carryforwards		1,035			940
Rent		150			149
Other		431			369

Gross deferred tax assets		4,226			4,122
Less valuation allowance		(1,213	)		(1,198	)

		3,013			2,924

Deferred tax liabilities
Property, plant and equipment		(22	)		(98	)
Unremitted earnings of foreign affiliates		(77	)		(78	)

Gross deferred tax liabilities		(99	)		(176	)

Net deferred tax assets⁽¹⁾	$	2,914		$	2,748

(1)	Of the total deferred tax assets at December 31, 2011 and 2010, $1,787,000 and $1,768,000 were included in current assets and $1,127,000 and $980,000 in 2011 and 2010 were included in other long-term assets at December 31, 2011 and 2010, respectively.

Set forth below is a reconciliation between actual tax expense and expected tax expense for the respective periods presented below:


	Year Ended December 31,
	2011			2010			2009
	(In thousands)
Earnings (loss) before income taxes	$	(1,141	)	$	569		$	204

Expected income tax expense at 34%	$	(388	)	$	193		$	69
Difference in rates on earnings of foreign operations		80			6			(19	)
Stock based compensation and other nondeductible expenses		43			96			95
State taxes and credits (net of federal benefit)		40			80			(5	)
Change in valuation allowance		7			36			(5	)
Unremitted earnings of foreign subsidiaries		(1	)		—			8
Exclusion of earnings of foreign affiliates		(12	)		(6	)		(58	)
Other		(24	)		12			20

Income tax provision (benefit)	$	(255	)	$	417		$	105

Deferred income taxes have been provided on the undistributed earnings of certain foreign subsidiaries where it is contemplated that earnings will not be reinvested.

At December 31, 2011, the operating loss carryforwards available for federal and state income tax purposes were $1,925,000 and $4,622,000, respectively. The earliest carryforwards begin to expire in 2012. At December 31, 2011, foreign tax credit carryforwards available for federal income tax purposes totaled $66,000, which expire in 2015. State targeted tax area credit carryforwards of $1,245,000 are available with no expiration dates.

It is our policy to classify interest and penalties as a component of tax expense. At December, 31, 2011 we had $260,000 of unrecognized tax benefits, none of which impacted the effective tax rate. Interest and penalties totaled $120,000, which was accrued on the balance sheet at December 31, 2011.

The Company and its domestic subsidiaries file income tax returns in the US federal jurisdiction and in various state jurisdictions. The Company’s foreign subsidiaries file income tax returns in the respective jurisdictions in which they are based. With few exceptions, we are no longer subject to tax examinations by taxing authorities for years before 2006. We do not expect total unrecognized tax benefits to change significantly during the year ending December 31, 2012 due to the expiration of any statutes of limitations.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:


Unrecognized Tax Benefits (in thousands):	2011			2010
Balance as of January 1,	$	260		$	241
Additions for tax positions related to the current year		29			19
Reductions for tax positions of prior years		(29	)		—

Balance as of December 31,	$	260		$	260