NOTE J - INCOME TAXES

The components of income before income taxes were:


(THOUSANDS OF DOLLARS)		2011		2010		2009
U.S.	$	5,610	$	2,156	$	(3,356	)
Non-U.S.		5,539		5,694		3,271
	$	11,149	$	7,850	$	(85	)

The provision for income taxes consists of the following:


(THOUSANDS OF DOLLARS)			2011			2010			2009
Currently Payable (Receivable):
Federal		$	(1,185	)	$	1,233		$	(879	)
State			179			214			(182	)
Foreign			921			1,094			1,015
			(85	)		2,541			(46	)
Deferred:
Federal			2,939			(797	)		(1,562	)
State			(10	)		-			29
Foreign			(5	)		(102	)		(65	)
			2,924			(899	)		(1,598	)
	Total	$	2,839		$	1,642		$	(1,644	)

The reconciliation of income taxes computed at the statutory Federal income tax rate to the provision for income taxes from operations is as follows:


(THOUSANDS OF DOLLARS)		2011			2010			2009
Statutory Federal income tax provision	$	3,902		$	2,747		$	(29	)
State income tax expense, less Federal tax benefit		234			134			(118	)
Foreign tax rate differential		(1,023	)		(1,001	)		(298	)
Adjustment related to uncertain tax benefits		(16	)		(223	)		(367	)
Settlement of items subject to audit		-			-			(818	)
Miscellaneous		(258	)		(15	)		(14	)
Income Tax Provision (Benefit)	$	2,839		$	1,642		$	(1,644	)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2011 and January 1, 2011 are as follows:


(THOUSANDS OF DOLLARS)		2011			2010
Current Deferred Tax Assets:
Additional costs inventoried for tax purposes and
inventory adjustments not deductible for tax purposes	$	1,077		$	2,592
Excess benefit plan		1,005			889
Accrued pension costs		689			668
Net operating loss carryforward		1,315			-
Other		1,548			1,466
		5,634			5,615
Less Valuation Allowance		(1,428	)		(1,159	)
Current Deferred Tax Assets	$	4,206		$	4,456


(THOUSANDS OF DOLLARS)		2011			2010
Long-Term Deferred Tax Assets and Liabilities:
Assets:
Intangible assets	$	212		$	682
Accrued warranty costs		733			773
Foreign tax credit carryforward		1,185			1,682
Net operating loss carryforward		3,047			2,665
Accrued pension costs		7,662			6,427
Deferred gain on sale of real estate		1,105			1,329
Other		1,507			1,584
		15,451			15,142
Less Valuation Allowance		(3,487	)		(3,624	)
Long-Term Deferred Tax Assets	$	11,964		$	11,518
Liabilities:
Property, plant and equipment, principally due to
differences in depreciation		(849	)		(200	)
Long-Term Deferred Tax Liabilities		(849	)		(200	)
Net Long-Term Deferred Tax Asset	$	11,115		$	11,318
Net Deferred Tax Asset	$	15,321		$	15,774

At December 31, 2011 and January 1, 2011, undistributed earnings of foreign subsidiaries amounted to approximately $35.5 million and $30.9 million, respectively. These earnings could become subject to additional tax if they are remitted as dividends or if certain other circumstances exist. The amount of additional taxes that might be payable on the undistributed foreign earnings of $35.5 million approximates $9.2 million. This amount has not been recorded because it is the Company's intention to permanently invest the remainder of the undistributed earnings of its foreign subsidiaries in the growth of business outside the United States.

At December 31, 2011, the Company had state net operating loss carryforwards of approximately $29.1 million, which expire in fiscal years from 2012 to 2030. Net operating loss carryforwards for certain foreign subsidiaries were approximately $3.9 million for tax purposes. A portion of these losses will expire in fiscal years from 2012 to 2024 and a portion does not expire. A valuation allowance has been provided for the foreign and state net operating losses and temporary differences that are estimated to expire before they are utilized. The increase of $0.3 million in 2011 and the decrease of $0.1 million in 2010 in the valuation allowance primarily related to changes in state deferred tax assets.

Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise we consider all available positive and negative evidence, including reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. It is management's assertion based on the evaluation of this evidence that it is more likely than not that sufficient future taxable income will be generated to realize the tax benefit of the deferred tax assets, net of the valuation allowance.

As of December 31, 2011, the liability for uncertain tax positions is $0.4 million and $0.3 million of the unrecognized tax benefit would impact the Company's effective tax rate, if recognized.

The following is a tabular reconciliation of beginning and ending balances of unrecognized tax benefits.


(THOUSANDS OF DOLLARS)		2011			2010			2009
Beginning of Year	$	376		$	586		$	1,848
Gross decreases - tax positions in prior period		-			-			(722	)
Gross increases - current period tax positions		16			92			98
Lapse of statute limitations		(31	)		(302	)		(638	)
End of Year	$	361		$	376		$	586

The Company is currently subject to audit by the Internal Revenue Service ("IRS") and certain foreign jurisdictions for the calendar years ended 2008 through 2012. The Company concluded the IRS audit of the 2005 tax year in the first quarter of 2009 and recorded those results in that quarter. In certain foreign jurisdictions, the Company is currently subject to audit for tax years prior to 2008; this varies depending on the jurisdiction. The Company and its subsidiaries' state income tax returns are subject to audit for the calendar years ended 2007 through 2011.

As of January 1, 2011, the Company had accrued $0.1 million of interest and an immaterial amount of penalties related to uncertain tax positions. As of December 31, 2011, the amount of accrued interest was $0.1 million and the amount of accrued penalties was immaterial. The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for income taxes. The liabilities resulting from the adoption of an accounting standard update related to uncertain tax positions, including tax, interest and penalty, are included in other long-term liabilities on the Company's consolidated balance sheet.

The Company is subject to income taxes in many jurisdictions around the world. Significant judgment is required in determining the worldwide provision for income taxes. In the ordinary course of business, there are many transactions and calculations in which the ultimate tax determination is uncertain. Although the Company believes the estimates for uncertain tax positions are reasonable and recorded in accordance with accounting standards, the final determination of tax audits and any related litigation could be materially different than that which is reflected in historical income tax provisions and accruals. Additional taxes assessed as a result of an audit or litigation could have a material effect on the Company's income tax provision and net income in the period or periods in which the determination is made. Changes in estimates made in fiscal 2011 and 2010 were the result of more precise information, current actions by taxing authorities and the expiration of statutes of limitation in certain jurisdictions.