INCOME TAXES

For the years ended December 31, 2011, 2010 and 2009, income before income taxes is broken out between U.S. and foreign-sourced operations and consisted of the following (in thousands):



	2011		2010		2009
Domestic	$	21,123	$	10,551	$	26,918
Foreign	11,752		6,237		6,176

Total	$	32,875	$	16,788	$	33,094

The components of the provision for income taxes for the years ended December 31, 2011, 2010 and 2009 consisted of the following (in thousands):



	2011		2010			2009

Current expense:
Federal	$	5,662	$	3,547		$	7,846
State	1,001		595			689
Foreign	1,491		740			238

Total current expense	8,154		4,882			8,773

Deferred expense (benefit):
Federal	1,121		30			1,264
State	74		(545		)	227
Foreign	482		(39		)	300

Total deferred expense (benefit)	1,677		(554		)	1,791

Total	$	9,831	$	4,328		$	10,564

The difference between the income tax expense reported and amounts computed by applying the statutory federal rate of 35.0% to pretax income for the years ended December 31, 2011, 2010 and 2009 consisted of the following (in thousands):



	2011			2010			2009

Computed federal income tax expense at statutory rate of 35%	$	11,506		$	5,876		$	11,583
State income taxes	699			33			596
Tax credits	(778		)	(530		)	(670		)
Production activity deduction	(425		)	(355		)	(215		)
Foreign tax rate differential	(1,297		)	(1,212		)	(1,062		)
Uncertain tax positions	281			(372		)	114
Deferred compensation insurance assets	88			(133		)	(196		)
Transaction-related expenses	—			323			—
Other — including the effect of graduated rates	(243		)	698			414

Total income tax expense	$	9,831		$	4,328		$	10,564

Deferred income tax assets and liabilities at December 31, 2011 and 2010, consisted of the following temporary differences and carry-forward items (in thousands):



	2011			2010

Deferred income tax assets:
Allowance for uncollectible accounts receivable	$	188		$	242
Accrued compensation expense	3,064			3,230
Inventory differences	364			1,796
Net operating loss carry-forwards	22,689			26,273
Deferred revenue	273			214
Stock-based compensation expense	2,166			1,923
Uncertain tax positions	1,052			577
Other	1,848			1,686
Total deferred income tax assets	31,644			35,941

Deferred income tax liabilities:
Prepaid expenses	(823		)	(493		)
Property and equipment	(17,236		)	(18,103		)
Intangible assets	(6,169		)	(9,320		)
Other	(97		)	(505		)
Total deferred income tax liabilities	(24,325		)	(28,421		)
Valuation allowance	(361		)	—
Net deferred income tax assets	$	6,958		$	7,520

Reported as:
Deferred income tax assets - Current	$	3,704		$	4,647
Deferred income tax assets - Long-term	5,366			4,140
Deferred income tax liabilities - Current	—			—
Deferred income tax liabilities - Long-term	(2,112		)	(1,267		)

Net deferred income tax assets	$	6,958		$	7,520

The long-term deferred income tax balances are not netted as they represent deferred amounts applicable to different taxing jurisdictions. Deferred income tax balances reflect the temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. The valuation allowance is primarily related to state credit carryforwards for which we believe it is more likely than not that the deferred tax asset will not be realized.

We have not provided U.S. deferred income taxes or foreign withholding taxes on the undistributed earnings of certain foreign subsidiaries that are intended to be reinvested indefinitely in operations outside the United States. It is not practical to estimate the amount of additional taxes that might be payable on such undistributed earnings.

As of December 31, 2011 and 2010, we had U.S federal net operating loss carryforwards of approximately $64.6 million and $72.4 million, respectively, which were generated by BioSphere prior to our acquisition of BioSphere in September 2010. These net operating loss carryforwards, which expire at various dates through 2030, are subject to an annual limitation under Internal Revenue Code Section 382. We anticipate that we will utilize the net operating loss carryforwards over the next fifteen years. During 2011 and 2010, we utilized approximately $8.6 million and $2.6 million, respectively, in U.S. federal net operating loss carryforwards.

As of December 31, 2011 and 2010, we had non-U.S. net operating loss carryforwards of approximately $250,000 and $2.8 million, respectively, which had no expiration date. During 2011, we utilized approximately $2.6 million in non-U.S. net operating loss carryforwards.

We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. In our opinion, we have made adequate provisions for income taxes for all years subject to audit. Our U.S. federal tax returns for the 2009 tax year are currently under examination by the United States Internal Revenue Service (the “IRS”). We are no longer subject to U.S. federal, state, and local income tax examinations by tax authorities for years before 2007. In foreign jurisdictions, we are no longer subject to income tax examinations for years before 2006.

Although we believe our estimates are reasonable, the final outcomes of these matters may be different from those which we have reflected in our historical income tax provisions and accruals. Such differences could have a material effect on our income tax provision and operating results in the period in which we make such determination.

The total liability for unrecognized tax benefits at December 31, 2011 and 2010, including temporary tax differences, was approximately $3.5 million and $3.5 million, respectively, of which approximately $2.4 million and $2.9 million, respectively, would favorably impact our effective tax rate if recognized. As of December 31, 2011 and 2010, we have accrued approximately $376,000 and $651,000 respectively, in total interest and penalties related to unrecognized tax benefits. We account for interest and penalties for unrecognized tax benefits as part of our income tax provision. During the years ended December 31, 2011, 2010 and 2009, we added interest and penalties of approximately $12,000, $400,000 and $9,000, respectively, to our liability for unrecognized tax benefits. We do not anticipate that unrecognized tax benefits will significantly increase or decrease within 12 months of the reporting date.

A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax positions for the years ended December 31, 2011, 2010 and 2009 consisted of the following (in thousands):



Tabular Roll-forward	2011			2010			2009

Unrecognized tax benefits, opening balance	$	2,952		$	2,790		$	2,668
Gross increases in tax positions taken in a prior year	347			518			163
Gross decreases in tax positions taken in a prior year	—			(51		)	(40		)
Gross increases in tax positions taken in the current year	865			520			710
Settlements with taxing authorities	(507		)	—			—
Lapse of applicable statute of limitations	(544		)	(825		)	(711		)
Unrecognized tax benefits, ending balance	$	3,113		$	2,952		$	2,790

The tabular roll-forward ending balance does not include interest and penalties related to unrecognized tax benefits. During the year ended December 31, 2011, we paid approximately $507,000 to the IRS in order to settle a withholding tax issue related to our acquisition of BioSphere. The payment of the withholding tax did not have a material impact on our consolidated financial statements for the year ended December 31, 2011, as the tax liability had been identified as part of our acquisition accounting of BioSphere and recorded in our consolidated financial statements.