9. INCOME TAXES

12 Months Ended

Dec. 31, 2011

Income Tax Disclosure [Text Block]

9. INCOME TAXES

The Company accounts for income taxes in accordance with the accounting standard for “Income Taxes”, which requires an asset and liability approach to financial accounting and reporting for income taxes. Accordingly, deferred income taxes have been provided for the temporary differences between the financial reporting and the income tax basis of the Company’s assets and liabilities by applying enacted statutory tax rates applicable to future years to the basis differences.

A breakdown of our income tax expense (benefit) is as follows:

	Years Ended December 31,
	2011			2010			2009
Federal:
Current	$	2,585,271		$	2,854,818		$	(70,496	)
Deferred		366,042			236,444			333,197
Total Federal		2,951,313			3,091,262			262,701
State & local:
Current		259,034			103,993			186,574
Deferred		230,018			115,386			4,540
Total State & local		489,052			219,379			191,114
Foreign
Current		298,752			275,476			238,326
Deferred		(11,548	)		(12,630	)		(15,626	)
Total Foreign		287,204			262,846			222,700
Total	$	3,727,569		$	3,573,487		$	676,515

F- 18

A reconciliation of recorded Federal income tax expense (benefit) to the expected expense (benefit) computed by applying the applicable Federal statutory rate for all periods to income before income taxes follows:

	Years Ended December 31,
	2011			2010			2009
Expected expense at statutory rate	$	4,170,152		$	3,924,136		$	653,852
Increase (decrease) in income taxes resulting from:
Exempt income from Dominican Republic
operations due to tax holiday		(1,237,418	)		(1,034,742	)		(842,277	)
Tax on repatriated earnings from Dominican
Republic operations		472,863			465,992			842,277
Impact of Canadian deemed dividend		43,389			164,956			-
State and local income taxes		327,741			142,596			47,045
Section 199 manufacturing deduction		(103,918	)		(91,327	)		(2,041	)
Meals and entertainment		65,506			70,236			71,254
Nondeductible penalties		84			1,990			2,010
Provision to return filing adjustments and other		(10,830	)		(70,350	)		(95,605	)
Total	$	3,727,569		$	3,573,487		$	676,515

F- 19

Deferred income taxes recorded in the consolidated balance sheets at December 31, 2011 and 2010 consist of the following:

	December 31,
	2011			2010
Deferred tax assets:
Asset valuation allowances and accrued expenses	$	959,464		$	1,172,254
Inventories		631,192			416,236
State and local income taxes		440,728			333,241
Pension and deferred compensation		94,325			1,369,383
Net operating losses		510,097			542,807
Total deferred tax assets		2,635,806			3,833,921
Valuation allowances		(507,211	)		(530,343	)
Total deferred tax assets		2,128,595			3,303,578
Deferred tax liabilities:
Fixed assets		(208,435	)		(223,328	)
Intangible assets		(10,792,180	)		(10,525,120	)
Other assets		(582,064	)		(332,443	)
Tollgate tax on Lifestyle earnings		(379,271	)		(379,271	)
Total deferred tax liabilities		(11,961,950	)		(11,460,162	)
Net deferred tax liability	$	(9,833,355	)	$	(8,156,584	)
Deferred income taxes - current	$	1,154,040		$	1,218,101
Deferred income taxes - non-current		(10,987,395	)		(9,374,685	)
	$	(9,833,355	)	$	(8,156,584	)

The valuation allowance is related to certain state and local income tax net operating loss carry forwards.

We have provided Puerto Rico tollgate taxes on approximately $3,684,000 of accumulated undistributed earnings of Lifestyle prior to the fiscal year ended June 30, 1994, that would be payable if such earnings were repatriated to the United States. In 2001, we received abatement for Puerto Rico tollgate taxes on all earnings subsequent to June 30, 1994, thus no other provision for tollgate tax has been made on earnings after that date. If we repatriate the earnings from Lifestyle, approximately $379,000 of tollgate tax would be due.

As of December 31, 2011, we had approximately $14,741,000 of undistributed earnings from non-U.S. subsidiaries that are intended to be permanently reinvested in non-U.S. operations. Because these earnings are considered permanently reinvested, no U.S. tax provision has been accrued related to the repatriation of these earnings. If the Five Star undistributed earnings were distributed to the Company in the form of dividends, the related taxes on such distributions would be approximately $5,160,000.

F- 20

We file income tax returns in the U.S. Federal jurisdiction and various state and foreign jurisdictions. We are no longer subject to U.S. Federal tax examinations for years before 2008. In 2011, we were subjected to an IRS examination for our consolidated U.S Federal return for the year 2009. There were no adjustments to our return as a result of that examination. State jurisdictions that remain subject to examination range from 2007 to 2010. Foreign jurisdiction (Canada and Puerto Rico) tax returns that remain subject to examination range from 2005 to 2010. We do not believe there will be any material changes in our unrecognized tax positions over the next 12 months.

Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of the accounting standard for Income Taxes relating to uncertain tax provisions, accrued interest or penalties were not material, and no such expenses were recognized during the year.

Accounting for uncertainty in income taxes requires financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements.  Under this guidance, income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of the standard.  The Company did not have any unrecognized tax benefits and there was no effect on its financial condition or results of operations as a result of implementing this standard.  When necessary, the Company would accrue penalties and interest related to unrecognized tax benefits as a component of income tax expense.