(7) Income taxes

For the years ended, December 30, 2011, December 31, 2010, and December 25, 2009, our loss from continuing operations before income taxes was as follows (in thousands):

	2011			2010			2009
Domestic	$	(14,242	)	$	1,293		$	(13,638	)
Non-U.S.		(10,413	)		(26,339	)		(57,342	)
Total	$	(24,655	)	$	(25,046	)	$	(70,980	)

For the years ended, December 30, 2011, December 31, 2010, and December 25, 2009, our income tax expense (benefit) was as follows (in thousands):

Current:	2011			2010			2009
Federal	$	655		$	--		$	267
State and local		36			88			(432	)
Non-U.S.		(1,971	)		3,765			8,927
		(1,280	)		3,853			8,762
Deferred:
Federal		16,460			(245	)		(4,169	)
State and local		5,777			(37	)		(464	)
Non-U.S.		7,834			(880	)		(2,250	)
		30,071			(1,162	)		(6,883	)
Net tax expense	$	28,791		$	2,691		$	1,879

Also, income tax expense related to our discontinued operations was $0.3 million, $0.8 million and $1.9 million for the years ended December 30, 2011, December 31, 2010, and December 25, 2009, respectively.

A reconciliation of the U.S statutory federal income tax rate with our effective income tax rate was as follows:

	2011			2010			2009
U.S. statutory federal income tax rate		35	%		35	%		35	%
Decrease (increase) resulting from:
State and local income taxes, net of federal tax effect		4			--			1
Non-deductible expenses and other		(9	)		(3	)		(2	)
Non-U.S. income subject to U.S. income tax		5			(8	)		(1	)
Tax effect of intangible impairment		--			(35	)		(29	)
Tax effect of valuation allowance		(152	)		--			--
Lower foreign tax rates		--			--			(7	)
Effective tax rate		(117	%)		(11	%)		(3	%)

The effective tax rate for the year ended December 30, 2011 reflects the impact of recording valuation allowance in 2011. The effective tax rate for the year ended December 31, 2010 reflects the impact of the goodwill and intangible asset impairments recorded in 2010 and the effect of losses and non-deductible expenses incurred in certain jurisdictions where we expect limited tax benefits. The majority of our goodwill and intangible impairments are non-deductible for income tax purposes. At December 30, 2011, December 31, 2010 and December 25, 2009 we had approximately $17.3 million, $17.7 million and $23.2 million of unrecognized income tax benefits, of which $8.0 million, $7.5 million and $21.1 million were classified as other long-term liabilities, respectively. If all of our tax benefits were recognized as of December 30, 2011, approximately $17.3 million would impact the 2011 effective tax rate. A reconciliation of the total gross unrecognized tax benefits for the years ended December 30, 2011, December 31, 2010, and December 25, 2009 were as follows (in thousands):

	2011			2010			2009
Unrecognized tax benefits at the beginning of the year	$	17,686		$	23,237		$	24,124

Additions to tax positions related to current year		6,558			1,555			3,172
Reductions to tax positions related to prior years		(1,846	)		(5,005	)		(1,434	)
Lapses in statutes of limitation		(5,098	)		(2,101	)		(2,625	)
Unrecognized tax benefits at the end of the year	$	17,300		$	17,686		$	23,237

Our practice is to recognize interest and/or penalties related to income tax matters as income tax expense. As of December 30, 2011, we have approximately $0.2 million accrued for interest and/or penalties related to uncertain income tax positions.

We are subject to U.S. federal income tax as well as income tax in multiple state and non-U.S. jurisdictions. With respect to federal and state income tax, tax returns for all years after 2006 are subject to future examination by local tax authorities. With respect to material non-U.S. jurisdictions in which we operate, we have open tax years ranging from 2 to 10 years. With the exception of a potential audit settlement in Hong Kong that could result in a cash payment of as much as $4.4 million, we do not expect our unrecognized tax benefits to change within the next twelve months. However, such balances may change on a quarterly basis during 2012.

Several of our foreign subsidiaries continue to operate under tax holidays or incentive arrangements as granted by certain foreign jurisdictions. The nature and extent of such arrangements vary, and the benefits of most arrangements will phase out in the future according to the specific terms and schedules as set forth by the particular tax authorities having jurisdiction over the arrangements. For example, the remaining tax holidays applicable to most of our PRC earnings expired in 2010. In the years ended December 30, 2011, December 31, 2010 and December 25, 2009, taxes on foreign earnings were favorably impacted by tax holidays and other incentives in certain foreign jurisdictions by $0.2 million, $0.7 million and $3.0 million, respectively.

Deferred tax assets and liabilities from continuing operations included the following (in thousands):

Assets:	2011			2010
Inventories	$	794		$	878
Plant and equipment		6,189			6,397
Vacation pay and other compensation		498			640
Pension expense		613			1,017
Stock awards		77			--
Accrued liabilities		1,788			2,159
Net operating losses – federal, state and foreign		40,130			19,777
Tax credits		20,770			17,958
Acquired Intangibles		8,800			--
Other		124			2,914
Total deferred tax assets		79,783			51,740
Valuation allowance		(73,104	)		(15,086	)
Net deferred tax assets	$	6,679		$	36,654

Liabilities:
Foreign earnings not permanently invested	$	11,494		$	11,460
Unrecognized foreign exchange gains		--			198
Stock awards		--			217
Restructuring		1,551			--
Acquired intangibles		461			(274	)
Other		1,309			(1,509	)
Total deferred tax liabilities		14,815			10,092
Net deferred tax (liabilities)/assets	$	(8,136	)	$	26,562

Short-term deferred tax assets	$	1,110		$	2,985
Short-term deferred tax liabilities		(3,816	)		(1,202	)
Long-term deferred tax assets		3,223			33,669
Long-term deferred tax liabilities		(8,653	)		(8,890	)
Net deferred tax (liabilities)/assets	$	(8,136	)	$	26,562

We maintain a valuation allowance when it is more likely than not that all or a portion of a deferred tax asset will not be realized based on consideration of all available evidence. Our assumptions, judgments and estimates relative to the value of our deferred tax assets also takes into account predictions of the amount and the categories of future taxable income, carry-back and carry-forward periods and tax strategies which could impact the realization of a deferred tax asset. As of December 30, 2011, we could not sustain a conclusion that it was more likely than not that we would realize any of our deferred tax assets resulting from recent losses as well as other factors. Consequently, we recorded an increase to our valuation allowance of approximately $58.0 million against those deferred tax assets, of which $38.0 million increased income tax expense for the year ended December 30, 2011. The increased valuation allowance was recorded as a result of weighing all positive and negative evidence, including our history of losses in recent years and the difficulty of forecasting future taxable income. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal.

Unless utilized, our net operating losses will expire in fiscal years 2012 through 2027, our foreign tax credit carry forwards will start to expire in 2012 and our research and development credit carry forwards will start to expire in 2019.

With the exception of earnings in the amount of $8.5 million, we have not provided for U.S. federal and state income and foreign withholding taxes on approximately $477.0 million of our non-U.S. subsidiaries' undistributed earnings, as calculated for income tax purposes, as of December 30, 2011. Unrecognized taxes on these undistributed earnings are estimated to be approximately $146.0 million.