9. Income Taxes

Our income from continuing operations before income taxes in the accompanying Consolidated Statements of Income consists of (in thousands):

	Year ended December 31,

	2012		2011		2010
Domestic	$	5,811	$	230,204	$	260,268
Foreign		32,375		41,882		36,413

	$	38,186	$	272,086	$	296,681

Significant components of the provision for income taxes from continuing operations are presented below (in thousands):

	Year ended December 31,

	2012			2011			2010
Current:
Federal	$	2,515		$	59,921		$	42,324
Foreign		7,576			10,714			7,720
State and local		(317	)		805			5,215

Total current provision for income taxes		9,774			71,440			55,259

Deferred:
Federal		(482	)		10,454			(32,033	)
Foreign		727			(1,073	)		239
State and local		1,638			763			(3,960	)

Total deferred provision (benefit) for income taxes		1,883			10,144			(35,754	)

Total provision for income taxes	$	11,657		$	81,584		$	19,505

The following is a reconciliation of the income tax provision computed using the Federal statutory rate to our actual income tax provision (in thousands):

	Year ended December 31,

	2012			2011			2010
Income tax provision at U.S. statutory rates	$	13,366		$	95,231		$	103,838
State income tax (benefit) expense (net of federal impact)		(89	)		1,616			6,379
Nondeductible expenses		622			(749	)		333
Domestic production activities deduction		(489	)		(4,581	)		(6,365	)
Nondeductible compensation		205			841			2,840
Research and development tax credit		(3,013	)		(4,675	)		(1,823	)
Net change in valuation allowance		2,943			121			(83,079	)
Change in accrual for unrecognized tax benefits		533			824			(1,076	)
Foreign tax rate differential		(2,387	)		(5,225	)		(5,280	)
Other		(34	)		(1,819	)		3,738

Total provision for income taxes	$	11,657		$	81,584		$	19,505

During the fourth quarter of 2012, the Company determined that it may not meet the criteria required to receive a certain incentive tax rate pursuant to a negotiated tax holiday in one foreign jurisdiction. Although the Company is continuing to negotiate the criteria for the incentive, for financial reporting purposes the Company has recorded an additional tax provision of $4.0 million which represents the cumulative effect of calculating the tax provision using the incentive tax rate as compared to the foreign country's statutory rate. As such amount is not expected to be paid within twelve months, the Company has recorded the $4.0 million as a long term taxes payable. If the Company successfully renegotiates the incentive criteria, this additional tax provision could be reversed as a future benefit in the period in which the successful negotiations are finalized.

During 2012, the Company recorded an income tax expense of $1.9 million relating to discontinued operations compared to the $29.4 million income tax benefit from discontinued operations in the prior year which was reported in accordance with the intraperiod tax allocation provisions. In addition, the Company recorded a current tax benefit of $2.1 million related to equity-based compensation which was a credit to additional paid-in capital compared to $10.4 million tax benefit recorded in the prior year.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of our deferred tax assets and liabilities are as follows (in thousands):

	December 31,

	2012			2011
Deferred tax assets:
Inventory valuation	$	6,386		$	5,468
Domestic net operating loss carry forwards		1,144			1,082
Tax credit carry forwards		4,145			3,015
Foreign net operating loss carry forwards		—			89
Warranty and installation accruals		2,174			3,044
Equity compensation		9,114			5,821
Other accruals		3,270			2,373
Other		760			1,636

Total deferred tax assets		26,993			22,528
Valuation allowance		(4,708	)		(1,765	)

Net deferred tax assets		22,285			20,763

Deferred tax liabilities:
Purchased intangible assets		9,973			9,818
Undistributed earnings		1,095			974
Depreciation		7,014			4,115

Total deferred tax liabilities		18,082			14,907

Net deferred taxes	$	4,203		$	5,856

A provision has not been made as of December 31, 2012 for U.S. or additional foreign withholding taxes on approximately $96.4 million of undistributed earnings of our foreign subsidiaries because it is the present intention of management to permanently reinvest the undistributed earnings of our foreign subsidiaries in China, South Korea, Japan, Malaysia, Singapore and Taiwan. As it is our intention to reinvest those earnings permanently, it is not practicable to estimate the amount of tax that might be payable if they were remitted. We have provided deferred income taxes and future withholding taxes on the earnings that we anticipate will be remitted.

Our valuation allowance of approximately $4.7 million as of December 31, 2012 increased by approximately $2.9 million during the year then ended and relates primarily to state and local tax attributes for which we could not conclude were realizable on a more-likely-than-not basis.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	December 31,

	2012			2011
Beginning balance as of December 31	$	4,748		$	3,660
Additions for tax positions related to current year		435			1,069
Reductions for tax positions related to current year		—			—
Additions for tax positions related to prior years		742			1,209
Reductions for tax positions related to prior years		(59	)		(422	)
Reductions due to the lapse of the applicable statute of limitations		(48	)		(586	)
Settlements		—			(182	)

Ending balance as of December 31	$	5,818		$	4,748

The Company does not anticipate that its uncertain tax position will change significantly within the next twelve months.

Of the amounts reflected in the table above as of December 31, 2012, the entire amount if recognized would reduce our effective tax rate. It is our policy to recognize interest and penalties related to income tax matters in income tax expense. The total accrual for interest and penalties related to unrecognized tax benefits was approximately $0.5 million and $0.2 million as of December 31, 2012 and 2011, respectively.

We or one of our subsidiaries file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. All material federal income tax matters have been concluded for years through 2006 subject to subsequent utilization of net operating losses generated in such years. Our 2010 federal tax return is currently under examination. All material state and local income tax matters have been reviewed through 2008 with two state jurisdictions currently under examination for open tax years between 2007 and 2010. The majority of our foreign jurisdictions have been reviewed through 2009. Principally all our foreign jurisdictions remain open with respect to the 2011 and 2012 tax years.