7. Income Taxes

In accordance with ASC 740-10, the Company is required to recognize in its financial statements the impact of a tax position that is more likely than not to be sustained upon examination based upon the technical merits of the position, including resolution of any appeals. The standard provides guidance on recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Based on the Company’s evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. The evaluation was performed for the tax years which remain subject to examination by major tax jurisdictions as of December 31, 2012, which are the years ended December 31, 2006 through December 31, 2012. The Company has occasionally been assessed interest or penalties by major tax jurisdictions; these assessments historically have not materially impacted the Company’s financial results. Interest expense assessed by tax jurisdictions is included with interest expense and assessed penalties are included in selling, general and administrative expenses.

Income before income taxes consisted of the following:


	Year ended December 31,
	2012		2011		2010
	(In thousands)
Domestic	$	65,271	$	45,159	$	70,702
Foreign		96,851		84,845		68,201

Total	$	162,122	$	130,004	$	138,903

The income tax provision (benefit) consists of the following:


	Year ended December 31,
	2012			2011			2010
	(In thousands)
Current:
Federal	$	20,033		$	13,127		$	25,122
Foreign		22,542			23,122			13,488

Total current		42,575			36,249			38,610

Deferred:
Federal		440			(891	)		(3,232	)
Foreign		(102	)		(621	)		1,299

Total deferred		338			(1,512	)		(1,933	)

Total	$	42,913		$	34,737		$	36,677

The difference between the effective income tax rate reflected in the provision for income taxes and the U.S. federal statutory rate was as follows:


	Year ended December 31,
	2012			2011			2010
Federal income tax statutory rate		35.0	%		35.0	%		35.0	%
Foreign income tax rate differential		(5.5	)		(5.2	)		(5.7	)
Foreign development tax incentive		(1.6	)		(0.3	)		(0.8	)
Manufacturing benefit		(1.2	)		(1.3	)		(1.4	)
Other		(0.3	)		(1.5	)		(0.7	)

Effective income tax rate		26.4	%		26.7	%		26.4	%

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. Based upon existing market conditions and the Company’s earnings prospects, it is anticipated that all deferred tax assets will be realized in future years. Significant components of the Company’s deferred tax assets and liabilities are as follows:


	December 31,
	2012			2011
	(In thousands)
Deferred tax assets:
Inventory	$	9,846		$	8,548
Inventory reserve		7,079			6,541
Allowance for doubtful accounts		430			72
Reserve for accrued liabilities		183			805
Stock options		4,242			5,054
Other		2,058			2,848

Total deferred tax assets		23,838			23,868
Deferred tax liability:
Property, plant and equipment		(9,926	)		(9,614	)

Net deferred tax asset	$	13,912		$	14,254

Undistributed earnings of the Company’s foreign subsidiaries are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal income taxes has been provided thereon. The estimate of undistributed earnings of the Company’s foreign subsidiaries amounted to $447 million as of December 31, 2012. Upon distribution of those earnings in the form of dividends or otherwise, the Company may be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable.

On January 2, 2013, the “American Taxpayer Relief Act of 2012” extended the Research and Development tax credit retroactive to January 1, 2012 and was extended through December 31, 2013. The Research and Development credit for 2012 of $1.2 million will be recognized on the Company’s 2012 U.S. federal income tax return but will be recorded for financial statement purposes in the first quarter of 2013 in accordance with ASC 740.

The Company paid $37.9 million, $31.9 million and $34.1 million in income taxes in 2012, 2011 and 2010, respectively.