Income Taxes

Income before income taxes consisted of:



	Year Ended December 31, 2012		Year Ended December 31, 2011		Year Ended December 31, 2010
	(In thousands)
Domestic	$	6,604	$	12,043	$	13,694
Foreign	71,425		61,452		45,960
Total	$	78,029	$	73,495	$	59,654

The income tax provision consisted of:



	Year Ended December 31, 2012			Year Ended December 31, 2011			Year Ended December 31, 2010
	(In thousands)
Current:
Federal	$	342		$	1,237		$	527
State	320			822			362
Foreign	4,497			2,990			1,409
	$	5,159		$	5,049		$	2,298
Deferred:
Federal	3,827			3,699			1,215
State	31			44			(148		)
Foreign	(1,557		)	(1,755		)	(430		)
	2,301			1,988			637

Provision for income taxes from ongoing operations at effective tax rate	$	7,460		$	7,037		$	2,935
Discrete Items:
Release of valuation allowance	—			(6,625		)	(2,300		)
Windfall expense related to stock compensation	—			1,938			—
Enhanced R&D deduction - foreign operations	—			(233		)	—
Provision for income taxes from discrete items	—			(4,920		)	(2,300		)

Total provision for income taxes	$	7,460		$	2,117		$	635

The income tax provision at the Federal statutory rate differs from the effective rate because of the following items:



	Year Ended December 31, 2012		Year Ended December 31, 2011		Year Ended December 31, 2010
Statutory tax rate	35.0	%	35.0	%	35.0	%
Tax impact of foreign subsidiaries (primarily in Singapore)	(8.1	)%	(5.6	)%	(2.5	)%
State income taxes, net of federal benefit	0.4	%	0.8	%	0.6	%
Uncertain tax matters	3.5	%	0.2	%	—	%
Tax holiday - India (Permanent Difference)	(15.6	)%	(15.1	)%	(19.9	)%
Passive income exemption - Sweden (Permanent Difference)	(3.1	)%	(3.0	)%	(3.7	)%
Other permanent differences	(0.5	)%	(1.0	)%	(5.0	)%
Other	(2.0	)%	(1.8	)%	0.3	%
Effective tax rate from ongoing operations	9.6	%	9.5	%	4.8	%
Discrete Items:
Release of valuation allowance	—	%	(9.0	)%	(3.7	)%
Windfall expense related to stock compensation	—	%	2.6	%	—	%
Enhanced R&D deduction - foreign operations	—	%	(0.2	)%	—	%
Effective tax rate after discrete items	9.6	%	2.9	%	1.1	%

Current deferred income tax assets and liabilities and long-term deferred tax assets and liabilities are presented on a net basis separately in the December 31, 2012 and 2011 accompanying consolidated balance sheets. The individual balances in current and long-term deferred tax assets and liabilities are as follows:



	2012			2011
	(In thousands)
Current deferred income tax assets	$	2,074		$	3,277
Long-term deferred income tax assets	35,140			28,865
Total deferred income tax assets	37,214			32,142
Current deferred income tax liabilities	(239		)	(297		)
Long-term deferred income tax liabilities	(23,895		)	(19,452		)
Net deferred income tax asset	$	13,080		$	12,393

Deferred income taxes reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by the applicable local jurisdiction tax laws. Temporary differences and carry forwards which comprise the deferred tax assets and liabilities as of December 31, 2012 and 2011 were as follows:



	December 31, 2012				December 31, 2011
	Deferred				Deferred
	Assets		Liabilities		Assets		Liabilities
	(In thousands)
Depreciation and amortization	$	102	$	—	$	331	$	277
Share-based compensation	721		—		549		—
Accruals and prepaids	1,627		239		2,009		297
Bad debts	446		—		720		—
Acquired intangible assets	—		23,895		933		19,175
Net operating loss carryforwards	20,573		—		22,237		—
Tax credit carryforwards	13,745		—		5,363		—
	37,214		24,134		32,142		19,749
Valuation allowance	—		—		—		—
Total deferred taxes	$	37,214	$	24,134	$	32,142	$	19,749

No significant discrete events occurred in 2012.

As of December 31, 2012, the Company has remaining available domestic net operating loss (“NOL”) carry-forwards of $53.4 million (net of $6.3 million utilized to offset domestic taxable income for 2012), which are available to offset future federal and certain state income taxes. Approximately $35 million of these remaining NOL carry-forwards were obtained in connection with the recent acquisition of ADAM in February 2011. The Company reviews its NOL positions to validate that all NOL carry-forwards will be utilized before they begin to expire. Portions of these remaining NOL's will expire during the years 2020 through 2027.

The Company's consolidated worldwide effective tax rate is relatively low because of the effect of conducting operating activities in certain foreign jurisdiction with low tax rates and where a significant portions of its taxable income resides. Furthermore, the Company's worldwide product development operations and intellectual property ownership is centralized into its India and Singapore subsidiaries, respectively. Our operations in India benefit from a tax holiday, which will continue through the year 2015; as such the Company's local India taxable income derived from export activities in support of our operating divisions around the world is not taxed. After the tax holiday expires taxable income generated by our India operations will be taxed at 50% of the normal 33.99% corporate tax rate for a period of five years. This tax holiday had the effect of reducing tax expense by $12.3 million or approximately $0.315 per diluted share in 2012 with $7.0 million of MAT tax prepaid/accrued against 2012 income during the year ended December 31, 2012, for future taxes to be paid in India.

The Company also has a relatively low income tax rate in Singapore in which our operations are taxed at a 10% marginal tax rate as a result of concessions granted by the local Singapore Economic Development Board for the benefit of in-country intellectual property owners. The concessionary 10% income tax rate will expire after 2015, at which time our Singapore operations will be subject to the prevailing corporate tax rate in Singapore, which is currently 17%, unless the Company reaches a subsequent agreement to extend the incentive period and the then applicable concessionary rate. The concessionary tax rate granted by the EDB as compared to the statutory tax in effect in Singapore reducing income tax expense by $1.8 million or approximately $0.045 per diluted share in 2012. The pre-tax income from and the applicable statutory tax rates in each jurisdiction in which the Company had operations for the year ending December 31, 2012 were as follows:



(dollar amounts in thousands)	United States			Canada			Latin America			Australia			Singapore			New Zealand			India			Europe(United Kingdom)			Sweden			Total
Pre-tax income	$	6,604		$	1,289		$	420		$	1,465		$	25,188		$	292		$	35,708		$	67		$	6,996		$	78,029
Statutory tax rate	35.0		%	30.5		%	34.0		%	30.0		%	10.0		%	28.0		%	—		%	24.0		%	—		%

The income from the Company's operations in India is subject to a 19.94% Minimum Alternative Tax (“MAT”). The tax paid under the MAT provisions is carried forward for a period of seven years and set off against future tax liabilities computed under the regular corporate income tax provisions using the statutory 33.99% corporate income tax rate. During the year ended December 31, 2012, the Company paid/accrued $7.0 million in MAT tax. The accompanying consolidated balance sheets as of December 31, 2012 and 2011includes a long-term deferred tax asset in the amount of $11.5 million and $6.7 million, respectively, associated with cumulative future MAT tax credit entitlement.

The Company has not recognized a deferred U.S. tax liability and associated income tax expense for the undistributed earnings of its foreign subsidiaries which we consider indefinitely invested because those foreign earnings will remain permanently reinvested in those subsidiaries to fund ongoing operations and growth. If those earnings were not considered indefinitely invested, approximately $71.8 million of deferred U.S. income taxes would have been provided as of December 31, 2012.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With the exception of NOL carryforwards, the Company is no longer subject to U.S. federal or state tax examinations by tax authorities for years before 2007 due to the expiration of the statute of limitations. Regarding our foreign operations as of December 31, 2012, the tax years that remain open and possibly subject to examination by the tax authorities in those jurisdictions are Australia (2006 to 2012), Singapore and Brazil (2007 to 2012), New Zealand (2008 to 2012), and India (2007 to 2012).

The Company follows the provisions of FASB accounting guidance on accounting for uncertain income tax positions. Accordingly liabilities are recognized for a tax position, where based solely on its technical merits, it is believed to be more likely than not fully sustainable upon examination. This liability is included in other long-term liabilities in the accompanying consolidated balance sheets. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	(in thousands)
Balance at January 1, 2012	$	3,180
Additions for tax positions related to current year	2,482
Additions for tax positions of prior years	263
Reductions for tax position of prior years	—
Balance at December 31, 2012	$	5,925

The Company recognizes interest accrued and penalties related to unrecognized tax benefits as part of income tax expense. As of December 31, 2012 approximately $629 thousand of estimated interest and penalties is included in other long-term liabilities in the accompanying consolidated balance sheet.