Income Taxes

The provision (benefit) for income taxes for the years ended December 31, 2010, 2011 and 2012 consists of the following:



	2010			2011			2012
Current tax expense (benefit):

Federal	$	(717	)	$	3,021		$	503
State	232			1,596			374
Foreign	2,638			5,424			5,176
	2,153			10,041			6,053
Deferred income tax expense (benefit)	13,158			(13,098		)	12,946
Provision (benefit) for income taxes	$	15,311		$	(3,057	)	$	18,999

A reconciliation between income taxes computed at the statutory federal rate and the provision for income taxes for the years ended December 31, 2010, 2011 and 2012 follows:



	2010		2011		2012
Tax provision (benefit) at statutory rate based
on income before income taxes	35.00	%	(35.00	)%	35.00	%

State income taxes, net of federal tax benefit	2.55		22.73		1.56

Stock-based compensation	0.01		(1.61	)	(0.16	)

Foreign income taxes	0.07		1.35		(5.44	)

Impact of repatriation of foreign earnings	—		(57.51	)	—

Research & development credit	(1.83	)	(32.25	)	—

Settlement of taxing authority examinations	(3.27	)	(6.55	)	(0.80	)

Non deductible/non-taxable items	1.22		(13.28	)	1.33

Other, net	(0.22	)	(10.50	)	0.45

	33.53	%	(132.62	)%	31.94	%

The tax effects of the significant temporary differences which comprise the deferred income tax assets and liabilities at December 31, 2011 and 2012 are as follows:



	2011			2012
Assets:
Inventory	$	4,288		$	4,370
Net operating losses	—			191
Capitalized research and development	4,561			2,410
Deferred compensation	2,631			2,905
Accounts receivable	2,968			2,759
Employee benefits	5,984			5,915
Accrued pension	9,530			9,020
Research and development credit	1,696			3,378
Other	2,604			3,973
	34,262			34,921

Liabilities:
Goodwill and intangible assets	101,514			111,770
Depreciation	9,500			13,146
State taxes	2,975			4,157
Contingent interest	386			378

	114,375			129,451

Net liability	$	(80,113	)	$	(94,530	)

Income before income taxes consists of the following U.S. and foreign income:



	2010		2011			2012

U.S. income	$	37,953	$	(20,521	)	$	33,121
Foreign income	7,704		18,216			26,359

Total income	$	45,657	$	(2,305	)	$	59,480

The amount of Federal Research and Development credit carryforward available is $3.4 million. These credits begin to expire in 2027.

Deferred tax amounts include approximately $3.3 million of future tax benefits associated with state tax credits which have an indefinite carryforward period.

As a result of the contingent interest deferred tax liability realized upon the convertible notes repurchase during the fourth quarter of 2011, the Company reevaluated our unremitted foreign earnings and tax credit carryforwards. Based upon this assessment, we repatriated $16.2 million of foreign earnings to the United States. The company recorded a net tax benefit of $1.3 million in 2011 to recognize the tax liabilities and related foreign tax credit benefits associated with the repatriation. It is our intention to permanently reinvest the remaining amount of unremitted foreign earnings.

U.S. income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration. The amount of such temporary differences totaled $58.8 million as of December 31, 2012. It is not practicable given the complexities of the hypothetical foreign tax credit calculation to determine the tax liability on this temporary difference.

The Company is subject to taxation in the United States and various states and foreign jurisdictions. Taxing authority examinations can involve complex issues and may require an extended period of time to resolve. Our Federal income tax returns have been examined by the Internal Revenue Service (“IRS”) for calendar years ending through 2011.

We recognize tax liabilities in accordance with the provisions for accounting for uncertainty in income taxes. Such guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

The following table summarizes the activity related to our unrecognized tax benefits for the years ending December 31,:



	2010			2011			2012

Balance as of January 1,	$	1,869		$	1,330		$	2,343

Increases for positions taken in prior periods	52			283			30

Increases for positions taken in current periods	166			789			1,129

Decreases in unrecorded tax positions related to settlement with the taxing authorities	(757		)	—			(1,857		)

Decreases in unrecorded tax positions related to lapse of statute of limitations	—			(59		)	(58		)

Balance as of December 31,	$	1,330		$	2,343		$	1,587

If the total unrecognized tax benefits of $1.6 million at December 31, 2012 were recognized, it would reduce our annual effective tax rate. The amount of interest accrued in 2012 related to these unrecognized tax benefits was not material and is included in the provision for income taxes in the consolidated statements of comprehensive income. It is reasonably possible that the amount of unrecognized tax benefits, each of which are individually insignificant, could change in the next 12 months as a result of the anticipated completion of taxing authority examinations and lapse of statute of limitations. The range of change in unrecognized tax benefits is estimated between $0.0 million and $1.1 million.