Note 4. Income Taxes

Income from operations before provision for taxes by domestic and foreign source is as follows:

Thousands of Dollars		2012		2011		2010
Domestic	$	56,905	$	46,950	$	49,484
Foreign		50,141		50,790		49,365
Income from operations before provision for income taxes	$	107,046	$	97,740	$	98,849

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The provision (benefit) for taxes on income consists of the following:

Thousands of Dollars				2012			2011			2010

Domestic
Taxes currently payable
	Federal		$	14,838		$	11,793		$	12,287
	State and local			1,318			2,145			1,861
Deferred income taxes				3,236			(1,886	)		411
	Domestic tax provision			19,392			12,052			14,559
Foreign
Taxes currently payable				13,364			12,297			13,043
Deferred income taxes				(1,979	)		3,136			1,361
	Foreign tax provision			11,385			15,433			14,404

		Total tax provision	$	30,777		$	27,486		$	28,963

The provision for taxes on income shown in the previous table is classified based on the location of the taxing authority, regardless of the location in which the taxable income is generated.

The major elements contributing to the difference between the U.S. federal statutory tax rate and the consolidated effective tax rate are as follows:

Percentages		2012		2011		2010

U.S. statutory tax rate		35.0	%	35.0	%	35.0	%
Depletion		(3.9	)	(4.1	)	(3.8	)
Difference between tax provided on foreign earnings
	and the U.S. statutory rate	(4.1	)	(1.0	)	(3.1	)
Change in Mexican law		(0.5	)	(0.2	)	0.3
State and local taxes, net of Federal tax benefit		1.5		1.2		1.2
Tax credits and foreign dividends		(0.1	)	(0.1	)	(0.1	)
Change in valuation allowance		(1.1	)	(1.2	)	(0.1	)
Impact of uncertain tax positions		0.9		(2.8	)	(1.5	)
Impact of officer's non-deductible compensation		2.1		2.9		1.2
Other		(1.1	)	(1.6	)	0.2
Consolidated effective tax rate		28.8	%	28.1	%	29.3	%

The Company believes that its accrued liabilities are sufficient to cover its U.S. and foreign tax contingencies. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:

Thousands of Dollars		2012		2011

Deferred tax assets:
Accrued expenses	$	12,200	$	9,752
Net operating loss carry forwards		11,414		11,083
Pension and post-retirement benefits costs		43,828		40,584
Other		12,850		11,163
Valuation allowance.		(5,666)		(6,860	)
Total deferred tax assets	$	74,626	$	65,722

Thousands of Dollars		2012		2011

Deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation	$	10,333	$	4,832
Intangible assets		12,412		11,387
Mexican tax recapture		429		1,021
Other		3,983		4,067
Total deferred tax liabilities		27,157		21,307
Net deferred tax assets	$	47,469	$	44,415

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The current and long-term portion of net deferred tax assets is as follows:

Thousands of Dollars		2012		2011

Net deferred tax assets, current	$	6,253	$	4,903
Net deferred assets, long term		41,216		39,512
	$	47,469	$	44,415

The current portion of the net deferred tax assets is included in prepaid expenses and other current assets. The long-term portion of the net deferred tax assets are included in other assets and deferred charges.

The Company has $7.2 million of deferred tax assets arising from tax loss carry forwards which will be realized through future operations. Carry forwards of approximately $2.9 million expire over the next 20 years, and $4.3 million can be utilized over an indefinite period.

On December 31, 2012, the Company had $4.8 million of total unrecognized tax benefits. Included in this amount were a total of $3.1 million of unrecognized income tax benefits that, if recognized, would affect the Company's effective tax rate. While it is expected that the amount of unrecognized tax benefits will change in the next 12 months, we do not expect the change to have a significant impact on the results of operations or the financial position of the Company.

The following table summarizes the activity related to our unrecognized tax benefits:

(Thousands of Dollars)		2012		2011

Balance as of January 1, 2012	$	3,912	$	6,473
Increases related to current year positions		696		563
Increases (decreases) related to new judgments		206		(373	)
Decreases related to audit settlements and statute expirations		--		(2,751	)
Other		--		--
Balance as of December 31, 2012	$	4,814	$	3,912

The Company's accounting policy is to recognize interest and penalties accrued, relating to unrecognized income tax benefits as part of its provision for income taxes. The Company had recorded $0.3 million of interest and penalties during 2012 and had a total accrued balance on December 31, 2012 of $1.0 million.

The Company operates in multiple taxing jurisdictions, both within and outside the U.S. In certain situations, a taxing authority may challenge positions that the Company has adopted in its income tax filings. The Company, with a few exceptions (none of which are material), is no longer subject to U.S. federal, state, local, and European income tax examinations by tax authorities for years prior to 2006.

Net cash paid for income taxes were $21.5 million, $31.9 million and $24.9 million for the years ended December 31, 2012, 2011 and 2010, respectively.

The Company has not provided for U.S. federal and foreign withholding taxes on $334.6 million of foreign subsidiaries' undistributed earnings as of December 31, 2012 because such earnings are intended to be permanently reinvested overseas. To the extent the parent company has received foreign earnings as dividends; the foreign taxes paid on those earnings have generated tax credits, which have substantially offset related U.S. income taxes. However, in the event that the entire $334.6 million of foreign earnings were to be repatriated, incremental taxes may be incurred. We do not believe this amount would be more than $50.2 million.