INCOME TAXES

The jurisdictional components of income before taxes consist of the following:



	December 31,
(in thousands)	2013		2012		2011
Income before income taxes:
Domestic	$	35,146	$	29,390	$	28,109
Foreign	16,242		14,056		20,020
	$	51,388	$	43,446	$	48,129

The components of income tax expense (benefit) consist of the following:



	December 31,
(in thousands)	2013			2012			2011
Current:
Domestic	$	10,605		$	9,273		$	7,771
Foreign	3,200			4,919			5,682
State	2,366			756			1,139
	16,171			14,948			14,592
Deferred:
Domestic	(1,074		)	(192		)	397
Foreign	249			(363		)	331
State	(52		)	150			122
	(877		)	(405		)	850
Total income taxes	$	15,294		$	14,543		$	15,442

The difference between income tax expense (benefit) for financial statement purposes and the amount of income tax expense computed by applying the domestic statutory income tax rate of 35% to income loss before income taxes consist of the following:



	December 31,
(in thousands)	2013			2012			2011
Domestic statutory rate at 35% (34% for 2011 and 2010)	$	17,985		$	15,206		$	16,364
Increase (reduction) from:
Jurisdictional rate differences	(1,959		)	(1,477		)	(1,315		)
Goodwill impairment	—			157			633
Valuation allowance	(114		)	825			—
Stock based compensation	136			214			161
U.S. state taxes	1,496			589			740
Domestic Production Deduction	(1,162		)	(948		)	(796		)
R&E Credit Reserve	(856		)	(130		)	(252		)
Other, net	(232		)	107			(93		)
Provision for income taxes	$	15,294		$	14,543		$	15,442
Effective tax rate	30		%	33		%	32		%

Deferred income taxes arise from temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. The components of the Company’s deferred income tax assets and liabilities consist of the following:



	December 31,
(in thousands)	2013			2012
Deferred income tax assets:
Inventory basis difference	$	1,576		$	1,475
Accounts receivable reserve	201			299
Stock based compensation	904			614
Pension liability	1,604			3,595
Employee benefit accrual	601			459
Product liability and warranty reserves	1,417			1,120
Expenses not deductible for tax purposes	1,064			487
Foreign net operating loss	2,954			1,608
State net operating loss	76			82
Other	34			3

Total deferred income tax assets	$	10,431		$	9,742
Less: Valuation allowance	(711		)	(825		)

Net deferred income tax assets	$	9,720		$	8,917

Deferred income tax liabilities:
Inventory basis differences	$	—		$	(253	)
Depreciation	(3,068		)	(2,867		)
Intangible assets	(1,277		)	(1,011		)
Deferred revenue	(66		)	(135		)
Expenses not deductible for tax purposes	(461		)	(777		)

Total deferred income tax liabilities	$	(4,872	)	$	(5,043	)

Net deferred income tax assets	$	4,848		$	3,874

As of December 31, 2013, the Company had foreign deferred tax assets consisting of foreign net operating losses and other tax benefits available to reduce future taxable income in a foreign jurisdiction. These foreign jurisdictions' net operating loss carryforwards are in the approximate amount of $10.6 million with an unlimited carryforward period. The Company also has state net operating loss carryforwards in the U.S. of approximately $5.0 million which will expire between 2014 to 2028.

The company recorded a valuation allowance as of December 31, 2013 and 2012 due to uncertainties related to the ability to utilize some of the deferred income tax assets, primarily consisting of certain U.S. state NOLs and income tax credits, and international NOLs, before they expire. The valuation allowance is based on estimates of taxable income in the various jurisdictions in which we operate and the period over which deferred income tax assets will be recoverable. The realization of net deferred income tax assets recorded as of December 31, 2013 is primarily dependent upon the ability to generate future taxable income in certain U.S. states and international jurisdictions.

Deferred income taxes have not been provided on the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and the respective tax bases of the Company’s foreign subsidiaries, based on the determination that such differences are essentially permanent in duration in that the earnings of the subsidiaries are expected to be indefinitely reinvested in foreign operations. As of December 31, 2013, the cumulative undistributed earnings of these subsidiaries approximated $138,531,000. If these earnings were not considered indefinitely reinvested, deferred income taxes would have been recorded after the consideration of foreign tax credits. At this time, it is not practicable to estimate the amount of additional income taxes that might be payable on those earnings, if distributed.

The Company adopted the provisions of FASB ASC Section 740-10-25 (formerly FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”) on January 1, 2007. Unrecognized tax benefits in the amount of$257,000 and $146,000 for 2012 and 2013, respectively, are included in other noncurrent liabilities on the balance sheet. The unrecognized tax benefits, if recognized, would favorably impact our effective tax rate in a future period. We do not expect our unrecognized tax benefits disclosed above to change significantly over the next 12 months.



	December 31,
	2013			2012
Balance as of beginning of year	$	257,000		$	235,000
Additions for tax positions related to the current year	56,000			—
Additions for tax positions related to prior years	27,000			22,000
Reduction due to lapse of statute of limitations	(194,000		)	—
Balance as of end of year	$	146,000		$	257,000

The Company's policy is to include interest and penalty expense related to income taxes as interest and other expense, respectively. As of December 31, 2013, no interest or penalties has been accrued. The Company’s open tax years for its federal and state income tax returns are for the tax years ended 2009 through 2013. The Company's open tax years for its foreign income tax returns are for the tax years ended 2009 through 2013.

On January 2, 2013, the American Taxpayer Relief Act of 2012 (Act) was enacted. The Act provided tax relief for businesses by reinstating certain tax benefits retroactively to January 1, 2012. There are several provisions of the Act that impacted the Company, most notably the extension of the Research and Development credit through 2013. Income tax accounting rules require tax law changes to be recognized in the period of enactment; as such, the additional Research and Development Credit in 2013 tax provision that related to the 2012 tax year was approximately $450,000. Currently, the Research and Development credit has not been extended for 2014.