15.	Income Taxes

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

	Year Ended December 31,
	2012			2011			2010
Current:
Domestic	$	17,791		$	10,887		$	(7	)
Foreign		1,362			1,108			1,528
Total current		19,153			11,995			1,521

Deferred:
Domestic		5,909			(11,886	)		13,873
Foreign		(84	)		12			(3	)
Total deferred		5,825			(11,874	)		13,870
Total income tax provision	$	24,978		$	121		$	15,391

We have not provided for U.S. income taxes on the undistributed earnings of our foreign subsidiaries that are deferred from U.S. income taxation and that we intend to be permanently reinvested. We have provided for U.S. income tax regarding those undistributed earnings of our foreign subsidiaries subject to current taxation under Subpart F of the Internal Revenue Code. Cumulative undistributed earnings of foreign subsidiaries on which no U.S. income tax has been provided were $27.6 million at the end of 2012, $19.9 million at the end of 2011 and $24.7 million at the end of 2010. Earnings before income taxes for foreign operations amounted to approximately $4.4 million, $4.3 million and $4 million in 2012, 2011 and 2010, respectively.

Reconciliations between taxes at the U.S. Federal income tax rate and taxes at our effective income tax rate on earnings from continuing operations before income taxes are as follows (in thousands):

	Year Ended December 31,
	2012			2011			2010

U.S. Federal income tax rate of 35%	$	23,781		$	22,557		$	14,032
Increase (decrease) in tax rate resulting from:
State and local income taxes, net of federal income tax benefit		2,021			2,261			2,050
Income tax (tax benefits) attributable to foreign income		(852	)		(163	)		107
Change in unrecognized tax benefits		-			(454	)		(1,084	)
Other non-deductible items, net		697			(2,455	)		639
Change in valuation allowance		(669	)		(21,625	)		(353	)
Provision for income taxes	$	24,978		$	121		$	15,391

The following is a summary of the components of the net deferred tax assets and liabilities recognized in the accompanying consolidated balance sheets (in thousands):

	December 31,
	2012			2011
Deferred tax assets:
Inventories	$	16,115		$	16,036
Allowance for customer returns		10,660			9,308
Postretirement benefits		2,911			3,389
Allowance for doubtful accounts		2,223			2,480
Accrued salaries and benefits		7,924			7,828
Net operating loss		84			383
Capital loss		6,007			6,133
Tax credit carryforwards		1,167			4,065
Deferred gain on building sale		2,123			2,583
Accrued asbestos liabilities		10,358			10,905
Other		470			2,975
		60,042			66,085
Valuation allowance (1)		(7,174	)		(7,843	)
Total deferred tax assets		52,868			58,242
Deferred tax liabilities:
Depreciation		8,328			8,906
Promotional costs		197			200
Other		-			-
Total deferred tax liabilities		8,525			9,106

Net deferred tax assets	$	44,343		$	49,136

(1)

Current net deferred tax assets are $33.2 million and $32.2 million for 2012 and 2011, respectively. Non-current net deferred tax assets are $11.1 million and $16.9 million for 2012 and 2011, respectively. The tax valuation allowance was allocated to long term deferred tax assets in the amounts of $7.2 million and $7.8 million in 2012 and 2011, respectively. None of the valuation allowance was allocated to current deferred tax assets in 2012 and 2011.

In assessing the realizability of the deferred tax assets, we consider whether it is more likely than not that some portion or the entire deferred tax asset will be realized. Ultimately, the realization of the deferred tax asset is dependent upon the generation of sufficient taxable income in those periods in which temporary differences become deductible and/or net operating loss carryforwards can be utilized. We consider the level of historical taxable income, scheduled reversal of temporary differences, tax planning strategies and projected future taxable income in determining whether a valuation allowance is warranted. We also consider cumulative losses in recent years as well as the impact of one-time events in assessing our pre-tax earnings. Assumptions regarding future taxable income require significant judgment. Our assumptions are consistent with estimates and plans used to manage our business.

In December 2011, we realized a non-recurring non-cash benefit of $21.5 million in our tax provision related to a reduction of a significant portion of our deferred tax valuation allowance on net U.S. deferred tax assets. In assessing the ability to recognize our deferred tax assets, we reviewed all positive and negative evidence and considered historical book and taxable income, the scheduled reversal of deferred tax assets and liabilities, and projected future book and taxable income. Based upon this detailed assessment, we determined that it is more likely than not that a significant portion of our net U.S. deferred tax assets, for which a valuation allowance had been previously recorded, will be realized and, as such, reversed $21.5 million of the valuation allowance on net U.S. deferred tax assets. The remaining valuation allowance of $7.2 million as of December 31, 2012 is intended to provide for uncertainty regarding the ultimate realization of our state tax credit carryovers, U.S. capital loss carryforwards, U.S. foreign tax credit carryovers, and foreign net operating loss carryforwards. Based on these considerations, we believed it was more likely than not that we would realize the benefit of the net deferred tax asset of $44.3 million as of December 31, 2012, which was net of the remaining valuation allowance.

At December 31, 2012, we have approximately $0.4 million of foreign net operating loss carryforwards, which will expire in 2013. We also have foreign tax credit carryforwards of approximately $0.9 million that will expire in varying amounts between 2013 and 2021, and a capital loss carryforward of $15.5 million that will expire in 2014.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Balance at January 1, 2012	$	349
Increase based on tax positions taken in the current year		-
Decrease based on tax positions taken in the current year		-
Balance at December 31, 2012	$	349

The amount of unrecognized tax benefits at December 31, 2012, if ultimately recognized, will reduce our annual effective tax rate.

We are subject to taxation in the U.S. and various state, local and foreign jurisdictions. As of December 31, 2012, the Company is no longer subject to U.S. Federal tax examinations for years before 2009. We remain subject to examination by state and local tax authorities for tax years 2008 through 2012. Foreign jurisdictions have statutes of limitations generally ranging from 2 to 6 years. Years still open to examination by foreign tax authorities in major jurisdictions include Canada (2008 onward), Hong Kong (2007 onward) and Poland (2008 onward). We do not presently anticipate that our unrecognized tax benefits will significantly increase or decrease prior to September 15, 2013, the due date for the U.S. Federal tax return; however, actual developments in this area could differ from those currently expected.

We recognize interest and penalties associated with income tax matters as components of the "provision for income taxes."