(3) Income Taxes

The components of income tax expense are:


	2012			2011		2010
Current:
Federal	$	17,448		$	6,070	$	(615	)
State		2,528			1,275		61
Foreign		1,027			535		402
Deferred:
Federal		(590	)		4,691		4,389
State		(387	)		584		953

	$	20,026		$	13,155	$	5,190

Total income tax expense differed from the amounts computed by applying the U.S. Federal income tax rate of 35.0% to income before income tax expense as a result of the following:


	2012			2011			2010
Computed tax expense at statutory federal rates	$	19,911		$	12,328		$	5,660
Increase (decrease) in taxes resulting from:
State taxes, net of federal income tax benefit		1,947			1,374			742
Domestic production deduction		(1,661	)		(826	)		(345	)
Income tax credits		(395	)		(343	)		(315	)
Other expenses		224			622			(552	)

	$	20,026		$	13,155		$	5,190

The components of income before provision for income taxes are as follows:


	2012		2011		2010
Domestic	$	53,361	$	33,399	$	14,811
Foreign		3,491		1,824		1,363

	$	56,852	$	35,223	$	16,174

Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to significant portions of the net deferred tax liability at December 31, 2012 and 2011 relate to the following:


	2012			2011
Current:
Inventories	$	3,490		$	2,681
State income taxes		(431	)		(413	)
Vacation pay accrual		354			289
Accrued bonuses		2,289			1,445
Bad debt		192			78
Prepaid expenses		(1,490	)		(1,432	)
Other		473			769

Net deferred tax asset		4,877			3,417

Non-Current:
Plant and equipment, principally due to differences in depreciation and capitalized interest		(21,993	)		(20,653	)
NOL carryforward		—			244
Tax credit		73			—
Fair value adjustment		460			564
Other		2,297			1,256

Net deferred tax liability		(19,163	)		(18,589	)

Total net deferred tax liability	$	(14,286	)	$	(15,172	)

The following is a roll-forward of the Company’s total gross unrecognized tax liabilities, not including interest and penalties, for the fiscal year ended December 31, 2012:


	Gross Unrecognized Tax Liabilities
Balance at December 31, 2011	$	227
Additions for tax positions related to the current year		29
Additions for tax positions related to the prior year		26

Balance at December 31, 2012	$	282

The Company recognizes accrued interest and penalties related to contingent tax liabilities in the provision for income taxes in the Company’s consolidated financial statements. As of December 31, 2012, the Company had approximately $20 in interest and penalties related to recognized tax benefits accrued.

It is expected that the amount of unrecognized tax benefits will change within the next 12 months; however we do not expect the change to have a significant impact on our consolidated statements of income or consolidated balance sheet. These changes may be the result of settlement of ongoing audits. At this time, an estimate of the range of the reasonable possible outcomes cannot be made.

The Company believes it is more likely than not that the deferred tax assets detailed in the table above will be realized in the normal course of business. Undistributed earnings of foreign subsidiaries are considered to be indefinitely reinvested and, accordingly, no provision for United States federal and state income taxes has been provided thereon. Upon distribution of earnings in the form of dividends or otherwise, the Company would be subject to both United States income taxes (subject to adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the unrecognized deferred United States income tax liability is not practical due to the complexities of a hypothetical calculation.

The Company is subject to U.S. federal income tax as well as to income tax in multiple state jurisdictions. Federal income tax returns of the Company are subject to IRS examination for the 2009 through 2011 tax years. State income tax returns are subject to examination for the 2008 through 2011 tax years.

The Company is currently under audit by the Internal Revenue Service for the year ended December 31, 2009. The audit is in the final stage – Joint Committee Review – and the federal tax adjustments are immaterial at this time.

The Company’s research and development credit is currently under audit by the California Franchise Tax Board for the years ended December 31, 2004 through December 31, 2006. The case has been accepted into the settlement program by the Franchise Tax Board’s Settlement Bureau. Currently the Company believes that it has set up an adequate reserve on its claim for refund.