NOTE 11 – INCOME TAXES

Income (loss) before income taxes	2014		2013			2012

U.S.	$	392	$	(12,936	)	$	(24,411	)
Foreign		85,600		51,521			55,218
Total	$	85,992	$	38,585		$	30,807

The components of the income tax provision (benefit) are as follows for the years ended December 31:

	2014			2013			2012
Current tax provision (benefit)
Federal	$	285		$	1,315		$	1,424
Foreign		21,783			9,270			10,756
State		44			(187	)		142
		22,112			10,398			12,322
Deferred tax provision (benefit)
Federal		2,996			(1,531	)		(8,784	)
Foreign		(4,244	)		(2,197	)		(3,247	)
State		51			9			317
		(1,197	)		(3,719	)		(11,714	)
Liability for unrecognized tax benefits		(556	)		7,802			4,217
Total income tax provision	$	20,359		$	14,481		$	4,825

Effective Tax Rate Reconciliation

Reconciliation between the effective tax rate and the statutory tax rates for the years ended December 31, 2014, 2013, and 2012 is as follows:

	2014						2013						2012

				Percent						Percent						Percent
				of pretax						of pretax						of pretax
	Amount			earnings			Amount			earnings			Amount			earnings
Federal tax	$	30,097			35.0		$	13,501			35.0		$	10,783			35.0
State income taxes, net of federal tax provision		18			0.0			29			0.1			213			0.7
Foreign income taxed at lower tax rates		(9,421	)		(11.0	)		(8,363	)		(21.7	)		(15,515	)		(50.4	)
U.S. tax impact of foreign operations		365			0.4			608			1.6			3,631			11.8
Foreign withholding taxes (1)		3,694			4.3			866			2.2			-			-
Goodwill impairment		-			-			904			2.3			-			-
Research and development		(2,666	)		(3.1	)		(2,294	)		(5.9	)		-			-
Liability for unrecognized tax benefits		(556	)		(0.6	)		7,802			20.2			4,217			13.7
Provision-to-return adjustments		(1,925	)		(2.2	)		554			1.4			(102	)		(0.3	)
Other		753			0.9			874			2.3			1,598			5.2
Income tax provision	$	20,359			23.7		$	14,481			37.5		$	4,825			15.7

(1)	Certain Items have been reclassified for 2012 and 2013 for consistency in presentation with 2014.

Uncertain Tax Positions

In accordance with the provisions related to accounting for uncertainty in income taxes, we recognize the benefit of a tax position if the position is “more likely than not” to prevail upon examination by the relevant tax authority. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2014			2013			2012
Balance at January 1,	$	20,710		$	14,591		$	10,177
Additions based on tax positions related to the current year		2,729			3,659			1,593
Additions for prior years tax positions		424			10,206			3,945
Reductions for prior years tax positions		(4,375	)		(7,746	)		(1,124	)
Balance at December 31,	$	19,488		$	20,710		$	14,591

The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was approximately $19 million at December 31, 2014. It is reasonably possible that the amount of the unrecognized benefit with respect to certain of our unrecognized tax positions will significantly increase or decrease within the next 12 months. These changes may be the result of settlements of ongoing audits or competent authority proceedings. At this time, an estimate of the range of the reasonably possible outcomes cannot be made.

We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. We are no longer subject to U.S. federal income tax examinations by tax authorities for tax years before 2007, or for the 2010 tax year. We are no longer subject to China income tax examinations by tax authorities for tax years before 2004. With respect to state and local jurisdictions and countries outside of the U.S., with limited exceptions, we are no longer subject to income tax audits for years before 2011. Although the outcome of tax audits is always uncertain, we believe that adequate amounts of tax, interest and penalties, if any, have been provided for in our reserve for any adjustments that may result from future tax audits. We recognize accrued interest and penalties, if any, related to unrecognized tax benefits in interest expense. We had an immaterial amount of accrued interest and penalties at December 31, 2014, 2013 and 2012.

Deferred Taxes

At December 31, 2014 and 2013, our deferred tax assets and liabilities are comprised of the following items:

	2014			2013
Deferred tax assets, current
Inventory cost	$	6,878		$	6,113
Accrued expenses and accounts receivable		2,042			2,422
Share based compensation and others		2,375			1,978
Total deferred tax assets, current	$	11,295		$	10,513

Deferred tax assets, non-current
Foreign tax credits	$	19,806		$	20,911
Research and development tax credits		6,034			5,460
Net operating loss carryforwards		14,706			13,130
Accrued pension		22,283			17,110
Share based compensation and others		18,280			18,371
		81,109			74,982
Valuation allowances		(41,163	)		(35,908	)
Total deferred tax assets, non-current		39,946			39,074

Deferred tax liabilities, non-current
Plant, equipment and intangible assets		(3,334	)		(10,837	)
Total deferred tax liabilities, non-current		(3,334	)		(10,837	)

Net deferred tax assets, non-current	$	36,612		$	28,237

We prospectively adopted ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, effective in the first quarter of 2014. ASU No. 2013-11 provides that an entity is required to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The $44 million net deferred tax asset presented on the balance sheet is net of $4 million of unrecognized tax benefits. The $48 million net deferred tax asset presented above is prior to the net balance sheet presentation required by ASU 2013-11.

At December 31, 2014, we had federal and state tax credit carryforwards of approximately $26 million and $1 million, respectively, which are available to offset future income tax liabilities. The federal tax credit carryforwards begin to expire in 2014 and the state tax credit carryforwards will begin to expire in 2020. We determined that it is more likely than not that a portion of our federal foreign tax credit and federal and state research credit carryforwards will expire before they are utilized. The valuation allowances recorded against the related deferred tax assets totaled $16 million as of December 31, 2014.

At December 31, 2013, we had federal and state net operating loss (“NOL”) carryforwards of approximately $30 million and $17 million, respectively, and foreign NOL carryforwards of $14 million which are available to offset future taxable income. The federal NOL carryforwards will begin to expire in 2018. We determined that it is more likely than not that the U.S. federal NOL carryforwards will be utilized; thus, no valuation allowance has been recorded. The foreign and U.S. state NOL carryforwards will begin to expire in 2020 and 2015, respectively. We determined that it is more likely than not that the foreign and U.S. state NOL carryforwards will expire before they are fully utilized and recorded a full valuation allowance on the related deferred tax assets.

Supplemental Information

Funds repatriated from foreign subsidiaries to the U.S. may be subject to federal and state income taxes. We intend to permanently reinvest overseas all of our earnings from our foreign subsidiaries, except to the extent such undistributed earnings have previously been subject to U.S. tax; accordingly, U.S. taxes are not being recorded on undistributed foreign earnings. As of December 31, 2013, we had undistributed earnings from its non-U.S. operations of approximately $408 million (including approximately $36 million of restricted earnings which are not available for dividends). Undistributed earnings of our China subsidiaries comprise $341 million of this total. Additional federal and state income taxes of approximately $109 million would be required should such earnings be repatriated to the U.S. as dividends.

The impact of tax holidays decreased our tax expense by approximately $2 million, $2 million and $6 million for the years ended December 31, 2014, 2013 and 2012, respectively. The benefit of the tax holidays on both basic and diluted earnings per share for the years ended December 31, 2014 and 2013 was approximately $0.05. The benefit of the tax holidays on basic and diluted earnings per share for the year ended December 31, 2012 was approximately $0.14 and $0.13, respectively.