NOTE 10 – INCOME TAXES

Income (loss) before income taxes	2015			2014		2013
U.S.	$	(21,091	)	$	392	$	(12,936	)
Foreign		61,686			85,600		51,521
Total	$	40,595		$	85,992	$	38,585

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

	2015			2014			2013
Current tax provision (benefit)
Federal	$	12		$	285		$	1,315
Foreign		17,983			21,783			9,270
State		29			44			(187	)
		18,024			22,112			10,398
Deferred tax provision (benefit)
Federal		(2,739	)		2,996			(1,531	)
Foreign		(1,063	)		(4,244	)		(2,197	)
State		(228	)		51			9
		(4,030	)		(1,197	)		(3,719	)
Liability for unrecognized tax benefits		88			(556	)		7,802
Total income tax provision	$	14,082		$	20,359		$	14,481

Effective Tax Rate Reconciliation

Reconciliation between the effective tax rate and the statutory tax rates for the years ended December 31, 2015, 2014, and 2013 is as follows:

	2015						2014						2013
				Percent						Percent						Percent
				of pretax						of pretax						of pretax
	Amount			earnings			Amount			earnings			Amount			earnings
Federal tax	$	14,214			35.0		$	30,097			35.0		$	13,501			35.0
State income taxes, net of federal tax provision		(152	)		(0.4	)		18			-			29			0.1
Foreign income taxed at lower tax rates		(10,126	)		(24.9	)		(9,421	)		(11.0	)		(8,363	)		(21.7	)
U.S. tax impact of foreign operations		2,046			5.0			365			0.4			608			1.6
Foreign withholding taxes		2,268			5.6			3,694			4.3			866			2.2
Goodwill impairment		-			-			-			-			904			2.3
Research and development		(2,068	)		(5.1	)		(2,666	)		(3.1	)		(2,294	)		(5.9	)
Liability for unrecognized tax benefits		88			0.2			(556	)		(0.6	)		7,802			20.2
Valuation allowance		3,580			8.8			876			1.0			868			2.3
Provision-to-return adjustments		994			2.4			(1,925	)		(2.2	)		554			1.4
Other		3,238			8.1			(123	)		(0.1	)		6			-
Income tax provision	$	14,082			34.7		$	20,359			23.7		$	14,481			37.5

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:

	2015			2014			2013
Balance at January 1,	$	19,488		$	20,710		$	14,591
Additions based on tax positions related to the current year		3,450			2,729			3,659
Additions for prior year tax positions		6,963			424			10,206
Reductions for prior year tax positions		(3,398	)		(4,375	)		(7,746	)
Balance at December 31,	$	26,503		$	19,488		$	20,710

The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was approximately $27 million at December 31, 2015. 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 2005. 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, 2015, 2014 and 2013.

Deferred Taxes

At December 31, 2015 and 2014, our deferred tax assets and liabilities are comprised of the following items:

	2015			2014
Deferred tax assets
Inventory cost	$	7,944		$	6,878
Accrued expenses and accounts receivable		2,206			2,042
Foreign tax credits		20,133			19,806
Research and development tax credits		12,306			6,034
Net operating loss carryforwards		25,878			14,706
Accrued pension		7,169			22,283
Share based compensation and others		18,238			20,655
		93,874			92,404
Valuation allowances		(35,738	)		(41,163	)
Total deferred tax assets, non-current		58,136			51,241
Deferred tax liabilities
Plant, equipment and intangible assets		(39,722	)		(3,334	)
Total deferred tax liabilities, non-current		(39,722	)		(3,334	)
Net deferred tax assets	$	18,414		$	47,907

Certain items have been reclassified in 2014 and 2013 for consistency in presentation with 2015.

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, (“ASU 2013-11”) 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 $13 million net deferred tax asset presented on the balance sheet as of December 31, 2015, is net of $5 million of unrecognized tax benefits. The $18 million net deferred tax asset presented above is prior to the net balance sheet presentation required by ASU 2013-11. The $44 million net deferred tax assets presented as of December 31, 2014, is net of $4 million of unrecognized tax benefits. The $48 million net deferred tax asset presented above is the net balance sheet presentation required by ASU 2013-11.

At December 31, 2015, we had federal and state tax credit carryforwards of approximately $26 million and $7 million, respectively, which are available to offset future income tax liabilities. The federal tax credit carryforwards begin to expire in 2015 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 $22 million as of December 31, 2015.

At December 31, 2015, we had federal and state net operating loss (“NOL”) carryforwards of approximately $56 million and $3 million, respectively, and foreign NOL carryforwards of $17 million which are available to offset future taxable income. The federal NOL carryforwards will begin to expire in 2032. 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 U.S. state NOL carryforwards will begin to expire in 2015. We determined that it is more likely than not that the U.S. state NOL carryforwards will expire before they are fully utilized and recorded a full valuation allowance on the related deferred tax assets. The foreign NOL carryforwards will begin to expire in 2020. We determined that it is more likely than not that a portion of the foreign NOL carryforwards will expire before they are fully utilized. The valuation allowances recorded against the related deferred tax assets totaled $2 million as of December 31, 2015..

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, 2015, we had undistributed earnings from our non-U.S. operations of approximately $536 million (including approximately $42 million of restricted earnings which are not available for dividends). Undistributed earnings of our China subsidiaries comprise $383 million of this total. Additional federal and state income taxes of approximately $146 million would be required should the $536 million of such earnings be repatriated to the U.S. as dividends.

The impact of tax holidays decreased our tax expense by approximately $3 million, $2 million and $2 million for the years ended December 31, 2015, 2014 and 2013, respectively. The benefit of the tax holidays on both basic and diluted earnings per share for the years ended December 31, 2015 was approximately $0.06. 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.