INCOME TAXES

Consolidated income (loss) from continuing operations before income taxes consists of:



(Dollars in thousands)	2012		2011		2010
Domestic	$	6,260	$	9,285	$	6,121
International	16,390		46,483		38,280
Total	$	22,650	$	55,768	$	44,401

The income tax expense (benefit) in the consolidated statements of income (loss) consists of:



(Dollars in thousands)	Current		Deferred			Total
2012
Domestic	$	3,651	$	(59,414	)	$	(55,763	)
International	8,118		1,161			9,279
Total	$	11,769	$	(58,253	)	$	(46,484	)

2011
Domestic	$	2,173	$	(828	)	$	1,345
International	12,070		(1,897		)	10,173
Total	$	14,243	$	(2,725	)	$	11,518

2010
Domestic	$	8,032	$	(9,528	)	$	(1,496	)
International	6,199		1,147			7,346
Total	$	14,231	$	(8,381	)	$	5,850

Deferred tax assets and liabilities as of December 31, 2012 and 2011, are comprised of the following:



(Dollars in thousands)
	2012			2011
Deferred tax assets
Accrued employee benefits and compensation	$	10,591		$	13,124
Postretirement benefit obligations	23,066			28,923
Tax credit carryforwards	18,574			16,142
Reserves and accruals	6,014			4,097
Depreciation and amortization	19,134			17,276
Other	1,751			2,143
Total deferred tax assets	79,130			81,705
Less deferred tax asset valuation allowance	(466		)	(59.442		)
Total deferred tax assets, net of valuation allowance	78,664			22.263
Deferred tax liabilities
Investment in joint ventures, net	1,559			2,265
Depreciation and amortization	15,654			16,614
Other	332			380
Total deferred tax liabilities	17,545			19,259
Net deferred tax asset	$	61,119		$	3,004

We currently have approximately $20.4 million of foreign tax credits that begin to expire in 2021, $3.2 million of research and development credits that begin to expire in 2026, and $0.1 million of minimum tax credits that can be carried forward indefinitely.

We also have a $2.0 million net operating loss carryforward for German income tax purposes which will not expire. In addition, we have a $1.0 million net operating loss carryforward in China which will expire in 2017. Accordingly, we have not recorded any deferred tax assets related to such items on our consolidated statement of financial position for the years ended December 31, 2012 and 2011. We have state net operating loss and tax credit carryforwards in certain jurisdictions. As we continually generate credits in excess of our current year tax liability in these jurisdictions, we believe that it is remote that we will ever benefit from these tax attributes. Accordingly, we have not recorded any deferred tax assets related to such items on our consolidated statement of financial position for the years ended December 31, 2012 and 2011.

As a result of certain realization requirements, the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets as of December 31, 2012 that the use of which was postponed by tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Those deferred tax assets include foreign tax credits of $3.9 million, research and development credits of $1.2 million and minimum tax credits of $0.4 million. Equity will be increased by $5.5 million if and when such deferred tax assets are ultimately realized.

We had a valuation allowance of $0.5 million and $59.4 million, at December 31, 2012 and December 31, 2011, respectively, against certain of U.S. deferred tax assets. The decrease in the valuation allowance in 2012 is primarily due to reversal of the majority of the valuation allowance against the US deferred tax assets. A valuation allowance for deferred tax assets is recorded to the extent we cannot determine that the ultimate realization of a deferred tax assets is more likely than not. In determining the need for a valuation allowance, we assess the available positive and negative evidence as well as consider available tax planning strategies. In 2009, we established a valuation allowance against substantially all of our U.S. deferred tax assets as we concluded that we did not have sufficient evidence to support the position that these assets would be utilized in the future. This conclusion was reached primarily due to the presence of recent cumulative losses in the US and upon consideration of all other available evidence, both positive and negative, using a “more likely than not standard” in accordance with applicable accounting guidance. At the end of the third quarter of 2012, we concluded that a valuation allowance against these assets is no longer necessary as we are no longer in, nor are we expecting to be in, a cumulative loss in the forseeable future. Also, in appropriate circumstances we have the opportunity to undertake a tax planning strategy to ensure that our tax credit carryforwards do not expire unutilized. This strategy is based upon our ability to make a tax election to capitalize certain expenses that will result in generating taxable income to allow us to utilize our tax credit carryforwards before they expire. We would undertake such a strategy to realize these tax credit carryforwards prior to expiration as it is reasonable, prudent, and feasible. This, along with other positive evidence, such as our recent history of positive taxable income, led us to conclude in 2012 that it is more likely than not that we will ultimately be able to realize our deferred tax assets.

Also in 2012, we realized a capital loss on the sale of the auction rate securities. As we do not have the ability to generate capital gains in the near future, we have established a valuation allowance against this deferred tax asset.

Income tax expense differs from the amount computed by applying the United States federal statutory income tax rate to income before income taxes. The reasons for this difference are as follows:



(Dollars in thousands)	2012			2011			2010

Tax expense at Federal statutory income tax rate	$	7,928		$	19,518		$	15,540
International tax rate differential	(209		)	(4,627		)	(4,672		)
Foreign source income, net of tax credits	(3,428		)	(1,021		)	3,487
Unrecognized tax benefits	1,604			272			16
General business credits	—			(831		)	(775		)
Valuation allowance change	(52,650		)	(1,989		)	(8,916		)
Acquisition related expenses	—			—			974
Other	271			196			196
Income tax expense (benefit)	$	(46,484	)	$	11,518		$	5,850

Our tax holiday on the earnings of our subsidiaries in China expired at the end of 2011. Under the business license agreement granted to Rogers Technologies (Suzhou) Company (RSZ), a wholly-owned subsidiary of ours, the first two years of cumulatively profitable operations were taxed at a 0% tax rate followed by a reduced tax rate in subsequent years that gradually increased to the 25% full rate of tax beginning in 2012. In 2011, RSZ reported pretax income of $17.9 million, which was subject to a tax rate of 24%. In 2010, RSZ reported pretax income of $18.1 million, which was subject to a tax rate of 22%. Under the business license agreement granted to Rogers (Shanghai) International Trading Company Ltd. (RSH), also a wholly-owned subsidiary of ours, RSH was subject to a reduced rate of tax that gradually increased to the 25% full rate of tax beginning in 2012. In 2011, RSH reported pretax income of $2.4 million which was subject to a tax rate of 24%. In 2010, RSH reported pretax income of $4.8 million which was subject to a tax rate of 22%.

The objective of accounting for income taxes is to recognize the amount of taxes payable or refundable for the current year and the deferred tax liabilities and assets for the future tax consequence of events that have been recognized in the entity's financial statements. We are subject to income taxes in the United States and in numerous foreign jurisdictions. No provision is made for U.S. income taxes on the undistributed earnings of substantially all of our wholly-owned foreign subsidiaries because such earnings are indefinitely reinvested in those companies. If circumstances change and it becomes apparent that all or some of the undistributed earnings of our wholly-owned foreign subsidiaries will not be indefinitely reinvested, a provision for the tax consequence, if any, will be recorded in the period circumstances change. At December 31, 2012, we have not accrued U.S. income taxes on approximately $130.9 million of unremitted earnings.

Income taxes paid, net of refunds, were $11.6 million, $17.1 million, and $4.6 million, in 2012, 2011, and 2010, respectively.

A reconciliation of unrecognized tax benefits, excluding potential interest and penalties, for the years ending December 31, 2012 and December 31, 2011, is as follows:



(Dollars in thousands)
	2012			2011
Beginning balance	$	16,133		$	14,331
Gross increases - current period tax positions	1,929			1,458
Acquisitions/disposals	—			1,942
Foreign currency exchange	37			(50		)
Lapse of statute of limitations	(766		)	(1,548		)
Ending balance	$	17,333		$	16,133

If the December 31, 2012 balance of $17.3 million is recognized, approximately $10.3 million would decrease the effective tax rate in the period in which each of the benefits is recognized. The remaining amount would be offset by the reversal of related deferred tax assets. Excluded from the balance above is $0.7 million at both December 31, 2012 and 2011, which were presented in the balance sheet as a direct offset to the corresponding deferred tax asset. At December 31, 2012 and 2011, we had accrued potential interest and penalties of approximately $2.0 million and $1.5 million, respectively. The potential interest and penalties are included as a component of income tax expense. It is reasonably possible that between $2.5 million and $3.5 million of our currently unrecognized tax benefits may be recognized within 12 months as a result of projected resolutions of worldwide tax disputes or the expiration of the statute of limitations.

We are subject to taxation in the U.S. and various state and foreign jurisdictions. Our tax years from 2009 through 2012 are subject to examination by the tax authorities. With few exceptions, we are no longer subject to U.S. federal, state, local and foreign examinations by tax authorities for the years before 2009.