INCOME TAXES

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



(Dollars in thousands)	2013		2012		2011
Domestic	$	13,208	$	6,260	$	9,285
International	35,677		16,390		46,483
Total	$	48,885	$	22,650	$	55,768

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



(Dollars in thousands)	Current			Deferred			Total
2013
Domestic	$	(7,075	)	$	5,894		$	(1,181	)
International	12,667			(260		)	12,407
Total	$	5,592		$	5,634		$	11,226

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

Deferred tax assets and liabilities as of December 31, 2013 and 2012, are comprised of the following:



(Dollars in thousands)
	2013			2012
Deferred tax assets
Accrued employee benefits and compensation	$	8,927		$	10,591
Postretirement benefit obligations	2,736			23,066
Tax credit carryforwards	9,825			18,574
Reserves and accruals	6,671			6,014
Depreciation and amortization	20,717			19,134
Other	3,715			1,751
Total deferred tax assets	52,591			79,130
Less deferred tax asset valuation allowance	(466		)	(466		)
Total deferred tax assets, net of valuation allowance	52,125			78,664
Deferred tax liabilities
Investment in joint ventures, net	—			1,559
Depreciation and amortization	15,839			15,654
Other	238			332
Total deferred tax liabilities	16,077			17,545
Net deferred tax asset	$	36,048		$	61,119

We have a $1.0 million net operating loss carryforward in China which will begin to expire in 2017. Excluded from the table above are state loss carryforwards ranging from approximately $0.0 million to $11.0 million in various state taxing jurisdictions, and credit carryforwards ranging from approximately $0.0 million to $4.0 million in various state taxing 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 those tax attributes. Accordingly, we have not recorded any deferred tax assets related to such items on our consolidated statements of financial position for the years ended December 31, 2013 and 2012.

We currently have approximately $13.8 million of foreign tax credits that begin to expire in 2022, $4.6 million of research and development credits that begin to expire in 2027, and $0.5 million of minimum tax credits that can be carried forward indefinitely.

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, 2013 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 $6.8 million, research and development credits of $1.2 million and minimum tax credits of $0.4 million. Equity will be increased by $8.4 million if and when such deferred tax assets are ultimately realized.

We had a valuation allowance of $0.5 million at both December 31, 2013 and 2012, against certain of our U.S. 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 asset 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 U.S. 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 was longer no necessary as we were no longer in, nor were we expecting to be in, a cumulative loss in the foreseeable future. As we are no longer in a cumulative loss position we should be able to rely on forecasted U.S. profits as a source of taxable income. 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.

On September 13, 2013, Treasury and the Internal Revenue Service issued final regulations regarding the deduction and capitalization of expenditures related to tangible property. The final regulations under Internal Revenue Code Sections 162, 167 and 263(a) apply to amounts paid to acquire, produce, or improve tangible property as well as dispositions of such property and are generally effective for tax years beginning on or after January 1, 2014. We have evaluated these regulations and determined they will not have a material impact on our consolidated results of operations, cash flows or financial position.

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)	2013			2012			2011

Tax expense at Federal statutory income tax rate	$	17,110		$	7,928		$	19,518
International tax rate differential	(2,541		)	(209		)	(4,627		)
Foreign source income, net of tax credits	(786		)	(3,428		)	(1,021		)
Unrecognized tax benefits	(2,197		)	1,604			272
General business credits	(702		)	—			(831		)
Valuation allowance change	—			(52,650		)	(1,989		)
Other	342			271			196
Income tax expense (benefit)	$	11,226		$	(46,484	)	$	11,518

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%. 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%.

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, 2013 and 2012, we have not accrued U.S. income taxes on unremitted earnings of approximately $172.9 million and $130.9 million, respectively.

Income taxes paid, net of refunds, were $11.1 million, $11.6 million, and $17.1 million, in 2013, 2012, and 2011, respectively.

A reconciliation of unrecognized tax benefits, excluding potential interest and penalties, for the years ending December 31, 2013 and December 31, 2012, is as follows:



(Dollars in thousands)
	2013			2012
Beginning balance	$	17,333		$	16,133
Gross increases - current period tax positions	1,445			1,929
Gross decreases - tax positions in prior periods	(7,136		)	—
Foreign currency exchange	79			37
Lapse of statute of limitations	(2,573		)	(766		)
Ending balance	$	9,148		$	17,333

If the December 31, 2013 balance of $9.1 million is recognized, it would decrease the effective tax rate in the period in which each of the benefits is recognized. Based upon new facts and circumstances that took place during the year, in 2013 we had a $7.136 million reduction to unrecognized tax benefits as a result of a redetermination of a prior position related to an international tax matter. At December 31, 2013 and 2012, we had accrued potential interest and penalties of approximately $1.1 million and $2.0 million, respectively. The potential interest and penalties are included as a component of income tax expense. It is reasonably possible that between $1.5 million and $2.0 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 2010 through 2013 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 2010.