INCOME TAXES

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



(Dollars in thousands)	2014		2013		2012
Domestic	$	61,446	$	13,208	$	6,260
International	18,964		35,677		16,390
Total	$	80,410	$	48,885	$	22,650

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



(Dollars in thousands)	Current			Deferred			Total
2014
Domestic	$	2,205		$	6,699		$	8,904
International	17,172			1,451			18,623
Total	$	19,377		$	8,150		$	27,527

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	)

Deferred tax assets and liabilities as of December 31, 2014 and 2013, were comprised of the following:



(Dollars in thousands)
	2014			2013
Deferred tax assets
Accrued employee benefits and compensation	$	9,168		$	9,350
Postretirement benefit obligations	7,866			2,860
Tax loss and credit carryforwards	16,533			15,041
Reserves and accruals	7,092			6,908
Depreciation and amortization	17,862			21,496
Other	2,550			3,772
Total deferred tax assets	61,071			59,427
Less deferred tax asset valuation allowance	(7,691		)	(7,302		)
Total deferred tax assets, net of valuation allowance	53,380			52,125
Deferred tax liabilities
Investment in joint ventures, net	—			—
Depreciation and amortization	14,303			15,839
Other	344			238
Total deferred tax liabilities	14,647			16,077
Net deferred tax asset	$	38,733		$	36,048

We have a $0.7 million net operating loss carryforward in China which will expire in 2018. We have a 0.1 million net operating loss carryforward in Japan, which will expire in 2023. We also have state net operating loss carryforwards ranging from $0.1 million to $16.2 million in various state taxing jurisdictions, which will begin to expire in 2015. We have approximately $7.0 million of credit carryforwards in Arizona, which will expire in 2015. We believe that it is more likely than not that the benefit from the China and state net operating loss carryforwards as well as our state credit carryforwards will not be realized. In recognition of this risk, we have provided a valuation allowance of $7.7 million relating to these carryforwards. If or when recognized, the tax benefits related to any reversal of the valuation allowance on deferred tax assets as of December 31, 2014, will be accounted for as follows: approximately $6.8 million will be recognized as a reduction of income tax expense and $0.9 million will be recorded as an increase in equity.

We currently have approximately $15.5 million of foreign tax credits that begin to expire in 2021, $5.2 million of research and development credits that begin to expire in 2026, 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, 2014 for which the benefit thereof 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 $8.6 million, research and development credits of $1.2 million and minimum tax credits of $0.4 million. Equity will be increased by these amounts if and when such deferred tax assets are ultimately realized.

We had a valuation allowance of $7.7 million at December 31, 2014 and $7.3 million at December 31, 2013, against certain of our deferred tax assets. In making this determination, we assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2014 for state tax purposes only. Due to differences in our reporting group for federal and state tax purposes, we are in a cumulative income position for US federal tax purposes at December 31, 2014. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.

In 2009, we were in a cumulative loss for both federal and state tax purposes. Accordingly, we placed a valuation allowance against substantially all of our U.S. deferred tax assets as we concluded that we did not have sufficient evidence to rebut this negative evidence. At the end of the third quarter of 2012, we released the valuation allowance placed against our U.S. federal deferred tax assets as 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 for our U.S. federal tax reporting group for the foreseeable future. As we were no longer in a cumulative loss position we should have been 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 U.S. federal 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)	2014			2013			2012

Tax expense at Federal statutory income tax rate	$	28,144		$	17,110		$	7,928
International tax rate differential	(6,772		)	(2,541		)	(209		)
Foreign source income, net of tax credits	5,195			(786		)	(3,428		)
Unrecognized tax benefits	603			(2,197		)	1,604
General business credits	(604		)	(702		)	—
Acquisition related expenses	590			—			—
Valuation allowance change	388			—			(52,650		)
Other	(17		)	342			271
Income tax expense (benefit)	$	27,527		$	11,226		$	(46,484	)

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. We consider the undistributed earnings as of December 31, 2014, of substantially all of our foreign subsidiaries to be indefinitely reinvested and, accordingly, no U.S. income taxes have been provided thereon. If circumstances change and it becomes apparent that some, or all of the undistributed earnings as of December 31, 2014 will not be indefinitely reinvested, the provision for the tax consequence, if any, will be recorded in the period when circumstances change. During 2014, a distribution out of current year profits was made that resulted in an increase in tax of $4.7 million. At December 31, 2014 and 2013, we have not accrued U.S. income taxes on unremitted earnings of approximately $169.0 million and $172.9 million, respectively.

Income taxes paid, net of refunds, were $14.5 million, $11.1 million, and $11.6 million, in 2014, 2013, and 2012, respectively.

A reconciliation of unrecognized tax benefits, excluding potential interest and penalties, for the years ending December 31, 2014 and December 31, 2013, is as follows:



(Dollars in thousands)
	2014			2013
Beginning balance	$	9,148		$	17,333
Gross increases - current period tax positions	1,763			1,445
Gross increases - tax positions in prior periods	335			—
Gross decreases - tax positions in prior periods	—			(7,136		)
Foreign currency exchange	(230		)	79
Lapse of statute of limitations	(1,648		)	(2,573		)
Ending balance	$	9,368		$	9,148

Included in the balance of unrecognized tax benefits as of December 31, 2014 are $9.4 million of tax benefits that, if recognized, would affect the effective tax rate. Also included in the balance of unrecognized tax benefit as of December 31, 2014 are $0.1 million of tax benefits that, if recognized, would result in adjustments to other tax accounts; primarily deferred taxes.

We recognize interest accrued related to unrecognized tax benefit as income tax expense. Related to the unrecognized tax benefits noted above, at December 31, 2014 and 2013, we had accrued potential interest and penalties of approximately $1.2 million and $1.1 million, respectively. It is possible that up to $3.9 million of our currently unrecognized tax benefits could 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 2011 through 2014 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 2011.