NOTE 12 - INCOME TAXES

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

(Dollars in thousands)	2011		2010		2009
Domestic	$	8,581	$	5,717	$	(28,819	)
International		46,507		38,331		12,431
Total	$	55,088	$	44,048	$	(16,388	)

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


(Dollars in thousands)	Current			Deferred			Total
2011
Domestic	$	1,927		$	(828	)	$	1,099
International		12,080			(1,897	)		10,183
Total	$	14,007		$	(2,725	)	$	11,282

2010
Domestic	$	7,890		$	(9,528	)	$	(1,638	)
International		6,218			1,147			7,365
Total	$	14,108		$	(8,381	)	$	5,727

2009
Domestic	$	(4,042	)	$	43,902		$	39,860
International		3,356			(5,698	)		(2,342	)
State		11			5,220			5,231
Total	$	(675	)	$	43,424		$	42,749

Deferred tax assets and liabilities as of December 31, 2011 and 2010, are comprised of the following:

(Dollars in thousands)
	2011			2010
Deferred tax assets
Accrued employee benefits and compensation	$	13,124		$	10,770
Postretirement benefit obligations		28,923			14,409
Tax credit carryforwards		16,142			14,666
Reserves and accruals		4,097			3,912
Depreciation and amortization		17,276			17,586
Other		2,143			2,356
Total deferred tax assets		81,705			63,699
Less deferred tax asset valuation allowance		(59,442	)		(45,087	)
Total deferred tax assets, net of valuation allowance		22,263			18,612
Deferred tax liabilities
Investment in joint ventures, net		2,265			676
Depreciation and amortization		16,614			7,647
Other		380			422
Total deferred tax liabilities		19,259			8,745
Net deferred tax asset	$	3,004		$	9,867

We currently have approximately $13.4 million of foreign tax credits that begin to expire in 2019, $3.4 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, 2011 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 $1.2 million. Equity will be increased by $1.2 million if and when such deferred tax assets are ultimately realized. There were no tax benefits from the exercise of stock options in 2010 or 2009.

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)	2011			2010			2009

Tax expense at Federal statutory income tax rate	$	19,281		$	15,417		$	(5,736	)
International tax rate differential		(4,619	)		(4,654	)		(6,097	)
Foreign source income, net of tax credits		(1,021	)		3,487			(817	)
General business credits		(831	)		(775	)		(485	)
Valuation allowance change		(1,989	)		(8,811	)		55,981
Acquisition related expenses		-			974			-
Other		461			89			(97	)
Income tax expense	$	11,282		$	5,727		$	42,749

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 zero percent 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%. In 2009, RSZ reported pretax income of $4.6 million, which was subject to a tax rate of 10%. 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%. In 2009, RSH reported pretax income of $1.9 million which was subject to a tax rate of 20%.

We had a valuation allowance of $59.4 million and $45.1 million, at December 31, 2011 and December 31, 2010, respectively, against certain of our U.S. deferred tax assets. The increase in the valuation allowance is primarily due to changes in timing differences which give rise to the 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 our 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 2010, we developed a tax planning strategy that would allow us to recognize certain deferred tax assets, resulting in a reduction of our valuation allowance. We believe that this strategy is reasonable, prudent, and feasible, and we will implement this strategy, if need be, to ensure that this portion of our deferred tax asset does not expire.

In both 2011 and 2010, we have concluded that the negative evidence outweighs the positive evidence due to cumulative losses incurred. As the realization of deferred taxes is principally dependent upon the achievement of future taxable income, the estimation of which requires significant management judgment, we concluded that given the weight of both positive and negative evidence, a valuation allowance should be placed against the remaining portion of our U.S. deferred tax assets, for which there is neither a tax planning strategy nor other source of taxable income against which it would offset. 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. Furthermore, if objective negative evidence in the form of recent cumulative losses is no longer present, additional weight may be given to subjective evidence such as our projections for future taxable income.

Through December 31, 2011, we have not paid U.S. income taxes on approximately $120.4 million of unremitted foreign earnings because substantially all such earnings are intended to be reinvested indefinitely outside the U.S. Should we decide to repatriate the foreign earnings, we would have to adjust the income tax provision in the period we determined that the earnings will no longer be indefinitely invested outside the U.S.

Income taxes paid, net of refunds, were $17.1 million, $4.6 million, and $1.1 million, in 2011, 2010, and 2009, respectively.

A reconciliation of unrecognized tax benefits, excluding potential interest and penalties, for the years ending December 31, 2011, and December 31, 2010, is as follows:

(Dollars in thousands)	2011			2010
Beginning balance	$	14,331		$	7,585
Gross increases - tax positions in prior period		-			7,024
Gross decreases - tax positions in prior period		-			(407	)
Gross increases - current period tax positions		1,458			1,427
Acquisitions/disposals		1,942			-
Foreign currency exchange		(50	)		-
Lapse of statute of limitations		(1,548	)		(1,298	)
Ending balance	$	16,133		$	14,331

If the December 31, 2011 balance of $16.1 million is recognized, approximately $8.9 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, 2011 and 2010 which were presented in the balance sheet as a direct offset to the corresponding deferred tax asset. At December 31, 2011 and 2010 we had accrued potential interest and penalties of approximately $1.5 million and $1.0 million, respectively. The potential interest and penalties are included as a component of income tax expense. It is reasonably possible that between $0.5 million and $1.5 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 2008 through 2011 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 2008.