Note 7 – Income Taxes

Income tax expense (benefit) consists of the following:


	Nine Months Ended
	September 30,
(in thousands)	2012		2011

Federal – Current	$	930	$	169
Foreign – Current		3,159		4,023
State – Current		459		165
Deferred		7,876		(11,485	)

	$	12,424	$	(7,128	)

In 2012, income tax expense differs from the amount computed by applying the U.S. federal statutory income tax rate to income before income tax primarily due to the mix of taxable income by taxing jurisdiction, the impact of tax incentives and tax holidays in foreign locations, and state income taxes (net of federal benefit).

In 2011, the Company recorded a $16.3 million net decrease in valuation allowances on deferred tax assets and $7.1 million of additional reserves for uncertain tax benefits related to a tax refund in Thailand. The net decrease in valuation allowances on deferred tax assets was primarily the result of the Company's evaluation of the recoverability of its U.S. deferred tax assets in the third quarter of 2011 and the Company's conclusion that its projected future taxable income in the U.S. was sufficient to utilize additional net operating loss carryforwards and other deferred tax assets.

The Company considers earnings from foreign subsidiaries to be permanently reinvested and, accordingly, no provision for U.S. federal and state income taxes has been made for these earnings. Upon distribution of foreign subsidiary earnings in the form of dividends or otherwise, such distributed earnings would be taxable for U.S. income tax purposes (subject to adjustment for foreign tax credits). Determination of the amount of any unrecognized deferred tax liability on these undistributed earnings is not practical.

The Company has been granted certain tax incentives, including tax holidays, for its subsidiaries in China, Malaysia and Thailand that will expire at various dates, unless extended or otherwise renegotiated, through 2012, 2015 and 2018, respectively, and are subject to certain conditions with which the Company expects to comply. The net impact of these tax incentives was to lower income tax expense for the nine month periods ended September 30, 2012 and 2011 by approximately $5.9 million (approximately $0.10 per diluted share) and $9.9 million (approximately $0.16 per diluted share), respectively as follows:


	Nine Months Ended
	September 30,
(in thousands)	2012		2011

China	$	1,900	$	1,039
Thailand		3,280		8,821
Malaysia		676		—

	$	5,856	$	9,860

As of September 30, 2012, the total amount of the reserve for uncertain tax benefits including interest and penalties is $21.4 million. The reserve is classified as a current or long-term liability in the consolidated balance sheet based on the Company's expectation of when the items will be settled. The amount of accrued potential interest and penalties on unrecognized tax benefits included in the reserve as of September 30, 2012 is $1.6 million and $1.6 million, respectively. No material changes affected the reserve during the three and nine months ended September 30, 2012.

The Company and its subsidiaries in Brazil, China, Ireland, Luxembourg, Malaysia, Mexico, the Netherlands, Romania, Singapore, Thailand and the United States remain open to examination by the various local taxing authorities, in total or in part, for fiscal years 2006 to 2011.

The Company is subject to examination by tax authorities for varying periods in various U.S. and foreign tax jurisdictions. During the course of such examinations disputes occur as to matters of fact and/or law. Also, in most tax jurisdictions the passage of time without examination will result in the expiration of applicable statutes of limitations thereby precluding the taxing authority from conducting an examination of the tax period(s) for which such statute of limitation has expired. The Company believes that it has adequately provided for its tax liabilities.