Note 5 — Income Taxes

The deferred tax assets and deferred tax liabilities and related valuation allowance were comprised of the following:

	December 31,
	2014			2013
Deferred tax assets:
Derivative financial instruments	$	2,461		$	5,467
Net operating losses		7,075			3,599
Research and development credits		26,204			1,130
Depreciation		3,456			2,682
Valuation reserves and accrued liabilities		4,788			3,090
Foreign tax credit		823			222
Stock compensation		2,006			1,887
Inventory		1,443			739
Patents		138			722
Defined benefit obligation		1,479			662
Other credits		593			365
Capital lease obligations		—			273
Other		144			219
		50,610			21,057
Valuation allowance		(18,037	)		(2,199	)
Deferred tax liabilities:
Intangible assets		(14,593	)		(15,836	)
Unrealized foreign currency exchange gains		(2,855	)		(1,637	)
Undistributed profits of subsidiary		(293	)		(1,367	)
Property and equipment		(162	)		(193	)
Other		(384	)		(791	)
		(18,287	)		(19,824	)
Net deferred tax asset (liability)	$	14,286		$	(966	)

Reconciliations between the statutory Federal income tax rate of 34% and the effective rate of income tax expense for each of the three years in the period ended December 31, 2014 are as follows:

	Year Ended December 31,
	2014			2013			2012
Statutory Federal income tax rate		34.0	%		34.0	%		34.0	%
Increase (Decrease) resulting from:
U.S. Taxes on foreign income, net of taxes paid credit		(0.5	%)		(1.7	%)		4.5	%
NOLs recognized upon change in tax law		—			—			(2.9	%)
Foreign, state and local tax, net of Federal benefit		1.9	%		3.6	%		3.7	%
Nondeductible expenses		1.8	%		1.4	%		1.6	%
Stock option compensation		(0.1	%)		(0.5	%)		—
Research and development credits		(0.5	%)		(2.3	%)		(5.3	%)
Effect of different tax rates of foreign jurisdictions		(10.0	%)		(10.8	%)		(10.5	%)
Other tax exempt income		(0.9	%)		—			(0.5	%)
Other		(0.1	%)		0.3	%		1.0	%
Effective rate		25.6	%		24.0	%		25.6	%

The Company has Net Operating Loss (“NOL”) carryforwards as follows:

Jurisdiction	Amount as of December 31, 2014		Years of Expiration
U.S. Federal and state income tax	$	49,978		2018 -2034
Foreign		4,090		2018 -2019
Foreign	$	9,074		Indefinite

Note 5 — Income Taxes (Continued)

On April 1, 2014, we acquired all of the stock of GPT in an all cash transaction. The increase of deferred tax assets in 2014, as compared to 2013, related to research and development credits and the valuation allowance is primarily a result of the GPT acquisition.

A portion of the U.S. Federal NOLs were incurred prior to the June 8, 1999 Preferred Financing, which qualified as a change in ownership under Section 382 of the Internal Revenue Code (“IRC”). Due to this change in ownership, the NOL accumulated prior to the change in control can only be utilized against current earnings up to a maximum annual limitation of approximately $591. As a result of the annual limitation, approximately $6,025 remaining of these carryforwards are expected to expire before ultimately becoming available to reduce future tax liabilities in addition to $13,324 in NOLs generated prior to the change in control which have already expired without being utilized. During 2010, we completed a study related to the 1999 change in control limitation amount and determined that an additional $4,044 NOLs subject to the limitation were available to be utilized during 1999 through 2003.

During 2013 and 2014, we incurred NOLs in China and Vietnam associated with the startup activities of new production facilities. These NOLs are expected to be utilized in 2015 through 2017 as the locations become profitable. In 2014, we incurred NOLs in Luxembourg associated with the implementation of a new global holding company structure. Management has concluded that it is more likely than not these NOLs will not be utilized, and thus has not recognized the benefit of these NOLs.

Prior to 2011 our U.S. Federal NOLs completely offset our current Federal tax liability and, therefore, we did not recognize the benefit of tax deductions allowed for stock option exercises in excess of compensation expense recognized for financial reporting purposes. As such, our deferred tax asset related to NOLs is less than the actual NOL available. During 2011, our taxable income exceeded the remaining amount of NOLs recorded for book purposes representing a benefit attributable to deductions taken for tax purposes on stock option exercises. We recorded this benefit which totaled $1,831 and $2,074 for 2014 and 2013, respectively, directly to paid-in capital. The U.S. Federal NOL carryforwards include $21,856 relating to deductions taken with respect to stock option exercises in excess of amounts recognized for financial reporting purposes. This portion of the NOL carryforwards is not included as a component of the Company’s deferred tax asset.

The earnings before for income taxes and our tax provision are comprised of the following:

	Year Ended December 31,
	2014		2013		2012
Income before income taxes:
Domestic	$	11,170	$	6,891	$	3,735
Foreign		83,051		39,339		28,937
Total income before income taxes	$	94,221	$	46,230	$	32,672

	Year Ended December 31,
	2014			2013			2012
Current income tax expense:
Federal	$	4,005		$	690		$	511
State and local		(15	)		495			(311	)
Foreign		24,737			9,959			7,362
Total current income tax expense	$	28,727		$	11,144		$	7,562
Deferred income tax expense (benefit):
Federal	$	(576	)	$	12		$	1,834
State and local		9			(95	)		348
Foreign		(4,058	)		36			(1,393	)
Total deferred income tax expense	$	(4,625	)	$	(47	)	$	789
Total tax expense	$	24,102		$	11,097		$	8,351

The Company’s earnings outside the US are permanently reinvested, other than the earnings of certain jurisdictions for which deferred income taxes have been provided. Quantification of the deferred tax liability, if any, associated with permanently reinvested basis differences is not practicable.

Note 5 — Income Taxes (Continued)

The American Taxpayer Relief Act of 2012 (the “Act”) was signed into law on January 2, 2013. The Act retroactively restored the research and development credit and certain exemptions under the foreign income tax rules. Because a change in tax law is accounted for in the period of enactment, the retroactive effect of the Act on the Company’s U.S. Federal taxes for 2012, a benefit of approximately $1,300 was recognized in 2013.

The Company is subject to taxation in the United States and various state and foreign jurisdictions. As of December 31, 2014, the Company’s tax years from 2007 through 2014 are subject to examination by the various tax authorities. With limited exceptions, as of December 31, 2014, the Company is no longer subject to U.S. Federal, state, local, or foreign examinations by tax authorities for years before 2007. No U.S. Federal or state tax audits are currently ongoing. Tax audits are currently ongoing in Germany for tax years 2008 through 2011.

At December 31, 2014, 2013 and 2012, the Company had total unrecognized tax benefits of $4,651, $2,241 and $2,191, respectively, all of which, if recognized, would affect the effective income tax rates. The reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


	Year Ended December 31,
	2014			2013			2012
Balance at beginning of year	$	2,241		$	2,191			1,678
Additions based on tax position related to current year		43			2			67
Additions based on tax positions related to prior year		2,991			580			413
Reductions from settlements and statute of limitation expiration		(432	)		(599	)		—
Effect of foreign currency translation		(192	)		67			33
Balance at end of year	$	4,651		$	2,241		$	2,191

The Company classifies income tax-related penalties and net interest as income tax expense. In the years ended December 31, 2014, 2013 and 2012 income tax related interest and penalties were insignificant. The Company does not believe that it is reasonable possible that there will be decrease to its unrecognized tax benefits in the next 12 months due to audit settlements or statute expirations.