13)

Income Taxes

Income (loss) before provision (benefit) for income taxes for the years ended December 31, 2014, 2013 and 2012 was as follows:


	Year ended December 31,
	2014			2013		2012

Income (loss) before provision (benefit) for income taxes:
United States	$	(9,341	)	$	8,259	$	7,385
Foreign		22,513			16,919		12,956

Total	$	13,172		$	25,178	$	20,341

The loss of $9,341 from operations in the United States during 2014, was primarily driven from acquisition related charges of $14,831 (included in selling general and administrative, cost of products sold, and interest expense) of which approximately $6,000 were non-deductible as were as these cost were directly facilitative to the acquisitions.

Total income tax expense (benefit) for the years ended December 31, 2014, 2013, and 2012 was as follows:


	Year ended December 31,
	2014			2013			2012
Current:
U.S. Federal	$	—		$	—		$	(115	)
State		37			179			345
Foreign		7,082			4,490			2,910

Total current expense	$	7,119			4,669			3,140


Deferred:
U.S. Federal	$	1,625		$	3,594		$	2,789
State		(382	)		145			12
U.S. deferred tax valuation allowance		(1,434	)		(818	)		(9,814	)
Foreign		(1,142	)		410			(54	)

Total deferred expense (benefit)		(1,333	)		3,331			(7,067	)


Total expense (benefit)	$	5,786		$	8,000		$	(3,927	)

A reconciliation of income taxes based on the U.S. federal statutory rate of 34% for each of the years ended December 31, 2014, 2013 and 2012 is summarized as follows:


	Year ended December 31,
	2014			2013			2012

Income taxes at the federal statutory rate	$	4,478		$	8,561		$	6,916
Impact of incentive stock options		(145	)		261			371
Decrease in U.S. valuation allowance		(1,434	)		(818	)		(12,740	)
Foreign tax credit expiration		2,736			818			—
Capital gain on return of basis		—			—			3,079
State taxes, net of federal taxes		(362	)		198			334
Non-U.S. earnings taxed at different rates		(1,714	)		(834	)		(1,606	)
Non-deductible mergers and acquisition costs		1,971			—			—
R&D Tax credit		(529	)		—			—
Joint Venture dividend		737			—			—
Change in uncertain tax positions		—			32			(115	)
Other permanent differences, net		48			(218	)		(166	)

	$	5,786		$	8,000		$	(3,927	)

The 2014 effective tax rate of 44% reflects the impact of two items related to the merger and acquisition activity in 2014 including (1) $1,971 for non-deductible third party merger and acquisition as these cost were directly facilitative to the acquisitions; and (2) $1,302 for the expiration of foreign tax credits that could not be utilized during 2014 because of the merger related acquisition costs as discussed below. In addition, the rate reflects an offset to the items above for the impact of foreign earnings taxed at lower rates of $1,714.

The 2013 effective tax rate of 32% reflects the impact of foreign earnings being taxed at lower rates of $834.

The 2012 effective tax rate of (19)% reflects the reversal of the valuation reserve on U.S. deferred tax assets of $12,740 and the impact of foreign earnings taxed at lower rates of $1,606.

The tax effects of the temporary differences as of December 31, 2014, 2013 and 2012 are as follows:


	December 31,
	2014			2013			2012
Deferred income tax liabilities:
Tax in excess of book depreciation	$	35,411		$	6,673		$	6,670
Goodwill		1,949			2,213			1,987
Intangible assets		15,944			—			—
Other deferred tax liabilities		1,924			63			112

Gross deferred income tax liabilities		55,228			8,949			8,769

Deferred income tax assets:
Goodwill		2,411			3,215			4,141
Inventories		2,035			836			768
Pension/Personnel accruals		3,029			856			921
Net operating loss carry forwards		1,196			1,351			3,682
Foreign tax credits		290			3,026			3,844
Guarantee claim deduction		1,141			1,141			1,141
Credit carry forwards		1,853			—			—
Accruals and reserves		—			114			293
Other deferred tax assets		1,926			832			550

Gross deferred income tax assets		13,881			11,371			15,340
Valuation allowance on deferred tax assets		—			(1,434	)		(2,252	)


Net deferred income tax assets		13,881			9,937			13,088


Net deferred income tax assets (liabilities)	$	(41,347	)	$	988		$	4,319

With the Autocam acquisition we assumed $43,803 in net deferred tax liabilities primarily related to book and tax basis differences in fixed assets and intangibles (excluding goodwill).

As realization of certain deferred tax assets is not assured, management believes it is more likely than not that those net deferred tax assets will be realized. However, the amount of the deferred tax assets considered realizable could be reduced based on changing conditions. Below is a summary of the activity in the total valuation allowances during the years ended December 31, 2014, 2013 and 2012:


	Balance at Beginning of Year		Additions		Recoveries			Balance at End of Year

2014	$	1,434	$	—	$	(1,434	)	$	—
2013	$	2,252	$	—	$	(818	)	$	1,434
2012	$	12,066	$	—	$	(9,814	)	$	2,252

During 2014, the valuation allowance of $1,434 on our previously recognized foreign tax credits was reduced by the full $1,434 for credits which expired as of December 31, 2014. In addition to the foreign tax credits with the full valuation allowance, $1,302 in foreign tax credits expired unused as of December 31, 2014. These foreign tax credits were not utilized during 2014, as management expected, due to the large amount of non-deductible mergers and acquisition costs incurred related to the four acquisitions completed in 2014. The remaining foreign tax credits, net operating loss and credit carry forwards are expected to be utilized before expiration. We record a valuation allowance when it is “more likely than not” that some portion or all of the deferred income tax assets will not be realized. In reaching this determination, we consider the future reversals of taxable temporary differences, future taxable income, exclusive of taxable temporary differences and carry forwards, taxable income in prior carryback years and tax planning strategies.

During fiscal year 2012 the Company after considering all relevant factors and objectively verifiable evidence concluded that it is more likely than not that the majority of our deferred tax assets will be realized in future years and reversed $8,512 of the valuation allowance. This was primarily based on the pretax profit of our U.S. based companies increasing to approximately $7,400 as a result of operational improvements in our Precision Metal Components Segment. This brought the combined 2012 and 2011 pre-tax incomes to approximately $9,000. Additionally, during the fourth quarter of 2012 we utilized approximately $9,000 of net operating losses to offset tax expense related to certain previously earned income of our foreign holding company, as discussed below. This positive evidence coupled with estimates within our U.S. based businesses of fully utilizing our net operating losses in 2013 and 2014 provided enough positive evidence, in the opinion of management, to overcome the negative evidence of the cumulative pre-tax losses in 2009 and 2010.

Unremitted earnings of subsidiaries outside the United States are considered to be reinvested indefinitely at December 31, 2014. It is not practicable to determine the deferred tax liability for temporary differences related to those unremitted earnings. There has been no change in our long term international expansion plans as of December 31, 2014 our intent and ability is to indefinitely reinvest our foreign earnings. We base this assertion on two factors; (1) our intention to invest in foreign countries that are strategically important to our Metal Bearing Components Segment business and our Autocam Precision Components business. With the acquisitions completed in 2014, we have significantly expanded our international base of operations adding subsidiaries in Mexico, Bosnia and Herzegovina, Brazil, Poland, France and China which will require more foreign investment; (2) we have sufficient access to funds in the U.S. through projected free cash flows and the availability of our US credit facilities to fund currently anticipated domestic operational and investment needs.

On December 27, 2012, our foreign holding company declared a distribution of approximately $48,000 to its U.S. parent company NN, Inc. The vast majority of this distribution was a proportional return of investment basis in our Western European subsidiaries. Approximately $9,000 of the distribution pertained to earnings and profits earned by this holding company in previous years. The approximately $9,000 of earning and profits was included in our computation of year ended 2012 taxes and the tax rate resulting in an impact of $3,079. There were two main factors influencing our decision to consider this return of basis. First, there was a desire to reduce the amount of basis in our European subsidiaries recorded on the U.S. parent company’s financial statements considering the downsizing of our European production capacity over the last few years. The second factor was proposed federal tax legislation which, if enacted, could significantly increase the tax cost of returning this basis after 2012.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties for the years ended December 31, 2014, 2013 and 2012 is as follows:


	2014			2013		2012

Beginning balance	$	873		$	873	$	988
Additions for tax positions of prior years		3,589			—		428
Reductions for tax positions of prior years		(628	)		—		(543	)

Ending balance	$	3,834		$	873	$	873

As of December 31, 2014, the $3,834 of unrecognized tax benefits would, if recognized, impact our effective tax rate. The addition for tax positions of prior years was added as part of the purchase price allocation of Autocam and was included in the fair value of assets acquired and liabilities assumed. (See Note 2 of Notes to Consolidated Financial Statements.)

Interest and penalties related to federal, state, and foreign income tax matters are recorded as a component of the provision for income taxes in our statements of income. During 2014, we accrued $31 in foreign interest and $17 in US interest. During 2013, we accrued $32 in foreign interest and penalties. During 2012, we had an increase in foreign interest and penalties of $443 and a decrease in federal and state interest and penalties of $245 as older uncertain items were eliminated due to the tax years being closed or risk being mitigated. As of December 31, 2014, the total amount accrued for interest and penalties was $1,003.

We or our subsidiaries file income tax returns in the U.S. federal jurisdiction, and in various states and foreign jurisdictions. With few exceptions, we are no longer subject to federal, state and local income tax examinations by tax authorities for years before 2011. We are no longer subject to non-U.S. income tax examinations within various European Union countries for years before 2009. We do not foresee any significant changes to our unrecognized tax benefits within the next twelve months.