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Income Taxes
6 Months Ended
Jun. 30, 2015
Income Taxes [Abstract]  
Income Taxes

Note 9 – Income taxes  

  

We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are established when necessary to reduce deferred tax assets to amounts which are more likely than not to be realized.  

  

We account for uncertainty in income taxes recognized in our financial statements using prescribed recognition thresholds and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on our tax returns. We had $11.2 million and $11.1 million of unrecognized tax benefits at June 30, 2015 and December 31, 2014, respectively, all of which would affect our effective income tax rate if recognized. We recorded a gross decrease in unrecognized tax benefits of $52,000 for the three month period ended June 30, 2015, as a result of tax positions taken during this period. Our continuing policy is to recognize interest and penalties related to income tax matters in income tax expense. As of June 30, 2015, we had approximately $1.0 million accrued for interest related to uncertain tax positions. The tax years 2008 through 2014 remain open to examination by the major taxing jurisdictions to which we are subject.  

 

Our provision for income taxes reflected an effective tax rate of 28% and 23% for the three month periods ended June 30, 2015 and 2014, respectively, and 26% and 23% for the six month periods ended June 30, 2015 and 2014, respectively. For the three and six month periods ended June 30, 2015 and 2014, our effective tax rate was lower than the U.S. federal statutory rate of 35% as a result of an enhanced deduction for certain research and development expenses, profits in foreign jurisdictions with reduced income tax rates, and a tax benefit from disqualifying dispositions of equity awards that do not ordinarily result in a tax benefit.

 

Our earnings in Hungary are subject to a statutory tax rate of 19%. The difference between this rate and the statutory U.S. rate of 35% resulted in income tax benefits of $837,000 and $2.4 million for the three month periods ended June 30, 2015 and 2014, respectively, and $1.7 million and $4.0 million for the six month periods ended June 30, 2015 and 2014, respectively.

  

The tax position of our Hungarian operation continues to benefit from assets created by the restructuring of our operations in Hungary. In addition, our research and development activities in Hungary continue to benefit from a tax law in Hungary that provides for an enhanced deduction for qualified research and development expenses. Partial release of the valuation allowance on assets from the restructuring and the enhanced tax deduction for research expenses resulted in income tax benefits of $2.4 million and $3.2 million for the three month periods ended June 30, 2015 and 2014, respectively, and $4.2 million and $5.8 million for the six month periods ended June 30, 2015 and 2014, respectively.

 

Earnings from our operations in Malaysia are free of tax under a tax holiday effective January 1, 2013. This tax holiday expires in 2027. If we fail to satisfy the conditions of the tax holiday, this tax benefit may be terminated early. The tax holiday resulted in income tax benefits of $1.3 million and $6,000 for the three month periods ended June 30, 2015 and 2014, respectively, and $1.8 million and $311,000 for the six month periods ended June 30, 2015 and 2014, respectively.

 

No other taxing jurisdictions had a significant impact on our effective tax rate. We have not entered into any advanced pricing or other agreements with the IRS with regard to any foreign jurisdictions.