INCOME TAXES



Year Ended December 31,	2015		2014		2013
(Thousands of dollars)
Income before income taxes and equity earnings:
Domestic	$	25,069	$	8,328	$	27,981
International	10,214		7,374		8,860
	$	35,283	$	15,702	$	36,841

The provision for income taxes is comprised of the following:



Year Ended December 31,	2015			2014			2013
(Thousands of dollars)
Current taxes
Federal	$	(10,900	)	$	(2,976	)	$	(9,951	)
State	481			(453		)	(859		)
Foreign	(2,099		)	(8,660		)	(1,307		)
Total current taxes	(12,518		)	(12,089		)	(12,117		)
Deferred taxes
Federal	(961		)	657			183
State	(576		)	(109		)	277
Foreign	2,716			4,642			(2,360		)
Total deferred taxes	1,179			5,190			(1,900		)

Income tax provision	$	(11,339	)	$	(6,899	)	$	(14,017	)

The following is a reconciliation of the United States federal tax rate to our effective income tax rate:



Year Ended December 31,	2015		2014		2013
Statutory rate	(35.0	)%	(35.0	)%	(35.0	)%
State tax provisions, net of federal income tax benefit	3.8		(0.5	)	(1.0	)
Permanent differences	(1.5	)	(5.3	)	(0.1	)
Tax credits	0.9		2.8		6.0
Foreign income taxes at rates other than the statutory rate	2.3		(0.5	)	0.7
Valuation allowance and other	(5.6	)	(8.4	)	—
Changes in tax liabilities, net	6.4		4.2		(5.7	)
Share based compensation	(4.4	)	—		—
Other	1.0		(1.2	)	(2.9	)
Effective income tax rate	(32.1	)%	(43.9	)%	(38.0	)%

Our effective income tax rate for 2015 was 32.1 percent. The effective tax rate was lower than the US federal statutory rate primarily as a result of net decreases in the liability for uncertain tax positions partially offset by the reversal of deferred tax assets related to share-based compensation shortfalls.

Our effective income tax rate for 2014 was 43.9 percent. The effective tax rate was higher than the US federal statutory rate primarily as a result of valuation allowances established for foreign deferred tax assets and various permanent differences including non-deductible expenses related to recent tax law changes in Mexico.

Our effective income tax rate for 2013 was 38.0 percent. The effective rate was higher than the U.S. federal statutory rate primarily as a result of increases in the liability for uncertain tax positions.

We are a multinational company subject to taxation in many jurisdictions. We record liabilities dealing with uncertainty in the application of complex tax laws and regulations in the various taxing jurisdictions in which we operate. If we determine that payment of these liabilities will be unnecessary, we reverse the liability and recognize the tax benefit during the period in which we determine the liability no longer applies. Conversely, we record additional tax liabilities or valuation allowances in a period in which we determine that a recorded liability is less than we expect the ultimate assessment to be or that a tax asset is impaired.

Income taxes are accounted for pursuant to U.S. GAAP, which requires the use of the liability method and the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. The effect on deferred taxes for a change in tax rates is recognized in the provision for income taxes in the period of enactment. U.S. income taxes on undistributed earnings of our international subsidiaries have not been provided as such earnings are considered permanently reinvested. Tax credits and special deductions are accounted for as a reduction of the provision for income taxes in the period in which the credits arise.

Tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred liabilities are as follows:



December 31,	2015			2014
(Thousands of dollars)
Deferred income tax assets:
Liabilities deductible in the future	$	7,060		$	7,046
Liabilities deductible in the future related to hedging and foreign currency losses	8,469			3,378
Deferred compensation	11,833			14,023
Net loss carryforwards and credits	5,891			3,395
Competent authority deferred tax assets and other foreign timing differences	4,836			8,603
Other	(683		)	1,430
Total before valuation allowance	37,406			37,875
Valuation allowance	(5,891		)	(3,911		)
Net deferred income tax assets	31,515			33,964
Deferred income tax liabilities:
Differences between the book and tax basis of property, plant and equipment	(14,011		)	(21,337		)
Deferred income tax liabilities	(14,011		)	(21,337		)
Net deferred income tax assets	$	17,504		$	12,627

The classification of our net deferred tax asset is shown below:



December 31,	2015			2014
(Thousands of dollars)

Current deferred income tax assets	$	—		$	9,897
Current deferred income tax liabilities	—			—
Long-term deferred income tax assets	25,598			17,852
Long-term deferred income tax liabilities	(8,094		)	(15,122		)
Net deferred tax asset	$	17,504		$	12,627

Realization of any of our deferred tax assets at December 31, 2015 is dependent on the company generating sufficient taxable income in the future. The determination of whether or not to record a full or partial valuation allowance on our deferred tax assets is a critical accounting estimate requiring a significant amount of judgment on the part of management. In determining when to release the valuation allowance established against our deferred income tax assets, we consider all available evidence, both positive and negative. We perform our analysis on a jurisdiction by jurisdiction basis at the end of each reporting period.

As of December 31, 2015 we have cumulative state NOL carryforwards of $117.6 million that begin to expire in 2016. Also, we have $2.5 million of state tax credit carryforwards which begin to expire in 2021.

We have not provided for deferred income taxes or foreign withholding tax on basis differences in our non-U.S. subsidiaries that result from undistributed earnings of $73.1 million which the company has the intent and the ability to reinvest in its foreign operations. Generally, the U.S. income taxes imposed upon repatriation of undistributed earnings would be reduced by foreign tax credits from foreign income taxes paid on the earnings. Determination of the deferred income tax liability on these basis differences is not reasonably estimable because such liability, if any, is dependent on circumstances existing if and when remittance occurs.

We account for our uncertain tax positions in accordance with U.S. GAAP. A reconciliation of the beginning and ending amounts of these tax benefits is as follows:



Year Ended December 31,	2015			2014			2013
(Thousands of dollars)
Beginning balance	$	7,193		$	9,462		$	6,310
Increases (decreases) due to foreign currency translations	—			(244		)	—
Increases (decreases) as a result of positions taken during:
Prior periods	1,238			(2,553		)	(197		)
Current period	1,798			956			3,655
Settlements with taxing authorities	—			—			(306		)
Expiration of applicable statutes of limitation	(2,911		)	(428		)	—
Ending balance ⁽¹⁾	$	7,318		$	7,193		$	9,462

⁽¹⁾Excludes $2.1 million, $6.4 million and $5.8 million of potential interest and penalties associated with uncertain tax positions in 2015, 2014 and 2013, respectively.

Our policy regarding interest and penalties related to uncertain tax positions is to record interest and penalties as an element of income tax expense. The cumulative amounts related to interest and penalties are added to the total liabilities for unrecognized tax positions on the balance sheet. The balance sheets at December 31, 2015, 2014 and 2013 include the liability for uncertain tax positions, cumulative interest and penalties accrued on the liabilities totaling $7.2 million, $13.6 million and $15.1 million, respectively. During 2015, we reversed certain liabilities due to the expiration of statutes of limitations in the amount of $2.9 million and related penalties and interest of $4.3 million. During 2014, we accrued net potential interest and penalties of $0.5 million and $0.1 million respectively, related to uncertain tax benefits. Included in the unrecognized tax benefits of $7.2 million is $3.1 million that, if recognized, would favorably affect our annual effective tax rate. Within the next twelve-month period we expect a decrease in unrecognized tax benefits of $2.7 million.

We conduct business internationally and, as a result, one or more of our subsidiaries files income tax returns in U.S. federal, U.S. state and certain foreign jurisdictions. Accordingly, in the normal course of business, we are subject to examination by taxing authorities throughout the world, including, but not limited to Mexico, the Netherlands, Costa Rica, India, Cyprus and the United States. We are no longer under examination by the taxing authority regarding any U.S. federal income tax returns for years before 2012 while the years open for examination under various state and local jurisdictions vary. In 2014, the Internal Revenue Service ("IRS") completed its audit of the 2011 tax year of Superior Industries International and subsidiaries.

Mexico's Tax Administration Service (Servicio de Administracion Tributaria, or "SAT"), finalized their examination of the 2007 tax year of Superior Industries de Mexico S.A. de C.V., our wholly-owned Mexican subsidiary, during February 2013. In February 2013 we reached a settlement with SAT for the 2007 tax year and made a cash payment of $0.3 million. The closure of the 2007 tax year audit resulted in an immaterial decrease in the liability for uncertain tax positions.

Total income tax payments net of refunds were $12.6 million in 2015, $9.9 million in 2014 and $13.7 million in 2013, respectively.