(6)	INCOME TAXES

The provisions for income tax expense (benefit) were as follows (in thousands):

 

		2014				2013				2012
Federal:
Current		$	7,677			$	632			$	(67	)
Deferred			23,659				11,537				(6,381	)
Total federal			31,336				12,169				(6,448	)
State:
Current			2,060				519				1,796
Deferred			529				119				(307	)
Total state			2,589				638				1,489
Foreign:
Current			5,399				8,228				5,325
Deferred			(140	)			312				(405	)
Total foreign			5,259				8,540				4,920
Total income taxes (benefit)		$	39,184			$	21,347			$	(39	)

The Company’s provision for income tax expense (benefit) and effective income tax rate are significantly impacted by the mix of the Company’s domestic and foreign earnings (loss) before income taxes. In the non-U.S. jurisdictions in which the Company has operations, the applicable statutory rates are generally significantly lower than in the U.S., ranging from 0% to 34%. The Company’s provision for income tax expense (benefit) was calculated using the applicable statutory rate for each jurisdiction applied to the Company’s pre-tax earnings (loss) in each jurisdiction, while the Company’s effective tax rate is calculated by dividing income tax expense (benefit) by earnings before income taxes.

The Company’s earnings (loss) before income taxes and income tax expense (benefit) for 2014, 2013 and 2012 are as follows (in thousands):

 

		Years Ended December 31,
		2014								2013								2012
Income tax jurisdiction		Earnings (loss) before income taxes				Income tax expense				Earnings (loss) before income taxes				Income tax expense				Earnings (loss) before income taxes				Income tax expense (benefit)
United States		$	82,778			$	32,500			$	38,705			$	12,807			$	(27,379	)		$	(5,867	)
Canada			6,241				1,572				4,091				1,187				2,564				545
Chile			629				138				9,622				1,920				5,971				1,043
Peoples Republic of China (“China”)			15,201				1,179				6,148				1,646				1,278				319
Jersey (1)			77,555				—				25,348				—				25,162				—
Non-benefited loss operations (2)			(13,021	)			—				(15,841	)			—				(13,492	)			—
Other jurisdictions (3)			21,997				3,795				14,142				3,787				16,369				3,921
Earnings before income taxes		$	191,380			$	39,184			$	82,215			$	21,347			$	10,473			$	(39	)
Effective tax rate (4)							20.5	%							26.0	%							(0.4	)%

 

(1)	Jersey does not assess income tax on corporate net earnings.

(2)	Consists of entities in the following tax jurisdictions where no tax benefit is recognized in the period being reported because of the provision of offsetting valuation allowances: Japan, Brazil and India.

(3)	Consists of entities in the following tax jurisdictions, each of which comprises not more than 5%, of 2014 consolidated earnings (loss) before taxes: UK, Germany, France, Spain, Belgium, Italy, Netherlands, Switzerland, Malaysia, Thailand, Singapore, Hong Kong, Portugal and Austria.

(4)	The effective tax rate is calculated by dividing income tax expense (benefit) by earnings before income taxes.

 

For 2014, the effective tax rate was lower than the U.S. federal and state combined statutory rate of approximately 39% primarily because of earnings from foreign operations in jurisdictions imposing either lower tax rates on corporate earnings or no corporate income tax. During 2014, as reflected in the table above, earnings (loss) before income taxes in the U.S. was earnings of $82.8 million, with income tax expense of $32.5 million, an average rate of 39.3%, while earnings (loss) before income taxes in non-U.S. jurisdictions was earnings of $108.6 million, with aggregate income tax expense of $6.7 million, an average rate of 6.2%. Combined, this results in consolidated earnings before income taxes for the period of $191.4 million, and consolidated income tax expense for the period of $39.2 million, resulting in an effective tax rate of 20.5%.

For 2014, of the Company’s $108.6 million in earnings before income tax earned outside the U.S., $77.6 million was earned in Jersey, which does not impose a tax on corporate earnings. In addition, there were foreign losses of $13.0 million for which no tax benefit was recognized during the year ended December 31, 2014 because of the provision of offsetting valuation allowances. Individually, none of the other foreign jurisdictions included in “Other jurisdictions” in the table above had more than 5% of 2014 consolidated earnings (loss) before taxes.

Unremitted earnings of non-U.S. subsidiaries are expected to be reinvested outside of the U.S. indefinitely. Such earnings would become taxable upon the sale or liquidation of these subsidiaries or upon the remittance of dividends.

As of December 31, 2014, the Company had approximately $466.7 million in cash and cash equivalents, of which $193.2 million, or 41.4%, was held outside the U.S. Of the $193.2 million held by the Company’s non-U.S. subsidiaries, approximately $42.8 million is available for repatriation to the U.S. without incurring U.S. income taxes and applicable non-U.S. income and withholding taxes in excess of the amounts accrued in the Company’s financial statements as of December 31, 2014. The Company’s cash and cash equivalents held in the U.S. and cash provided from operations are sufficient to meet the Company’s liquidity needs in the U.S. for the next twelve months and the Company does not expect to repatriate any of the funds presently designated as indefinitely reinvested outside the U.S. Under current applicable tax laws, if the Company chooses to repatriate some or all of the funds designated as indefinitely reinvested outside the U.S., the amount repatriated would be subject to U.S. income taxes and applicable non-U.S. income and withholding taxes. As of December 31, 2014 and 2013, U.S. income taxes have not been provided on cumulative total earnings of $318.2 million and $226.0 million, respectively.

Income taxes differ from the statutory tax rates as applied to earnings before income taxes as follows (in thousands):

 

		2014				2013				2012
Expected income tax expense		$	66,981			$	28,775			$	3,666
State income tax, net of federal benefit			1,032				255				1,406
Rate differential on foreign income			(27,364	)			(11,897	)			(8,752	)
Change in unrecognized tax benefits			(2,717	)			740				(149	)
Non-deductible expenses			288				(150	)			194
Prior year R&D credit claims			—				(493	)			—
Other			3,333				(1,187	)			79
Change in valuation allowance			(2,369	)			5,304				3,517
Total provision (benefit) for income taxes		$	39,184			$	21,347			$	(39	)
Effective tax rate			20.5	%			26.0	%			(0.4	)%

 

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at December 31, 2014 and 2013 are presented below (in thousands):

 

DEFERRED TAX ASSETS:		2014				2013
Deferred tax assets – current:
Inventory adjustments		$	4,942			$	5,075
Accrued expenses			15,103				17,084
Allowances for bad debts and chargebacks			6,407				6,179
Total current assets			26,452				28,338
Deferred tax assets – long term:
Loss carryforwards			23,247				43,711
Business credit carryforward			4,042				9,763
Share-based compensation			2,282				279
Valuation allowance			(17,534	)			(19,903	)
Total long term assets			12,037				33,850
Total deferred tax assets			38,489				62,188
Deferred tax liabilities – current:
Prepaid expenses			7,588				6,223
Deferred tax liabilities – long term:
Depreciation on property, plant and equipment			22,050				24,703
Total deferred tax liabilities			29,638				30,926
Net deferred tax assets		$	8,851			$	31,262

The Company believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets.

Unused U.S. Federal tax credits and net operating losses carried forward from 2012 and prior tax years were used to reduce the Company’s 2014 and 2013 federal tax liability. There were no Federal carry-forward amounts remaining as of December 31, 2014. Federal tax credits and net operating loss carry-forward amounts remaining as of December 31, 2013 were $7.8 million and $47.7 million, respectively. As of December 31, 2014 and 2013, no valuation allowance against the related deferred tax asset has been set up for these loss and tax credit carry-forwards as the carry-forwards were fully utilized in reducing taxable income in 2013 and 2014.

State tax credit and net operating loss carry-forward amounts remaining as of December 31, 2014 were $7.2 million and $65.6 million, respectively. State tax credit and net operating loss carry-forward amounts remaining as of December 31, 2013 were $6.0 million and $109.2 million, respectively. These tax credit and net operating loss carry-forward amounts don’t begin to expire until 2028 and 2021, respectively. As of December 31, 2014 and 2013, no valuation allowance against the related deferred tax asset has been set up for these loss and credit carry-forwards as it is believed the carry-forwards will be fully utilized in reducing future taxable income.

As of December 31, 2014 and 2013, the Company had combined foreign net operating loss carry-forwards available to reduce future taxable income of approximately $56.9 million and $55.9 million, respectively. Some of these net operating losses expire beginning in 2015; however others can be carried forward indefinitely. As of December 31, 2014 and 2013, valuation allowances of $15.9 million and $16.5 million, respectively, had been set up against the related deferred tax assets for those loss carry-forwards that are not more likely than not to be fully utilized in reducing future taxable income.

 

The balance of unrecognized tax benefits included in net prepaid expenses and long-term liabilities in the consolidated balance sheets decreased by $2.9 million during the year. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

 

		2014				2013
Beginning balance		$	10,816			$	10,221
Additions for current year tax positions			773				696
Additions for prior year tax positions			—				164
Reductions for prior year tax positions			(2,227	)			(5	)
Settlement of uncertain tax positions			—				—
Reductions related to lapse of statute of limitations			(1,426	)			(260	)
Ending balance		$	7,936			$	10,816

If recognized, $7.1 million of unrecognized tax benefits would be recorded as a reduction in income tax expense.

Estimated interest and penalties related to the underpayment of income taxes are classified as a component of income tax expense (benefit) and totaled ($0.2) million for the year ended December 31, 2014, $0.1 million for the year ended December 31, 2013, and $0.2 million for the year ended December 31, 2012. Accrued interest and penalties were $1.7 million and $1.8 million as of December 31, 2014 and 2013, respectively.

The amount of income taxes the Company pays is subject to ongoing audits by taxing jurisdictions around the world. The Company’s estimate of the potential outcome of any uncertain tax position is subject to its assessment of relevant risks, facts, and circumstances existing at that time. The Company believes that it has adequately provided for these matters. However, the Company’s future results may include favorable or unfavorable adjustments to its estimates in the period the audits are resolved, which may impact the Company’s effective tax rate.

As of December 31, 2014, the Company’s tax filings are generally subject to examination in the U.S. and several Asian and European tax jurisdictions for years ending on or after December 31, 2007. During the year, the Company reduced the balance of 2014 and prior year unrecognized tax benefits by $1.4 million as a result of expiring statutes.

The Company is currently under examination by the IRS for tax years 2007 through 2011. The Company is also under examination by a number of states and certain foreign jurisdictions. During the year ended December 31, 2014, there was no reduction in the balance of 2014 and prior year unrecognized tax benefits due to any settlement of an examination. It is reasonably possible that certain federal, state and foreign examinations could be settled during the next twelve months which would reduce the balance of 2014 and prior year unrecognized tax benefits by $4.1 million.