NOTE 11 — INCOME TAXES

The Company’s effective tax rate for the six months ended June 30, 2016 and 2015 was 23.1% and 29.7%, respectively. The effective tax rate differs from the federal statutory rate of 35% for the six months ended June 30, 2016 due to: (i) a full valuation allowance against the Company’s U.S. deferred tax assets in respect of NOL carryforwards and unutilized tax credits (see below), (ii) lower tax rate in Israel of 16%, partially offset by a tax rate in Kenya of 37.5%; and (iii) a tax credit and tax exemption related to the Company’s subsidiaries in Guatemala. The effect of the tax credit and tax exemption for the three months ended June 30, 2016 and 2015 was $1,130,000 and $880,000, respectively, and for the six months ended June 30, 2016 and 2015 was $2,330,000 and $2,026,000, respectively.

The Company is currently in a net deferred tax asset position with a full valuation allowance. As of December 31, 2015, the Company had U.S. federal NOL carryforwards of approximately $261 million and state NOL carryforwards of approximately $191 million, which expire between 2022 and 2034 for federal NOLs and between 2016 and 2034 for state NOLs, and production tax credits (“PTCs”) in the amount of $70.8 million at December 31, 2015 are available for a 20-year period and expire between 2026 and 2036. The Company also has offsetting deferred tax liabilities in the U.S.

Realization of the deferred tax assets and tax credits is dependent on generating sufficient taxable income in appropriate jurisdictions prior to expiration of the NOL carryforwards and tax credits. Based upon available evidence of the Company’s ability to generate additional taxable income in the future and historical losses in prior years, a full valuation allowance is recorded against the U.S. deferred tax assets, as it is more likely than not that the deferred tax assets will not be utilized.

The total amount of undistributed earnings of foreign subsidiaries for income tax purposes was approximately $233.8 million at December 31, 2015. It is the Company’s intention to reinvest undistributed earnings of its foreign subsidiaries and thereby indefinitely postpone their remittance. Accordingly, no provision has been made for foreign withholding taxes or U.S. income taxes which may become payable if undistributed earnings of foreign subsidiaries were paid as dividends to the Company. The additional taxes on that portion of undistributed earnings which is available for dividends are not practicably determinable.

The Company believes that based on its plans to increase operations outside of the U.S., the cash generated from the Company’s operations outside of the U.S. will be reinvested outside of the U.S. and, accordingly, we do not currently plan to repatriate the funds we have designated as being permanently invested outside of the U.S. If we change our plans, we may be required to accrue and pay U.S. taxes to repatriate these funds.

The Company is subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions. Significant judgment is required in evaluating tax positions and determining the position for income taxes. Reserves are established to tax-related uncertainties based on estimates of whether, and the extent to which additional taxes will be due. As of June 30, 2016, the Company is unaware of any potentially significant uncertain tax positions for which a reserve has not been established.

In November 2015, the Kenya Revenue Authority (“KRA”) commenced a tax audit covering all taxes relating to our operations in Kenya. During 2016, the Company submitted all documents requested by the KRA, which is currently processing the provided information. The Company expects to receive KRA’s audit findings once KRA completes its review and audit.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

	Six Months Ended June 30,
	2016			2015
	(Dollars in thousands)
Balance at beginning of year	$	10,385		$	7,511
Additions based on tax positions taken in prior years		103			58
Additions based on tax positions taken in the current year		528			570
Reduction based on tax positions taken in prior years		(1,042	)		(988	)
Balance at end of year	$	9,974		$	7,151