Income Taxes

9 Months Ended

Sep. 30, 2016

Note 8 – Income Taxes
Income tax expense consists of the following:
	Nine Months Ended
	September 30,
(in thousands)		2016		2015
Federal – current	$	(164)	$	483
Foreign – current		(2,340)		4,786
State – current		238		296
Deferred		2,577		7,481
	$	311	$	13,046

Income tax expense differs from the amount computed by applying the U.S. federal statutory income tax rate to income before income tax primarily due to the mix of taxable income by taxing jurisdiction, the impact of tax incentives and tax holidays in foreign locations, and state income taxes (net of federal benefit). The decrease in income tax expense during 2016 is primarily the result of an $8.3 million decrease in the reserve for uncertain tax benefits and lower taxable income.

The Company considers earnings from foreign subsidiaries to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been made for these earnings. Upon distribution of foreign subsidiary earnings in the form of dividends or otherwise, such distributed earnings would be subject to U.S. income taxes and foreign withholding taxes, reduced by any applicable foreign tax credits. Determination of the amount of any unrecognized deferred tax liability on these undistributed earnings is not practicable.

The Company has been granted certain tax incentives, including tax holidays, for its subsidiaries in Malaysia and Thailand that will expire at various dates, unless extended or otherwise renegotiated, through 2025 in Malaysia and 2028 in Thailand, and are subject to certain conditions with which the Company expects to comply. The net impact of these tax incentives was to lower income tax expense for the nine months ended September 30, 2016 and 2015 by approximately $3.5 million (approximately 0.07 per diluted share) and $7.1 million (approximately $0.13 per diluted share), respectively, as follows:

	Nine Months Ended
	September 30,
(in thousands)		2016		2015
China	$	-	$	1,573
Malaysia		1,594		1,565
Thailand		1,953		3,936
	$	3,547	$	7,074

The Company’s Chinese subsidiary had a tax incentive that expired in December 2015 and has submitted an application for a new tax incentive.

As of September 30, 2016, the total amount of the reserve for uncertain tax benefits including interest was $8.1 million. The reserve is classified as a current or long-term liability in the condensed consolidated balance sheets based on the Company’s expectation of when the items will be settled. The amount of accrued potential interest on unrecognized tax benefits included in the reserve as of September 30, 2016, was $0.1 million. There was no reserve for potential penalties. During the three months ended September 30, 2016, the Company reduced its reserve by approximately $8.3 million relating to the expiration of the statute of limitations for a foreign subsidiary that was liquidated in 2011 and closed its operations in 2005.

The Company and its subsidiaries in Brazil, China, Ireland, Luxembourg, Malaysia, Mexico, the Netherlands, Romania, Singapore, Thailand and the United States remain open to examination by the various local taxing authorities, in total or in part, for fiscal years 2004 to 2015. During the course of such examinations, disputes may occur as to matters of fact or law. The Company has no ongoing U.S. Internal Revenue Service income tax audits. In most tax jurisdictions, the passage of time without examination will result in the expiration of applicable statutes of limitations thereby precluding examination of the tax period(s) for which such statute of limitation has expired. The Company believes that it has adequately provided for its tax liabilities.