11. Income Taxes

The provision for income taxes from continuing operations consists of the following:

	For the years ended December 31,
In thousands	2013		2012		2011
Current:
Federal	$	5,477	$	3,208	$	1,534
State		709		265		15
Foreign		2,032		2,352		3,623
Total Current		8,218		5,825		5,172
Deferred:
Federal	$	1,609	$	(2,031)	$	503
State		(1,144)		(291)		108
Foreign		504		673		572
Total Deferred		969		(1,649)		1,183
Provision for income taxes	$	9,187	$	4,176	$	6,355

The following is a reconciliation of the difference between the actual provision for income taxes from continuing operations and the provision computed by applying the federal statutory tax rate on earnings:

	For the years ended December 31,
In thousands	2013		2012		2011
Statutory federal income tax rate	35.0	%	35.0	%	34.0	%
State income taxes	2.9		2.2		3.3
Valuation allowances for deferred tax assets, including state	(1.8)		(17.8)		0.8
Foreign dividends	0.5		0.9		1.7
Reserve for tax contingencies	(0.6)		0.1		0.6
Manufacturing deduction	(2.7)		(2.4)		(1.3)
Other	(0.9)		1.9		2.2
Effective income tax rate	32.4	%	19.9	%	41.3	%

The other line item above includes research credits, nondeductible expenses, and other income and expense items.

The Company’s effective tax rate from continuing operations for 2013 was 32.4% compared to 19.9% in 2012 and 41.3% in 2011. For 2013, the difference between the Company’s effective tax rate from continuing operations and the statutory federal income tax rate was primarily caused by the release of valuation allowances against state tax credit carryovers of $ 1.1 million, $ 0.8 million of permanent benefit relating to Domestic Production Activities Deduction, and a tax benefit of $ 0.5 million related to the conclusion of certain U.S. federal income tax matters through the year ended December 31, 2009. These favorable tax adjustments are partially offset by an increase in valuation allowance established against a foreign net deferred tax asset. The $ 1.1 million reversal of valuation allowances against state tax credit carryovers included $ 0.3 million of state tax credits expected to offset 2013 state income taxes and $ 0.8 million expected to benefit future periods. The company currently maintains a full valuation allowance against a foreign deferred tax asset in the Netherlands as future realization of the asset is not reasonably assured due to consistent historical losses since 2008. During 2013, the Company increased this valuation allowance by $ 0.6 million in order to reserve against additional loss carryforwards that were generated in the Netherlands during the current year.

For 2012, the difference between the Company’s effective tax rate from continuing operations and the statutory federal income tax rate was primarily caused by the release of valuation allowances against foreign tax credit carryovers of $ 3.9 million and state net operating loss carryovers, partially offset by an increase in valuation allowance established against a foreign net deferred tax asset. The Company’s state income taxes in 2012 were offset by the reversal of valuation allowances against state net operating loss carryovers of $ 0.5 million as the Company used certain state net operating loss carryovers to offset 2012 state income taxes. During 2012, the Company increased its valuation allowance against a foreign deferred tax asset in the Netherlands by $ 0.7 million as future realization of such tax benefit was not reasonably assured.

For 2011, the difference between the Company’s effective tax rate from continuing operations and the statutory federal income tax rate was primarily caused by valuation allowances against foreign tax credit carryovers, a valuation allowance against a foreign net deferred tax asset, and dividends from a foreign subsidiary.

The Company maintains valuation allowances against certain deferred tax assets where realization is not reasonably assured. The Company evaluates the likelihood of the realization of deferred tax assets and reduces the carrying amount to the extent it believes a portion will not be realized. The Company’s effective tax rates in future periods could be affected by earnings being lower or higher than anticipated in countries where tax rates differ from the United States federal rate, the relative impact of permanent tax adjustments on higher or lower earnings from domestic operations, changes in net deferred tax asset valuation allowances, completion of acquisitions or divestitures, changes in tax rates or tax laws and the completion of tax audits.

The following schedule presents net current and net long-term deferred tax assets and liabilities by tax jurisdiction as of December 31, 2013 and 2012:

	2013				2012
	Deferred Tax Assets				Deferred Tax Assets
In thousands	Current		Long-term		Current		Long-term
Federal	$	3,219	$	—	$	3,862	$	—
State		321		479		348		—
Foreign		398		95		289		474
Totals	$	3,938	$	574	$	4,499	$	474

	2013				2012
	Deferred Tax Liabilities				Deferred Tax Liabilities
In thousands	Current		Long-term		Current		Long-term
Federal	$	—	$	7,780	$	—	$	2,935
State		—		—		—		205
Foreign		—		967		26		762
Totals	$	—	$	8,747	$	26	$	3,902

Net deferred tax assets (liabilities) consist of the following as of December 31, 2013 and 2012:

	December 31,
In thousands	2013		2012
Deferred tax assets:
Accounts receivable	$	127	$	108
Inventories		939		591
Net operating loss carryforwards		4,566		4,268
Other accrued liabilities		2,020		1,679
Pension		5,268		9,454
Tax Credits		1,953		3,442
Total deferred tax assets		14,873		19,542
Deferred tax liabilities:
Domestic liability of foreign assets	$	96	$	448
Intangible assets		6,066		6,121
Property, plant and equipment		9,631		8,341
Total deferred tax liabilities		15,793		14,910
Valuation allowance		3,315		3,587
Net deferred tax (liabilities) assets	$	(4,235)	$	1,045

For the years ended December 31, 2013, 2012 and 2011, income from continuing operations before income taxes was derived from the following sources:

	For the years ended December 31,
In thousands	2013		2012		2011
United States	$	23,433	$	14,573	$	4,767
Foreign		4,909		6,409		10,635
Total income from continuing operations before income taxes	$	28,342	$	20,982	$	15,402

At December 31, 2013, the Company had approximately $ 9.9 million of state net operating loss carryforwards which expire between 2015 and 2033. In addition, at December 31, 2013, the Company had $ 3.0 million of state tax credit carryfowards that expire between 2014 and 2025. As of December 31, 2013, the Company had provided a valuation reserve against all of its state net operating loss carryforwards and $ 1.7 million on its state tax credits carryforwards. The Company also had $ 4.5 million of foreign net operating loss carryovers in France and $ 9.6 million of net operating loss carryovers in the Netherlands. The French net operating loss carryforwards have no expiration. The Company concluded it was more likely than not that the French net operating loss carryforwards will be fully realized and no valuation allowance was necessary as of December 31, 2013. The Netherlands’ net operating losses expire between the years 2017 and 2023. The Company has recorded a valuation allowance against the net deferred tax asset in the Netherlands as future realization is not reasonably assured due to consistent historical losses since 2008. The Company evaluates and weighs the positive and negative evidence present at each period. The Company will continue to monitor the realization criteria based on future operating results.

As of December 31, 2013, the company has not paid U.S. income taxes on approximately $ 22.2 million of undistributed earnings of international subsidiaries. The Company’s intention is to reinvest these earnings permanently or to repatriate the earnings only when it is tax effective to do so. It is not practicable to estimate the amount of tax that might be payable on the undistributed earnings due to a variety of factors including the timing, extent and nature of any repatriation.

The Company and its subsidiaries file a consolidated federal income tax return, as well as returns required by various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities, including such major jurisdictions as the United States, France, Germany and the Netherlands. Within the next fiscal year, the Company expects to conclude certain income tax matters through the year ended December 31, 2010 and it is reasonably expected that net unrecognized benefits of $ 0.2 million may be recognized. The total amount of net unrecognized tax benefits that would affect the effective tax rate if recognized was $ 1.1 million as of December 31, 2013. The Company is no longer subject to U.S. federal examinations for years before 2010, state and local examinations for years before 2002, and non-U.S. income tax examinations for years before 2003.

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

In thousands	2013		2012
Unrecognized tax benefits at beginning of year	$	1,029	$	870
Increases relating to positions taken in prior periods		678		336
Increases relating to current period		586		14
Decreases due to settlements with tax authorities		—		(106)
Decreases due to lapse of statute of limitations		(429)		(85)
Unrecognized tax benefits at end of year	$	1,864	$	1,029

The Company recognizes the interest accrued and the penalties related to unrecognized tax benefits as a component of tax expense. The amount of accrued interest and penalties as of December 31, 2013 was not material.