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Income Taxes
12 Months Ended
Dec. 31, 2014
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes

The provision for income taxes from continuing operations consists of the following:
 
For the years ended December 31,
In thousands
2014
 
2013
 
2012
Current:
 
 
 
 
 
Federal
$
8,069

 
$
5,477

 
$
3,208

State
1,334

 
709

 
265

Foreign
3,883

 
2,032

 
2,352

Total Current
13,286

 
8,218

 
5,825

Deferred:
 
 
 
 
 
Federal
$
(42
)
 
$
1,609

 
$
(2,031
)
State
(1,626
)
 
(1,144
)
 
(291
)
Foreign
191

 
504

 
673

Total Deferred
(1,477
)
 
969

 
(1,649
)
Provision for income taxes
$
11,809

 
$
9,187

 
$
4,176



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,

2014
 
2013
 
2012
Statutory federal income tax rate
35.0
 %
 
35.0
 %
 
35.0
 %
State income taxes
0.8

 
2.9

 
2.2

Valuation allowances for deferred tax assets, including state
1.3

 
(1.8
)
 
(17.8
)
Foreign dividends

 
0.5

 
0.9

Capitalized transaction costs
2.0

 

 

Domestic production activities deduction
(2.6
)
 
(2.7
)
 
(2.4
)
Foreign income taxed at lower rates
(3.5
)
 

 

Other
2.1

 
(1.5
)
 
2.0

Effective income tax rate
35.1
 %
 
32.4
 %
 
19.9
 %


The Company’s effective tax rate for 2014 was 35.1% compared to 32.4% in 2013 and 19.9% in 2012. In 2014, the difference between the Company’s effective tax rate and the statutory federal income tax rate was due to a favorable mix of taxable income generated from countries with lower tax rates compared to that of the United States resulting in a tax benefit of $1.2 million and a tax benefit of $0.9 million attributable to the Domestic Production Activities Deduction. These favorable adjustments were partially offset by tax expense of $0.8 million related to nondeductible transaction costs from the Industrial Filtration acquisition, and a net increase in tax valuation allowances of $0.2 million. The other line item above is net of research credits, nondeductible expenses, and other income and expense items.

In 2014, the Company recorded tax valuation allowances of $1.1 million against certain net foreign deferred tax assets in the Netherlands and China as future realization of the assets were not reasonably assured, which were partially offset by the reversal of tax valuation allowances against state tax credits of $0.5 million and certain foreign jurisdictions of $0.4 million.

For 2013, the difference between the Company’s effective tax rate 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 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 were 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 which offset 2013 state income taxes and $0.8 million expected to benefit future periods. In 2013, the Company maintained a full valuation allowance against a foreign deferred tax asset in the Netherlands as future realization of the asset was 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 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.

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 outcome 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, 2014 and 2013:

 
2014
 
2013
 
Deferred Tax Assets
 
Deferred Tax Assets
In thousands
Current
 
Long-term
 
Current
 
Long-term
Federal
$
3,399

 
$

 
$
3,219

 
$

State
711

 
1,408

 
321

 
479

Foreign
1,504

 

 
398

 
95

Totals
$
5,614

 
$
1,408

 
$
3,938

 
$
574


 
2014
 
2013
 
Deferred Tax Liabilities
 
Deferred Tax Liabilities
In thousands
Current
 
Long-term
 
Current
 
Long-term
Federal
$

 
$
10,562

 
$

 
$
7,780

State

 

 

 

Foreign

 
3,305

 

 
967

Totals
$

 
$
13,867

 
$

 
$
8,747



Net deferred tax assets (liabilities) consist of the following as of December 31, 2014 and 2013:
 
December 31,
In thousands
2014
 
2013
Deferred tax assets:
 
 
 
Accounts receivable
$
211

 
$
127

Inventories
884

 
939

Net operating loss carryforwards
4,992

 
4,566

Other accrued liabilities
3,341

 
2,020

Pension
7,295

 
5,268

Tax Credits
1,879

 
1,953

Total deferred tax assets
18,602

 
14,873

Deferred tax liabilities:
 
 
 
Domestic liability of foreign assets
$

 
$
96

Intangible assets
6,525

 
6,066

Property, plant and equipment
15,195

 
9,631

Total deferred tax liabilities
21,720

 
15,793

Valuation allowance
3,727

 
3,315

Net deferred tax liabilities
$
(6,845
)
 
$
(4,235
)


For the years ended December 31, 2014, 2013 and 2012, income from continuing operations before income taxes was derived from the following sources:
 
For the years ended December 31,
In thousands
2014
 
2013
 
2012
United States
$
27,463

 
$
23,433

 
$
14,573

Foreign
6,193

 
4,909

 
6,409

Total income before income taxes
$
33,656

 
$
28,342

 
$
20,982



At December 31, 2014, the Company had approximately $10.1 million of state net operating loss carryforwards which expire between 2016 and 2034. In addition, at December 31, 2014, the Company had $2.9 million of state tax credit carry forwards that expire between 2015 and 2026. As of December 31, 2014, the Company had provided a valuation reserve against $9.6 million of its state net operating loss carryforwards and $1.1 million on its state tax credits carryforwards. The Company also has $5.0 million of foreign net operating loss carryovers in China, $2.1 million of foreign net operating loss carryovers in France, $0.8 million of net operating loss carryovers in the United Kingdom and $9.4 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, 2014. The Netherlands’ net operating losses expire between the years 2017 and 2023 and the China net operating losses expire between the years 2015 and 2019. The Company has recorded a valuation allowance against the net operating losses in the Netherlands and China as future realization is not reasonably assured. 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, 2014 the Company has not paid U.S. income taxes on approximately $25.1 million of undistributed earnings of foreign 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. The Company estimates that the amount of tax that would be payable on the undistributed earnings if repatriated to the United States would fall in the range of $1.0 million to $8.5 million, based on current facts, but depending on the timing and extent of the repatriation. This amount may vary in the future due to a variety of factors including future tax law changes, future earnings and statutory taxes paid by foreign subsidiaries, and ongoing tax planning strategies by the Company.

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, China, France, Germany, Hong Kong, the Netherlands and the United Kingdom. Within the next fiscal year, the Company expects to conclude certain federal income tax matters through the year ended December 31, 2011 and it is reasonably expected that net unrecognized benefits of $0.4 million may be recognized. The total amount of net unrecognized tax benefits that would affect the effective tax rate if recognized was $1.3 million as of December 31, 2014. 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
2014
 
2013
Unrecognized tax benefits at beginning of year
$
1,864

 
$
1,029

Increases relating to positions taken in prior periods
20

 
678

Increases relating to current period
388

 
586

Decreases due to settlements with tax authorities

 

Decreases due to lapse of statute of limitations

 
(429
)
Unrecognized tax benefits at end of year
$
2,272

 
$
1,864



The Company recognizes the interest accrued and the penalties related to unrecognized tax benefits as a component of tax expense.