Income Taxes

The provision for income taxes consists of the following:



	For the years ended December 31,
In thousands	2015		2014			2013
Current:
Federal	$	18,291	$	8,069		$	5,477
State	1,204		1,334			709
Foreign	1,684		3,883			2,032
Total Current	21,179		13,286			8,218
Deferred:
Federal	$	1,583	$	(42	)	$	1,609
State	1,696		(1,626		)	(1,144		)
Foreign	306		191			504
Total Deferred	3,585		(1,477		)	969
Provision for income taxes	$	24,764	$	11,809		$	9,187

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



	For the years ended December 31,
	2015		2014		2013
Statutory federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes	2.9		0.8		2.9
Valuation allowances for deferred tax assets, including state	1.3		1.3		(1.8	)
Research and development credits	(1.5	)	(0.5	)	(1.1	)
Capitalized transaction costs	—		2.0		—
Domestic production activities deduction	(1.6	)	(2.6	)	(2.7	)
Foreign income taxed at lower rates	(1.3	)	(3.5	)	—
Other	0.1		2.6		0.1
Effective income tax rate	34.9	%	35.1	%	32.4	%

In 2015, the effective tax rate of 34.9% was positively impacted by 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 $1.0 million. The Company also recorded a tax benefit of $1.2 million attributable to the Domestic Production Activities Deduction and a tax benefit of $1.1 million related to research and development credits. These favorable adjustments were partially offset by tax expense of $0.9 million related to a net increase in valuation allowance against certain deferred tax assets and by a $0.6 million reduction to state deferred tax assets as a result of state tax law changes that led the Company to deem the asset unrealizable in future periods. The net increase in valuation allowance against certain deferred tax assets of $0.9 million in 2015 was primarily related to tax valuation allowances of $0.8 million recorded against certain net deferred tax assets in the Netherlands and China, as future realization of the assets is not reasonably assured.

In 2014, the effective tax rate of 35.1% was positively impacted by 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 nondeductible expenses and other income and expense items.

In 2013, the effective tax rate of 32.4% was positively impacted 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.

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, 2015 and 2014:



	2015				2014
	Deferred Tax Assets				Deferred Tax Assets
In thousands	Current		Long-term		Current		Long-term
Federal	$	3,684	$	—	$	3,399	$	—
State	147		134		711		1,408
Foreign	782		—		1,504		—
Totals	$	4,613	$	134	$	5,614	$	1,408



	2015				2014
	Deferred Tax Liabilities				Deferred Tax Liabilities
In thousands	Current		Long-term		Current		Long-term
Federal	$	—	$	12,504	$	—	$	10,562
State	—		—		—		—
Foreign	—		2,493		—		3,305
Totals	$	—	$	14,997	$	—	$	13,867

Net deferred tax assets (liabilities) consist of the following as of December 31, 2015 and 2014:



	December 31,
In thousands	2015			2014
Deferred tax assets:
Accounts receivable	$	218		$	211
Inventories	741			884
Net operating loss carryforwards	4,213			4,992
Other accrued liabilities	2,745			3,341
Pension	3,684			7,295
Tax Credits	1,634			1,879
Total deferred tax assets	13,235			18,602
Deferred tax liabilities:
Intangible assets	4,077			6,525
Property, plant and equipment	15,101			15,195
Total deferred tax liabilities	19,178			21,720
Valuation allowance	4,307			3,727
Net deferred tax liabilities	$	(10,250	)	$	(6,845	)

For the years ended December 31, 2015, 2014 and 2013, income before income taxes was derived from the following sources:



	For the years ended December 31,
In thousands	2015		2014		2013
United States	$	64,923	$	27,463	$	23,433
Foreign	6,100		6,193		4,909
Total income before income taxes	$	71,023	$	33,656	$	28,342

At December 31, 2015, the Company had approximately $4.3 million of state net operating loss carryforward which expires in 2035 and 2036. The Company has not recorded a deferred tax asset for this carryforward as the Company anticipates paying a non-income based franchise tax for the foreseeable future in the applicable jurisdiction. In addition, at December 31, 2015, the Company had $2.6 million of state tax credit carry forwards that expire between 2016 and 2031. As of December 31, 2015, the Company has provided a valuation reserve against $2.0 million of its state tax credit carryforwards. The Company also has $7.1 million of foreign net operating loss carryovers in China, $0.1 million of foreign net operating loss carryovers in France, $0.4 million of net operating loss carryovers in the United Kingdom and $9.2 million of net operating loss carryovers in the Netherlands. The Netherlands’ net operating losses expire between the years 2017 and 2024 and the China net operating losses expire between the years 2016 and 2020. The Company has recorded a valuation allowance against $9.2 million of its net operating losses in the Netherlands and $3.6 million of its net operating losses in 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, 2015 the Company has not paid U.S. income taxes on approximately $24.5 million of undistributed earnings of foreign subsidiaries. The Company’s intention is to reinvest these earnings indefinitely 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 $6.0 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, 2012 and it is reasonably expected that net unrecognized benefits of $0.1 million may be recognized. The total amount of net unrecognized tax benefits that would affect the effective tax rate if recognized is $1.1 million as of December 31, 2015. The Company is no longer subject to U.S. federal examinations for years before 2012, state and local examinations for years before 2011, 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	2015			2014
Unrecognized tax benefits at beginning of year	$	2,272		$	1,864
Increases relating to positions taken in prior periods	—			20
Increases relating to current period	49			388
Decreases due to settlements with tax authorities	(336		)	—
Decreases due to lapse of statute of limitations	(328		)	—
Unrecognized tax benefits at end of year	$	1,657		$	2,272

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