Income Taxes

The provision for income taxes consists of the following:



	For the years ended December 31,
In thousands	2016			2015		2014
Current:
Federal	$	15,376		$	18,291	$	8,069
State	1,513			1,204		1,334
Foreign	2,104			1,684		3,883
Total Current	18,993			21,179		13,286
Deferred:
Federal	$	(594	)	$	1,583	$	(42	)
State	601			1,696		(1,626		)
Foreign	(1,179		)	306		191
Total Deferred	(1,172		)	3,585		(1,477		)
Provision for income taxes	$	17,821		$	24,764	$	11,809

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,
	2016		2015		2014
Statutory federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes	2.1		2.9		0.8
Valuation allowances for deferred tax assets, including state	1.3		1.3		1.3
Research and development credits	(1.2	)	(1.5	)	(0.5	)
Capitalized transaction costs	0.7		—		2.0
Domestic production activities deduction	(2.7	)	(1.6	)	(2.6	)
Stock based compensation	(2.1	)	(0.2	)	(0.1	)
German Cartel settlement	2.2		—		—
Foreign income taxed at lower rates	(2.4	)	(1.3	)	(3.5	)
Other	(0.5	)	0.3		2.7
Effective income tax rate	32.4	%	34.9	%	35.1	%

In 2016, the effective tax rate of 32.4% 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 $1.3 million. The Company also recorded a tax benefit of $1.5 million attributable to the Domestic Production Activities Deduction and a tax benefit of $1.1 million related to stock based compensation. These favorable adjustments were partially offset by tax expense of $1.2 million related to a nondeductible German Cartel settlement and a net increase in valuation allowance against certain deferred tax assets of $0.7 million, primarily related to tax valuation allowances of $0.5 million recorded against certain net deferred tax assets in the Netherlands and China, as future realization of the assets is not reasonably assured.

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 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, 2016 and 2015:



	2016				2015
	Deferred Tax Assets				Deferred Tax Assets
In thousands	Current		Long-term		Current		Long-term
Federal	$	—	$	—	$	3,684	$	—
State	—		—		147		134
Foreign	—		248		782		—
Totals	$	—	$	248	$	4,613	$	134



	2016				2015
	Deferred Tax Liabilities				Deferred Tax Liabilities
In thousands	Current		Long-term		Current		Long-term
Federal	$	—	$	7,705	$	—	$	12,504
State	—		531		—		—
Foreign	—		7,613		—		2,493
Totals	$	—	$	15,849	$	—	$	14,997

Net deferred tax assets (liabilities) consist of the following as of December 31, 2016 and 2015:



	December 31,
In thousands	2016			2015
Deferred tax assets:
Accounts receivable	$	225		$	218
Inventories	743			741
Net operating loss carryforwards	3,851			4,213
Other accrued liabilities	4,592			2,745
Pension	3,545			3,684
Tax Credits	1,687			1,634
Total deferred tax assets	14,643			13,235
Deferred tax liabilities:
Intangible assets	4,224			4,077
Property, plant and equipment	21,117			15,101
Total deferred tax liabilities	25,341			19,178
Valuation allowance	4,903			4,307
Net deferred tax liabilities	$	(15,601	)	$	(10,250	)

For the years ended December 31, 2016, 2015 and 2014, income before income taxes was derived from the following sources:



	For the years ended December 31,
In thousands	2016		2015		2014
United States	$	53,356	$	64,923	$	27,463
Foreign	1,583		6,100		6,193
Total income before income taxes	$	54,939	$	71,023	$	33,656

At December 31, 2016, the Company had approximately $4.0 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, 2016, the Company had $2.5 million of state tax credit carry forwards that expire between 2017 and 2032. As of December 31, 2016, the Company has provided a valuation reserve against $2.3 million of its state tax credit carryforwards. The Company also has $5.7 million of foreign net operating loss carryovers in China, $0.2 million of net operating loss carryovers in the United Kingdom and $9.4 million of net operating loss carryovers in the Netherlands. The Netherlands’ net operating losses expire between the years 2017 and 2025 and the China net operating losses expire between the years 2017 and 2021. The Company has recorded a valuation allowance against $9.4 million of its net operating losses in the Netherlands and $4.6 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, 2016 the Company has not paid U.S. income taxes on approximately $17.2 million of undistributed earnings of foreign subsidiaries. The Company’s intention is to reinvest these earnings indefinitely. 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 $0.4 million to $2.3 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, Canada and the United Kingdom. Within the next fiscal year, the Company expects to conclude certain income tax matters through the year ended December 31, 2013 and it is reasonably expected that net unrecognized benefits of $0.5 million may be recognized. The total amount of unrecognized tax benefits that would affect the effective tax rate if recognized is $3.2 million as of December 31, 2016. However, $1.3 million of the unrecognized tax benefits, if recognized, would be offset in pre-tax income by the reversal of indemnification assets due to the Company. The Company is no longer subject to U.S. federal examinations for years before 2013, state and local examinations for years before 2012, and non-U.S. income tax examinations for years before 2003.

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



In thousands	2016			2015
Unrecognized tax benefits at beginning of year	$	1,657		$	2,272
Decreases relating to positions taken in prior periods	(63		)	—
Increases relating to current period	1,678			49
Decreases due to settlements with tax authorities	—			(336		)
Decreases due to lapse of statute of limitations	(53		)	(328		)
Unrecognized tax benefits at end of year	$	3,219		$	1,657

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