Income Taxes

Income from continuing operations before taxes for the years ended December 31, 2014, 2013 and 2012 is as follows:



	2014		2013		2012
United States	$	33,508	$	48,964	$	62,204
Foreign	6,284		3,750		(365		)
	$	39,792	$	52,714	$	61,839

The provision (benefit) for income taxes for the years ended December 31, 2014, 2013 and 2012 is as follows:



	2014			2013			2012
Current:
Federal	$	13,860		$	14,575		$	21,072
State	(1,305		)	2,145			2,080
Foreign	2,100			(70		)	678
	14,655			16,650			23,830
Deferred:
Federal	$	(2,325	)	$	164		$	(2,276	)
State	988			(996		)	(796		)
Foreign	139			(3,522		)	(200		)
	(1,198		)	(4,354		)	(3,272		)
	$	13,457		$	12,296		$	20,558

Current income taxes payable were reduced from the amounts in the above table by $5.7 million, $7.0 million and $4.6 million in 2014, 2013 and 2012, respectively, equal to the direct tax benefit that we receive upon exercise of stock options by employees and directors. The benefit is allocated to stockholders’ equity. We have accrued for tax contingencies for potential tax assessments, and in 2014 we recognized a $0.9 million net decrease, most of which related to various federal and state tax reserves.

Reconciliations of the provision for income taxes at the statutory rate to our effective tax rate for the years ended December 31, 2014, 2013 and 2012 are as follows:



	2014					2013					2012
	Amount			Percent		Amount			Percent		Amount			Percent
Federal tax at the expected statutory rate	$	13,927		35.0	%	$	18,450		35.0	%	$	21,644		35.0	%
State income tax, net of federal effect	981			2.5	%	1,126			2.1	%	1,356			2.2	%
Tax credits	(1,591		)	(4.0	)%	(1,974		)	(3.7	)%	(1,465		)	(2.4	)%
Tax-exempt interest and dividends	(3		)	—	%	—			—	%	(23		)	(0.1	)%
Domestic production activities/other	104			0.2	%	(403		)	(0.8	)%	(1,559		)	(2.5	)%
Foreign income tax	39			0.1	%	(4,903		)	(9.3	)%	605			1.0	%
	$	13,457		33.8	%	$	12,296		23.3	%	$	20,558		33.2	%

Tax credits in 2014, 2013 and 2012 consist principally of research and developmental tax credits. The indirect effect of non-statutory stock options exercised on research and development tax credits and other tax credits were recorded as reductions of the effective tax provision.

The components of our deferred income tax provision for the years ended December 31, 2014, 2013 and 2012 are as follows:



	2014			2013			2012
Allowance for doubtful accounts	$	4		$	4		$	(59	)
Inventory reserves	(488		)	341			143
Accruals	(1,326		)	(470		)	(2,375		)
State income taxes	(4		)	552			177
Acquired future tax deductions	96			40			50
Depreciation and amortization	(780		)	(3,850		)	(700		)
Net operating loss	62			—			—
Tax credits	1,238			(971		)	(508		)
	$	(1,198	)	$	(4,354	)	$	(3,272	)

The components of our deferred income tax assets (liabilities) at December 31, 2014 and 2013 are as follows:



	2014			2013
Current deferred tax assets:
State income taxes	$	252		$	298
Foreign	406			706
Accruals/other	2,110			1,973
Tax credits	226			276
Allowance for doubtful accounts	151			140
Inventory reserves	1,538			958
	$	4,683		$	4,351
Non-current deferred tax asset:
State income taxes	$	(2,114	)	$	—
Foreign	1,499			$	1,338
Accruals/other	494			546
Depreciation and amortization	(5,594		)	(429		)
Acquired future tax deductions	639			—
Stock-based compensation	6,778			—
Foreign currency translation adjustments	2,680			—
Tax credits state	4,876			6,063
	$	9,258		$	7,518
Non-current deferred tax liability:
State income taxes	$	—		$	2,163
Foreign	1,376			—
Accruals/other	—			186
Depreciation and amortization	—			5,906
Acquired future tax deductions	—			610
Stock-based compensation	—			(5,684		)
Foreign currency translation adjustments	—			449
	$	1,376		$	3,630

Acquired future tax deductions are the tax benefits included in our consolidated income tax returns originating in Bio-Plexus, Inc., an entity purchased in 2002, prior to when we acquired the entity. They consist of: (a) the net tax benefit of items expensed for financial statement purposes but capitalized and amortized for tax purposes and (b) the tax benefited portion of Bio-Plexus’s NOL carry-forward which will be realized in approximately equal amounts over the next 9 years. Under Section 382 of the Internal Revenue Code, certain ownership changes limit the utilization of the NOL carry-forwards, and the amount of Bio-Plexus federal NOL carry-forwards recorded is the net federal benefit available.

We have tax credits that we expect to utilize in future periods that may be carried forward indefinitely. Tax benefits were recognized in 2013 for the 2012 federal research and developmental credits as a result of tax legislation enacted in 2013.

Our Mexican subsidiary recognized a one-time tax benefit as a result of new tax legislation enacted in 2013.

Foreign currency translation adjustments, and related tax effects, are an element of “other comprehensive income” and are not included in net income.

Our estimate of undistributed earnings of our foreign subsidiaries for which no federal or state liability has been recorded cumulatively was $14.5 million at December 31, 2014 and $13.9 million at December 31, 2013. These undistributed earnings are considered to be indefinitely reinvested. However, if unanticipated distribution of those earnings were to occur in the form of dividends or otherwise, some portion of the distribution would be subject to both foreign withholding taxes and U.S. income taxes. In the event that our position in this regard changes, determining the potential amount of unrecognized deferred federal and state income tax liability and foreign withholding taxes is not practicable because of the complexities associated with its hypothetical calculation. However, unrecognized foreign tax credits would be available to reduce some portion of the federal liability.

We are subject to taxation in the United States and various states and foreign jurisdictions. Our United States federal income tax returns for tax years since 2011 are subject to examination by the Internal Revenue Service. Our principal state income tax returns for tax years since 2012 are subject to examination by the state tax authorities. The total gross amount of unrecognized tax benefits as of December 31, 2014 was $4.1 million that, if recognized, would impact the effective tax rate.

The following table summarizes our cumulative gross unrecognized tax benefits for 2014, 2013 and 2012:



	2014			2013			2012
Beginning balance	$	5,544		$	4,236		$	4,978
Increases to prior year tax positions	217			391			156
Increases to current year tax positions	661			1,353			490
Decrease related to settlements	(2,113		)	—			(230		)
Decrease related to lapse of statute of limitations	(194		)	(436		)	(1,158		)
Ending balance	$	4,115		$	5,544		$	4,236