Income Taxes

Income from continuing operations before taxes consisted of the following (in thousands):



	Year Ended December 31,
	2016		2015			2014
United States	$	80,714	$	74,288		$	33,508
Foreign	4,450		(4,589		)	6,284
	$	85,164	$	69,699		$	39,792

The provision (benefit) for income taxes consisted of the following (in thousands):



	Year Ended December 31,
	2016			2015			2014
Current:
Federal	$	21,123		$	18,601		$	13,860
State	2,347			745			(1,305		)
Foreign	1,118			1,426			2,100
	24,588			20,772			14,655
Deferred:
Federal	$	(2,045	)	$	4,524		$	(2,325	)
State	(767		)	(960		)	988
Foreign	304			378			139
	(2,508		)	3,942			(1,198		)
	$	22,080		$	24,714		$	13,457

Current income taxes payable were reduced from the amounts in the above table by $9.3 million and $5.7 million in 2015 and 2014, respectively, equal to the direct tax benefit that we receive upon exercise of stock options by employees and directors. We have accrued for tax contingencies for potential tax assessments, and in 2016 we recognized a $0.2 million net increase, most of which related to various federal and state tax reserves.

A reconciliation of the provision for income taxes at the statutory rate to our effective tax rate is as follows (dollars in thousands):



	Year Ended December 31,
	2016					2015					2014
	Amount			Percent		Amount			Percent		Amount			Percent
Federal tax at the expected statutory rate	$	29,807		35.0	%	$	24,395		35.0	%	$	13,927		35.0	%
State income tax, net of federal effect	1,795			2.1	%	2,661			3.9	%	981			2.5	%
Tax credits	(1,014		)	(1.2	)%	(5,861		)	(8.4	)%	(1,591		)	(4.0	)%
Domestic production activities/other	(653		)	(0.8	)%	107			0.1	%	101			0.2	%
Foreign income tax	(135		)	(0.1	)%	3,412			4.9	%	39			0.1	%
Stock compensation - ASU 2016-09	(7,720		)	(9.1	)%	—			—	%	—			—	%
	$	22,080		25.9	%	$	24,714		35.5	%	$	13,457		33.8	%

Tax credits in 2016, 2015 and 2014 consist principally of research and developmental tax credits. Prior to the adoption of ASU 2016-09 in 2016, 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 are as follows (in thousands):



	Year Ended December 31,
	2016			2015			2014
Allowance for doubtful accounts	$	—		$	—		$	4
Inventory reserves	(162		)	284			(488		)
Accruals	(2,599		)	(2,977		)	(1,326		)
State income taxes	61			502			(4		)
Acquired future tax deductions	1,520			3,139			96
Depreciation and amortization	(2,544		)	1,080			(780		)
Net operating loss	(2,256		)	195			62
Tax credits	(873		)	(635		)	1,238
Valuation allowance	4,345			2,354			—
	$	(2,508	)	$	3,942		$	(1,198	)

The components of our deferred income tax assets (liabilities) are as follows (in thousands):



	December 31,
	2016			2015
Deferred tax asset:
State income taxes	$	(1,708	)	$	(1,647	)
Foreign	1,223			3,881
Accruals/other	857			1,432
Depreciation and amortization	(10,027		)	(11,735		)
Acquired future tax deductions	6,473			5,778
Stock-based compensation	11,089			8,864
Foreign currency translation adjustments	5,175			5,360
Tax credits state	6,764			5,887
Inventory reserves	1,938			1,633
Allowance for doubtful accounts	151			—
Valuation allowance	—			(2,354		)
	$	21,935		17,099
Deferred tax liability:
Foreign	$	1,370		$	1,372
	$	1,370		$	1,372

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, and those originating from EXC acquired in 2015. They consist of: (a) the net tax benefit of items expensed for financial statement purposes but capitalized and amortized for tax purposes, (b) the tax benefited portion of Bio-Plexus’s federal net operating loss ("NOL") carry-forward of $1.2 million which will be realized in approximately equal amounts over the next 7 years, and (c) the tax benefited portion of EXC's NOL carryforward of $4.1 million which is expected to be realized in approximately 4 years, and will expire in 17 years. Under Section 382 of the Internal Revenue Code, certain ownership changes limit the utilization of the NOL carry-forwards, and the amount of federal NOL carry-forwards recorded is the net federal benefit available.

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 $10.8 million at December 31, 2016 and $17.8 million at December 31, 2015. 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 2013 and forward are subject to examination by the Internal Revenue Service. Our principal state income tax returns for tax years 2012 and forward are subject to examination by the state tax authorities. The total gross amount of unrecognized tax benefits as of December 31, 2016 was $2.0 million which, if recognized, would impact the effective tax rate.

The following table summarizes our cumulative gross unrecognized tax benefits (in thousands):



	Year Ended December 31,
	2016			2015			2014
Beginning balance	$	1,772		$	4,115		$	5,544
Increases to prior year tax positions	77			25			217
Increases to current year tax positions	345			345			661
Decreases to prior year tax positions	(46		)	(2,399		)	—
Decrease related to settlements	—			(314		)	(2,113		)
Decrease related to lapse of statute of limitations	(148		)	—			(194		)
Ending balance	$	2,000		$	1,772		$	4,115