NOTE 11. TAX PROVISION

Domestic and foreign pre-tax income from continuing operations was as follows (in thousands):


	Year Ended December 31,
	2014		2013		2012
Domestic	$	8,076	$	5,619	$	4,933
Foreign		4,588		1,462		1,875

	$	12,664	$	7,081	$	6,808

The income tax expense (benefit) from continuing operations consisted of the following (in thousands):


	Year Ended December 31,
	2014			2013			2012
Current:
Federal	$	1,086		$	(253	)	$	13
State		184			(39	)		32
Foreign		1,862			1,039			752

Total current		3,132			747			797
Deferred:
Federal		133			(5,912	)		—
State		46			(928	)		—
Foreign		(577	)		(244	)		(88	)

Total deferred		(398	)		(7,084	)		(88	)

Income tax (benefit) expense	$	2,734		$	(6,337	)	$	709

The income tax (benefit) provision varies from the amounts computed by applying the Federal statutory rate of 34% to income from continuing operations before income taxes as follows (in thousands):


Year Ended December 31,	Year Ended December 31,
	2014			2013			2012
Federal income tax provision computed at statutory rates	$	4,269		$	2,407		$	2,281
Difference in foreign tax rate		(405	)		174			(141	)
State income taxes, net of federal benefit		142			140			27
Stock-based compensation		142			966			96
Research and development tax credits		(33	)		(256	)		56
Expiration of tax credits		236			167			200
Foreign tax credits		(2,527	)		(47	)		(136	)
Foreign dividend		1,281			—			—
Change in valuation allowance		(158	)		(9,656	)		(1,877	)
Unrecognized tax benefits		8			9			9
Foreign earnings not permanently reinvested		—			(207	)		(58	)
Domestic production deduction		(251	)		—			—
Other		30			(34	)		252

Provision for (benefit from) income taxes	$	2,734		$	(6,337	)	$	709

Deferred Tax Assets and Liabilities

Significant components of deferred income tax assets and liabilities were as follows (in thousands):


	December 31,
	2014			2013
Current deferred tax assets:
Reserves and allowances	$	273		$	420
Inventory		1,037			1,019
Accrued vacation and bonus		664			435
Unrealized loss on forward contracts		856			132
Other current deferred tax assets		197			262

Gross current deferred tax assets		3,027			2,268
Valuation allowance		—			—

Net current deferred tax assets		3,027			2,268
Non-current deferred tax assets:
Reserves and allowances		182			174
Federal and state net operating loss (“NOL”) carryforwards		21			573
Federal and state tax credits		1,781			2,640
Stock-based compensation		565			506
Intangibles		1,278			1,225
Other non-current deferred tax assets		637			768

Gross non-current deferred tax assets		4,464			5,886
Valuation allowance		—			(158	)

Net non-current deferred tax assets		4,464			5,728
Non-current deferred tax liabilities:
Foreign earnings		—			(536	)
Intangibles		(2,936	)		(3,843	)
Other non-current deferred tax liabilities		(266	)		(114	)

Total non-current deferred tax liabilities		(3,202	)		(4,493	)

Non-current deferred tax assets, net		1,262			1,235

Net total deferred tax assets	$	4,289		$	3,503

Deferred tax assets arise from the tax benefit of amounts expensed for financial reporting purposes but not yet realized for tax purposes and from unutilized tax credits and NOL carry forwards. We evaluate our deferred tax assets on a regular basis to determine if a valuation allowance is required. To the extent it is determined that it is more likely than not that we will not realize the benefit of our deferred tax assets, we record a valuation allowance against deferred tax assets.

The total valuation allowance was as follows (in thousands):


	December 31,
	2014		2013
Valuation allowance	$	—	$	158

The net decrease in the total valuation allowance was as follows (in thousands):


	Year Ended December 31,
	2014			2013			2012
Decrease in valuation allowance	$	(158	)	$	(9,656	)	$	(1,877	)

The decrease in valuation allowance in 2014 was primarily related to utilization and expiration of state tax credits. The decrease in valuation allowance in 2013 was primarily related to release of the valuation allowance against U.S. deferred tax assets as of December 31, 2013 as it is more likely than not that these deferred tax assets will be realized. The decrease in valuation allowance in 2012 was primarily related to utilization of NOL carryforwards.

We had tax NOL and credit carryforwards as of December 31, 2014 as follows:


	Amount		Expiration Date
Federal and state research and experimentation credit carryforwards	$	1.8 million		2014-2034
State NOL carryforwards		0.8 million		2016-2031

Unrecognized Tax Benefits

A reconciliation of unrecognized tax benefits was as follows (in thousands):


Balance, December 31, 2011	$	141
Increases due to tax positions taken during the current year		—
Increases due to tax positions taken during a prior year		9

Balance, December 31, 2012		150
Increases due to tax positions taken during the current year		9
Increases due to tax positions taken during a prior year		—

Balance, December 31, 2013		159
Increases due to tax positions taken during the current year		—
Decreases due to tax positions taken during a prior year		(5	)

Balance, December 31, 2014	$	154

All of the unrecognized tax benefits at December 31, 2014 would have an impact on the effective tax rate if recognized. Interest and penalties in 2014, 2013 and 2012 were insignificant. Interest and penalties accrued on unrecognized tax benefits as of December 31, 2014 and 2013 were also insignificant.

The tax years that remained open to examination in our major taxing jurisdictions as of December 31, 2014 were as follows:


Jurisdiction	Open Tax Years
U.S.		2011-2014
Japan		2008-2014
Germany		2010-2014

Non-Repatriated Foreign Earnings

During the fourth quarter of 2014, we repatriated all of the distributable earnings of our subsidiary in Japan through a cash dividend totaling $2.5 million. The dividend included previously permanently reinvested earnings of $0.9 million. We did not provide for U.S. income taxes on the remaining undistributed earnings of our foreign subsidiaries because they were considered permanently reinvested outside of the U.S. as of December 31, 2014. Upon repatriation, some of these earnings would generate foreign tax credits, which may reduce the U.S. tax liability associated with any future foreign dividend. At December 31, 2014, the cumulative amount of earnings upon which U.S. income taxes have not been provided is approximately $8.0 million. The determination of the amount of unrecognized deferred U.S. income tax liability and foreign tax credit, if any, is not practicable to calculate.