Entity information:
Income Taxes
Income (loss) before income taxes, as shown in the accompanying consolidated statements of operations, includes the following components:
 
 
2017
 
2016
 
2015
Domestic
 
$
2,072

 
$
(151,027
)
 
$
(55,061
)
Foreign
 
5,970

 
3,858

 
4,484

Income (loss) from operations, before income taxes
 
$
8,042

 
$
(147,169
)
 
$
(50,577
)


Significant components of the provision for income taxes are as follows:
 
 
2017
 
2016
 
2015
Current:
 
 
 
 
 
 
Federal
 
$
2,630

 
$
(9,980
)
 
$
5,571

State
 
822

 
(487
)
 
1,540

Foreign
 
2,460

 
1,583

 
1,339

Total current
 
5,912

 
(8,884
)
 
8,450

Deferred:
 
 
 
 
 
 
Federal
 
(1,559
)
 
2,555

 
(12,016
)
State
 
17

 
706

 
(2,014
)
Foreign
 
(441
)
 
114

 
(552
)
Total deferred
 
(1,983
)
 
3,375

 
(14,582
)
Total income tax expense (benefit)
 
$
3,929

 
$
(5,509
)
 
$
(6,132
)


The reconciliation of income tax computed at statutory rates to income tax expense (benefit) is as follows:
 
 
2017
 
2016
 
2015
 
 
Amount
 
Percent
 
Amount
 
Percent
 
Amount
 
Percent
Statutory rate
 
$
2,815

 
35.0
 %
 
$
(51,509
)
 
35.0
 %
 
$
(17,702
)
 
35.0
 %
Foreign tax rate differential
 
(717
)
 
(8.9
)
 
(485
)
 
0.3

 
(419
)
 
0.8

State income taxes, net of federal benefit
 
368

 
4.6

 
(2,893
)
 
2.0

 
(159
)
 
0.3

Non-deductible goodwill impairment
 
—

 
—

 
11,448

 
(7.8
)
 
12,737

 
(25.2
)
Non-deductible expenses
 
323

 
4.0

 
262

 
(0.2
)
 
452

 
(0.9
)
Domestic production activities deduction
 
(405
)
 
(5.0
)
 
700

 
(0.5
)
 
(507
)
 
1.0

U.S. Tax Cuts and Jobs Act: remeasurement of deferred taxes
 
10,260

 
127.6

 
—

 
—

 
—

 
—

U.S. Tax Cuts and Jobs Act: deferred foreign earnings
 
4,009

 
49.9

 
—

 
—

 
—

 
—

Tax on unremitted foreign earnings
 
(6,712
)
 
(83.5
)
 
7,932

 
(5.4
)
 
—

 
—

Change in valuation allowance
 
(6,023
)
 
(74.9
)
 
29,719

 
(20.2
)
 
—

 
—

Other
 
11

 
0.1

 
(683
)
 
0.5

 
(534
)
 
1.1

Total income tax expense (benefit) / Effective rate
 
$
3,929

 
48.9
 %
 
$
(5,509
)
 
3.7
 %
 
$
(6,132
)
 
12.1
 %


Significant components of the Company’s deferred tax assets and liabilities at December 31, 2017 and 2016 are as follows:
 
 
2017
 
2016
Deferred tax assets:
 
 
 
 
Goodwill and other intangibles
 
$
19,324

 
$
32,699

Pension and post-retirement liability
 
1,532

 
2,186

Warranty reserve
 
2,060

 
3,633

Deferred compensation
 
2,385

 
1,227

Contingent liabilities
 
1,669

 
2,336

Net operating loss / tax credit carryforwards
 
1,816

 
1,384

Other
 
1,442

 
2,190

Total deferred tax assets
 
30,228

 
45,655

Less: valuation allowance
 
(23,696
)
 
(29,719
)
Net deferred tax assets
 
6,532

 
15,936

Deferred tax liabilities:
 
 
 
 
Goodwill and other intangibles
 
(5,721
)
 
(6,087
)
Depreciation
 
(7,079
)
 
(10,586
)
Unremitted earnings of foreign subsidiaries
 
(1,220
)
 
(7,932
)
Inventories
 
(1,743
)
 
(1,506
)
Other
 
(513
)
 
(1,196
)
Total deferred tax liabilities
 
(16,276
)
 
(27,307
)
Net deferred tax liabilities
 
$
(9,744
)
 
$
(11,371
)

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. At December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Act; however, in certain cases, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. The provisional tax benefit related to the remeasurement of certain deferred tax assets and liabilities was $1,508, and was included as a component of income tax expense from continuing operations. The provisional tax expense related to the one-time transition tax on mandatory deemed repatriation of foreign earnings, and related items, was $3,298 based on cumulative foreign earnings of $65,113 and was also included as a component of income tax expense from continuing operations. In all cases, we will continue to make and refine our calculations as additional analysis is completed. Our estimates may be adjusted in future periods throughout 2018 as we gain a more thorough understanding of the tax law, as further guidance is issued, and as we evaluate our income tax accounting policies with regard to certain provisions of the Act.
A provisional estimate could not be made for the global intangible low-taxed income ("GILTI") provisions of the Act, as the Company has not yet completed its assessment or elected an accounting policy to either recognize deferred taxes for basis differences expected to reverse as GILTI or to record GILTI as period costs if and when incurred. Additional information is necessary to prepare a more detailed analysis of the Company's deferred tax assets and liabilities and historical foreign earnings, as well as potential correlative adjustments.
Each quarter, management reviews operations and liquidity needs in each jurisdiction to assess the Company’s intent to reinvest foreign earnings outside of the United States. At December 31, 2017, management determined that cash balances of its Canadian and United Kingdom subsidiaries exceeded projected capital needs by $30,200. Management does not intend for such amounts to be permanently reinvested outside of the United States and has therefore accrued foreign withholding taxes of $1,220 at December 31, 2017.
At December 31, 2017, the Company has not recorded deferred U.S. income taxes or foreign withholding taxes on remaining undistributed foreign earnings of $2,318. It is management's intent and practice to indefinitely reinvest such earnings outside of the United States. Determination of the amount of any unrecognized deferred income tax liability associated with these undistributed earnings is not practicable because of the complexities of the hypothetical calculation.
A valuation allowance is required to be established or maintained when, based on currently available information and other factors, it is more likely than not that all or a portion of a deferred tax asset will not be realized. The Company has considered all available evidence, both positive and negative, in assessing the need for a valuation allowance in each jurisdiction.
The negative evidence considered in evaluating U.S. deferred tax assets included cumulative financial losses over the three-year period ended December 31, 2017 and the inability to consistently achieve forecasted results. Positive evidence considered included the composition and reversal patterns of existing taxable and deductible temporary differences between financial reporting and tax, as well as the composition of financial losses. Cumulative financial losses over the three-year period ended December 31, 2017 were a significant piece of objective negative evidence, and typically limit a Company’s ability to consider other subjective evidence. Based on our evaluation, a valuation allowance of $23,696 was recorded at December 31, 2017 to recognize only the amount of deferred tax assets more likely than not to be realized. The amount of deferred tax assets considered realizable, however, could be adjusted if objective negative evidence in the form of cumulative financial losses is no longer present, and additional weight is given to subjective evidence such as our projections for growth.
At December 31, 2017 and 2016, the tax benefit of net operating loss carryforwards available for state income tax purposes was $1,708 and $1,378, respectively. The state net operating loss carryforwards will expire in various years through 2037. We believe it is more likely than not that the tax benefit from state operating loss carryforwards will not be realized. In recognition of this risk, we have provided a valuation allowance of $1,708 against deferred tax assets related to state operating loss carryforwards at December 31, 2017.
At December 31, 2017, the Company has net operating loss carryforwards in certain foreign jurisdictions of $1,363, which may be carried forward indefinitely. The foreign jurisdictions have incurred cumulative financial losses over the three-year period ended December 31, 2017 and have projected future taxable losses. We believe it is more likely than not that the tax benefit from these loss carryforwards will not be realized. In recognition of this risk, we have provided a valuation allowance of $481, collectively, against deferred tax assets in foreign jurisdictions at December 31, 2017.
The determination to record or not record a valuation allowance involves management judgment, based on the consideration of positive and negative evidence available at the time of the assessment. Management will continue to assess the realization of its deferred tax assets based upon future evidence, and may record adjustments to valuation allowances against deferred tax assets in future periods, as appropriate, that could materially impact net income.
The following table provides a reconciliation of unrecognized tax benefits at December 31, 2017 and 2016:
 
 
2017
 
2016
Unrecognized tax benefits at beginning of period:
 
$
619

 
$
582

Increases based on tax positions for prior periods
 
—

 
37

Decreases based on tax positions for prior periods
 
(20
)
 
—

Balance at end of period
 
$
599

 
$
619


The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $599 at December 31, 2017. The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. At December 31, 2017 and 2016, the Company had accrued interest and penalties related to unrecognized tax benefits of $500 and $464, respectively. At December 31, 2017, the Company does not expect any material increases or decreases to its unrecognized tax benefits within the next 12 months. Ultimate realization of this decrease is dependent upon the occurrence of certain events, including the completion of audits by tax authorities and expiration of statutes of limitations.
The Company files income tax returns in the United States and in various state, local, and foreign jurisdictions. The Company is subject to federal income tax examinations for the 2014 period and thereafter. With respect to the state, local, and foreign filings, certain entities of the Company are subject to income tax examinations for the 2013 period and thereafter.