Entity information:
 Income Taxes
 
The significant components of our deferred income tax liabilities and assets were as follows (in thousands):
 
December 31,
 
2017
 
2016
Deferred income tax liabilities:
 
 
 
Excess tax over book depreciation
$
17,505

 
$
11,210

Other
8,507

 
4,650

Intangible assets
57,968

 
42,837

Total deferred income tax liabilities
83,980

 
58,697

Deferred income tax assets:
 
 
 
Accrued expenses
6,956

 
8,146

Equity compensation
4,622

 
6,461

Inventories
8,405

 
9,323

Net operating loss and state credit carry-forward
16,698

 
3,974

Foreign tax credit carryforward
16,602

 
18,177

Pension benefit obligation
46,030

 
5,262

Other
2,946

 
1,549

Total deferred income tax assets
102,259

 
52,892

Valuation allowance
(22,067
)
 
(3,028
)
Deferred income tax asset, net of valuation allowance
80,192

 
49,864

Deferred income tax (liability)/asset, net
$
(3,788
)
 
$
(8,833
)


The deferred income taxes by classification were as follows:
 
December 31,
 
2017
 
2016
Long-term deferred income tax asset, net
$
22,334

 
$
4,824

Long-term deferred income tax liability, net
(26,122
)
 
(13,657
)
Deferred income tax (liability)/asset, net
$
(3,788
)
 
$
(8,833
)

 
The (benefit from) provision for income taxes is based on the following pre-tax income (in thousands):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Domestic
$
4,946

 
$
(16,766
)
 
$
12,965

Foreign
1,167

 
26,446

 
9,463

Income before income taxes
$
6,113

 
$
9,680

 
$
22,428


 
The provision for income taxes consisted of the following (in thousands):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Current provision:
 
 
 
 
 
Federal - U.S.
$
(447
)
 
$
(232
)
 
$
705

Foreign
2,762

 
10,823

 
11,023

State -U.S.
442

 
(275
)
 
56

Total current
$
2,757

 
$
10,316

 
$
11,784

Deferred provision (benefit):
 
 
 
 
 
Federal - U.S.
$
(3,406
)
 
$
(8,992
)
 
$
2,618

Foreign
(4,640
)
 
(3,328
)
 
(887
)
State -U.S.
(388
)
 
1,583

 
(950
)
Total (benefit) deferred
$
(8,434
)
 
$
(10,737
)
 
$
781

Total (benefit) provision for income taxes
$
(5,676
)
 
$
(421
)
 
$
12,565



Actual income taxes reported from operations were different from those that would have been computed by applying the federal statutory tax rate to income before income taxes. The expense for income taxes differed from the U.S. statutory rate due to the following:
 
Year Ended December 31,
 
2017
 
2016
 
2015
Expected federal income tax rate
35.0
 %
 
35.0
 %
 
35.0
 %
State income taxes, net of federal tax benefit
0.3

 
(4.8
)
 
(0.7
)
Change in state tax rate
—

 
—

 
3.5

Change in valuation allowance on state net operating losses
—

 
18.9

 
(7.3
)
Foreign tax rate differential
(38.9
)
 
(38.4
)
 
(18.9
)
Unbenefited foreign losses
2.9

 
14.7

 
41.4

Foreign tax credits
—

 
(26.6
)
 
—

Manufacturing deduction
(2.8
)
 
—

 
(1.6
)
Research and development credit
(8.4
)
 
(6.6
)
 
(1.1
)
Foreign audit settlement
—

 
—

 
6.0

Transaction costs
8.5

 
3.1

 
(0.5
)
Release of contingent consideration
(69.9
)
 
—

 
—

Provisional Impact of Tax Cuts and Jobs Act
(8.2
)
 
—

 
—

Change in tax reserves
(16.3
)
 
(0.5
)
 
0.7

Other, net
4.9

 
0.8

 
(0.5
)
Effective tax rate
(92.9
)%
 
(4.4
)%
 
56.0
 %

 
As of December 31, 2017 and 2016, the Company maintained a total valuation allowance of $22.1 million and $3.0 million, respectively, which relates to foreign and state deferred tax assets as of December 31, 2017 and December 31, 2016. The valuation allowance is based on estimates of taxable income in each of the jurisdictions in which we operate and the period over which our deferred tax assets will be recoverable. The increase in the valuation allowance is primarily due to the preliminary valuation allowance on certain deferred tax assets in relation to the FH acquisition.

The following table provides a summary of the changes in the deferred tax valuation allowance for the years ended December 31, 2017, 2016, and 2015 (in thousands):
 
December 31,
 
2017
 
2016
 
2015
Deferred tax valuation allowance at January 1
$
3,028

 
$
892

 
$
9,448

     Additions
712

 
2,257

 
15

     Acquired
18,494

 
—

 
—

     Deductions
(167
)
 
(121
)
 
(7,798
)
     Translation adjustments
—

 
—

 
(773
)
Deferred tax valuation allowance at December 31
$
22,067

 
$
3,028

 
$
892



As we closed the Brazil site in 2016, we do not believe that any of the deferred tax assets related to Brazil have any value. Accordingly, this portion of the valuation allowance was written off during 2015, along with the related deferred tax assets.

On December 18, 2015, legislation was enacted that permanently extended the U.S. research and development ("R&D") tax credit. Accordingly, the Company recorded the entire benefit of $0.3 million for the R&D tax credit attributable to 2015 in the fourth quarter.
 
The Company files income tax returns in the U.S. federal, state and local jurisdictions and in foreign jurisdictions. The Company is no longer subject to examination by the Internal Revenue Service ("IRS") for years prior to 2014 and is no longer subject to examination by the tax authorities in foreign and state jurisdictions prior to 2006, with the exception of net operating loss carryforwards. The Company is currently under examination for income tax filings in various foreign jurisdictions. During 2015, the Company settled a tax audit in Italy for $2.2 million, of which $0.9 million had been accrued in 2014.

During 2015, the Company restructured its multi-state activities, which resulted in a reduction of its state tax rate. In connection with this reduction, the Company recorded a one time tax expense of $0.8 million to reflect the effect of this tax rate reduction on its deferred tax assets. In addition, the Company recognized a tax benefit of $1.6 million on certain state net operating loss carryforwards, as it is more likely than not to utilize these losses within the carryforward period.

As of December 31, 2017, the Company had foreign tax credits of $16.4 million, foreign net operating losses of $45.6 million, state net operating losses of $56.3 million and state tax credits of $2.2 million. As of December 31, 2016, the Company had foreign tax credits of $17.7 million, foreign net operating losses of $1.5 million, state net operating losses of $57.2 million and state tax credits of $2.0 million. The foreign tax credits, if not utilized, will expire in 2026. A portion of the foreign net operating losses ($20.2 million) expire at various dates through 2029; the remainder have an unlimited carryforward period. The state net operating losses and state tax credits, if not utilized, will expire at various dates through 2037.

The Company repatriated $32 million of foreign earnings to the U.S. during the fourth quarter of 2016, resulting in a tax benefit of $2.6 million in the year ended December 31, 2016. The tax benefit is a result of foreign tax credits associated with the repatriation, in excess of the U.S. corporate tax rate.

During 2016, the Company recorded a valuation allowance and additional tax expense of $1.8 million on certain state net operating loss carryforwards, due to the uncertainty of the Company's ability to utilize these losses within the foreseeable future. The amount of net operating losses considered realizable, however, could be adjusted if objective evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as the Company’s projections for growth.

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act includes significant changes to the U.S. corporate income tax system including: a federal corporate rate reduction from 35% to 21%; limitations on the deductibility of interest expense and executive compensation; creation of the base erosion anti-abuse tax (“BEAT”), a new minimum tax; and the transition of U.S. international taxation from a worldwide tax system to a modified territorial tax system. The change to a modified territorial tax system resulted in a one-time U.S. tax liability on those earnings which have not previously been repatriated to the U.S. (the “Transition Tax”), with future distributions not subject to U.S. federal income tax when repatriated. A majority of the provisions in the Tax Act are effective January 1, 2018.

In response to the Tax Act, the SEC staff issued guidance on accounting for the tax effects of the Tax Act. The guidance provides a one-year measurement period for companies to complete the accounting. We reflected the income tax effects of those aspects of the Tax Act for which the accounting is complete. To the extent our accounting for certain income tax effects of the Tax Act is incomplete but we are able to determine a reasonable estimate, we recorded a provisional estimate in the financial statements. For items that we cannot determine a provisional estimate to be included in the financial statements, we continued to apply the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. As the analysis is completed, the ultimate impact may differ from these provisional amounts.

In connection with our initial analysis of the impact of the Tax Act, we have recorded a provisional estimate of $0.5 million net tax benefit for the period ended December 31, 2017. This benefit consists of provisional estimates of zero net expense for the Transition Tax liability, and $0.5 million benefit from the remeasurement of our deferred tax assets/liabilities due to the corporate rate reduction. On a provisional basis, the Company does not expect to owe the one-time Transition Tax liability, based on foreign tax pools that are in excess of U.S. tax rates. We are in process of determining the impact of the Tax Act on our U.S. foreign tax credit carryforwards (deferred tax asset), and are unable to record a provisional estimate at this time. Any adjustment, when determined, could have an adverse impact to our net deferred tax asset.

We have not completed our accounting for the income tax effects of certain elements of the Tax Act. The Tax Act creates a new requirement that certain income, such as Global Intangible Low-Taxed Income (“GILTI”), earned by a controlled foreign corporation must be included in the gross income of its U.S. shareholder. Because of the complexity of the new GILTI and BEAT tax rules, we are continuing to evaluate the impact of these provisions and whether taxes due on future U.S. inclusions related to GILTI or BEAT should be recorded as a current period expense when incurred, or factored into the measurement of deferred taxes. As a result, we have not included an estimate of the tax expense or benefit related to these items for the period ended December 31, 2017.
As of December 31, 2017, the liability for uncertain income tax positions was approximately $3.0 million. Approximately $2.6 million as of December 31, 2017 represents the amount that if recognized would affect the Company’s effective income tax rate in future periods. The Company expects the unrecognized tax benefits to change over the next 12 months if certain tax matters ultimately settle with the applicable taxing jurisdiction during this timeframe, or if the applicable statute of limitations lapses. The impact of the amount of such changes to previously recorded uncertain tax positions could range from zero to $1.5 million. The impact of the lapse of statute of limitations below primarily represents the change in tax reserves disclosed in the reconciliation of the effective tax rate. The table below does not include interest and penalties of $0.4 million and $0.2 million as of December 31, 2017 and 2016, respectively. The following is a reconciliation of the Company’s liability for uncertain income tax positions for the years ended December 31, 2017 and 2016 (in thousands).
 
December 31,
 
2017
 
2016
 
2015
Balance beginning January 1
$
3,000

 
$
2,937

 
$
1,978

Additions/(reductions) for tax positions of prior years
(7
)
 
(102
)
 
521

Additions/(reductions) based on tax positions related to current year
(65
)
 
483

 
69

Acquired uncertain tax position balance
1,221

 


 
1,326

Settlements
(338
)
 
—

 
(544
)
Lapse of statute of limitations
(978
)
 
(328
)
 
(612
)
Currency movement
181

 
10

 
199

Balance ending December 31
$
3,014

 
$
3,000

 
$
2,937


 
Undistributed earnings of our foreign subsidiaries amounted to $221.3 million at December 31, 2017 and $222.6 million at December 31, 2016. The undistributed earnings of our foreign subsidiaries are considered to be indefinitely reinvested and accordingly, no provision for U.S. federal and state income taxes has been recorded. Determination of the amount of unrecognized deferred tax liability on these undistributed earnings is not practicable because of the complexity of laws and regulations, the varying tax treatment of alternative repatriation scenarios, and the variation due to multiple potential assumptions relating to the timing of any future repatriation.