INCOME TAXES

Income before income tax expense consists of the following (in thousands):



	2018		2017		2016
U.S. operations	$	67,240	$	62,609	$	107,803
Foreign operations	30,911		15,983		19,735
Total	$	98,151	$	78,592	$	127,538

Income tax expense (benefit) is comprised of the following (in thousands):



	2018			2017			2016
Current:
Federal	$	4,276		$	11,712		$	11,980
State	2,101			2,404			2,840
Foreign	13,673			3,918			4,588
Total current	20,050			18,034			19,408
Deferred:
Federal	6,297			(20,595		)	23,814
State	908			2,541			2,347
Foreign	(2,359		)	(1,580		)	(145		)
Total deferred	4,846			(19,634		)	26,016
Income tax expense (benefit)	$	24,896		$	(1,600	)	$	45,424

The following table sets forth the tax effects of temporary differences that give rise to the deferred tax assets and liabilities (in thousands):



	December 31, 2018			December 31, 2017
Deferred tax assets
Accounts receivable, principally due to allowance for doubtful accounts	$	(32	)	$	858
Inventories	5,939			5,939
Net operating loss carryforwards	6,898			7,460
Accrued pension	2,121			5,591
Stock-based compensation	3,722			2,972
Compensation-related accruals	696			3,063
Warranty	2,055			1,779
Obligation for post-employment benefits other than pension	935			1,312
Accrued liabilities and other items	8,350			3,886
Gross deferred tax assets	30,684			32,860
Valuation allowance	(4,789		)	(4,789		)
Net deferred tax assets	25,895			28,071
Deferred tax liabilities:
Intangibles	(85,553		)	(58,701		)
Plant and equipment	(26,839		)	(24,041		)
Gross deferred tax liabilities	(112,392		)	(82,742		)
Net deferred tax liabilities	$	(86,497	)	$	(54,671	)

Income taxes paid, net of refunds received, by the Company during 2018, 2017, and 2016, totaled $9.6 million, $22.4 million, and $27.4 million, respectively.

As of December 31, 2018, the Company had net operating loss carryforwards totaling approximately $26.5 million in the United Kingdom, Germany and Brazil. The net operating loss carryforwards may be carried forward indefinitely. The Company regularly evaluates positive and negative evidence as it relates to realizability of deferred tax assets in each jurisdiction. As a result of this analysis, the Company determined that the valuation allowance related to United Kingdom net operating losses should be reversed during 2017 as a history of positive earnings and anticipated future earnings supports the realization of the deferred tax asset. The result of this reversal was an income tax benefit of $2.6 million. The Company still provides a valuation allowance against Germany and Brazil net foreign deferred tax assets (principally the net operating loss carryforwards) due to the uncertainty that they can be realized.

The following table sets forth a reconciliation of the statutory federal income tax rate to the effective income tax rate:



	2018		2017		2016
Federal statutory tax rate	21.0	%	35.0	%	35.0	%
Increase (decrease) in the tax rate resulting from:
State taxes, net of federal effect	2.4	%	5.2	%	3.3	%
Effect of tax rates of other countries	0.5	%	(1.8	)%	(1.4	)%
Section 199 deduction	—	%	(0.7	)%	(0.8	)%
Change in contingency reserve	—	%	—	%	(0.2	)%
Limitation on deduction of officer’s compensation	0.4	%	1.3	%	0.6	%
Tax Act	(3.2	)%	(33.9	)%	—	%
Valuation allowance release	—	%	(3.3	)%	—	%
Other	4.3	%	(3.8	)%	(0.9	)%
Effective tax rate	25.4	%	(2.0	)%	35.6	%

On December 22, 2017, the Tax Cuts and Jobs Acts (“Tax Act”) was enacted into law. The new tax legislation represents a fundamental and dramatic shift in U.S. taxation. The new legislation contains several key tax provisions that will impact the Company, including the reduction of the corporate income tax rate from 35% to 21% effective January 1, 2018. The new legislation also includes a variety of other changes, such as a one-time transition tax on unrepatriated accumulated foreign earnings, a limitation on the tax deductibility of interest expense, repeal of the Section 199 domestic production activities deduction, acceleration of business asset expensing, and reduction in the amount of executive pay that could qualify as a tax deduction, among others. ASC 740 requires the Company to recognize the effect of the tax law changes in the period of enactment.

The SEC staff issued SAB 118 which allowed the Company to record provisional amounts during a one year measurement period. At December 31, 2017 the Company had not completed the accounting for the tax effects of enactment of the Tax Act; however, as described below the Company made a reasonable estimate of the effects on existing deferred tax balances and the one-time transition tax. The Company recorded an estimated benefit as a result of the new legislation of $26.6 million in the fourth quarter of 2017. The revaluation of deferred tax assets and liabilities at the lower corporate rate of 21% resulted in a benefit of $28.3 million, offset by a one-time transition tax on unrepatriated accumulated foreign earnings of $0.2 million and a withholding tax on distribution of those earnings in the amount of $1.5 million. In accordance with SAB 118, the Company finalized the calculations in 2018 and recorded an additional tax benefit of $1.7 million related to the rate differential on the deferred provision to return. As of December 31, 2018, the accounting for the income tax effects of the Tax Act have been completed and recorded in the Company’s financial statements and no further provisional measurement period adjustments will be made.

As of December 31, 2018, to the extent the Company’s earnings attributable to its foreign subsidiaries are not considered permanently reinvested, a deferred tax liability for the tax consequences of remitting the accumulated earnings has been provided in the financial statements. As of December 31, 2017, the Company provisionally recorded a liability for unremitted earnings. This provisional amount was recorded under SAB 118 and reflected withholding taxes of approximately $1.5 million. Upon further examination in the measurement period provided for in SAB 118, the Company has determined that the previously taxed unremitted earnings can be brought back tax-free. As such, the Company has reversed the deferred tax liability as of December 31, 2018 as a SAB 118 adjustment. With respect to all other non-US foreign subsidiaries, the earnings are considered to be permanently reinvested and therefore a liability has not been provided with respect to those earnings.

The following table summarizes the activity related to the Company's unrecognized tax benefits during 2018, 2017, and 2016 (in thousands):



	2018			2017			2016
Balance, beginning of the year	$	875		$	875		$	4,407
Additions for tax position related to the current year	125			125			125
Additions for tax position related to the prior year	—			—			56
Decreases for tax position related to the prior year	—			—			(250		)
Prior year reductions:
Lapse of statute of limitations	(125		)	(125		)	(125		)
Settlements	—			—			(3,338		)
Balance, end of the year	$	875		$	875		$	875

All of the unrecognized tax benefits as of December 31, 2018, if recognized, would affect the Company's effective tax rate. During 2018 and 2017, the Company recognized no interest and penalties, and in 2016 the Company recognized $0.1 million of interest and penalties. The Company has paid all accrued interest and penalties recognized prior to December 31, 2018, therefore the Company has no accruals for the payment of interest and penalties as of December 31, 2018 and 2017.

As of December 31, 2018, the Company is subject to U.S. Federal Income Tax examination for the tax years 2015 through 2018, and to non-U.S. income tax examination for the tax years 2011 to 2018. In addition, the Company is subject to state and local income tax examinations for the tax years 2014 through 2018.