Income Taxes

Components of the Company’s income before income taxes and adjustment for noncontrolling interests were as follows:



	Year Ended December 31,
	2017		2016		2015
Domestic	$	138,477	$	121,301	$	117,388
Foreign	74,623		73,459		35,600
	$	213,100	$	194,760	$	152,988

The Company’s income tax expense consists of the following:



	Year Ended December 31,
	2017			2016		2015
Current
Federal	$	40,607		$	22,109	$	26,240
State	500			1,063		1,218
Foreign	22,344			22,067		16,458

Deferred
Federal	17,594			1,828		6,410
State	419			904		281
Foreign	(6,937		)	6,350		(9,389		)
	$	74,527		$	54,321	$	41,218

A reconciliation of the U.S. statutory federal rate to the income tax provision was as follows:



	Year Ended December 31,
	2017			2016			2015
Tax at U.S. statutory rate	$	74,585		$	68,166		$	53,546
State and local taxes	1,177			2,564			3,441
Tax credits	(11,436		)	(10,348		)	(8,139		)
Changes in tax law, other	7,279			8,813			3,630
U.S. tax reform	33,493			—			—
Effect of foreign tax rates	(23,158		)	(19,600		)	(6,465		)
Nonrecurring permanent items	(13,947		)	—			(11,300		)
Capital loss	(19,931		)	—			—
Outside basis difference	9,562			—			—
Stock compensation (ASU 2016-09)	(3,563		)	(5,305		)	—
Other change in tax reserves	730			116			(368		)
Valuation allowance	25,761			9,112			11,638
Other, net	(6,025		)	803			(4,765		)
Income tax provision	$	74,527		$	54,321		$	41,218
Effective income tax rate	35.0		%	27.9		%	26.9		%

On December 22, 2017, the U.S. Tax Cuts and Jobs Act was enacted into law. The new tax legislation contains several key tax provisions including the reduction of the corporate income tax rate to 21% effective January 1, 2018 as well as a variety of other changes including the limitation on the tax deductibility of interest expense, acceleration of expensing of certain business assets, reductions in the amount of executive pay that could qualify as a tax deduction, as well as certain foreign related provisions. The Company is currently assessing the overall impact of the enacted tax law on its business and its consolidated financial statements and has recorded a discrete tax expense of $33,493 related to the transition tax on foreign earnings, the remeasurement of its deferred tax assets and liabilities for the reduced federal tax rate, and changes to the deductibility of executive compensation in the period ended December 31, 2017. The Company is required to recognize the effect of tax law changes in the period of enactment. However, on December 22, 2017, the SEC staff issued Staff Accounting Bulletin (“SAB”) 118 which allows the Company to record provisional amounts and reflect changes to such amounts through income tax expense during a one year measurement period following enactment. Amounts recorded for the above items are provisional amounts and as such, the Company will continue to assess the impact of the recently enacted tax law on its business and consolidated financial statements over the measurement period.

Nonrecurring permanent items in 2017 relate to a worthless security deduction and in 2015 relate to the impact of the gain on the Shenya acquisition and realized exchange losses. The Company also generated a capital loss in the U.S. during 2017. Capital losses can only be realized to the extent they offset realized capital gains.

Deferred tax assets and liabilities reflect the estimated tax effect of accumulated temporary differences between the basis of assets and liabilities for tax and financial reporting purposes, as well as net operating losses, tax credit and other carryforwards. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2017 and 2016 were as follows:



	2017			2016
Deferred tax assets:
Pension, postretirement and other benefits	$	57,700		$	78,194
Capitalized expenditures	1,471			1,001
Capital loss carryforward	13,780			—
Net operating loss and tax credit carryforwards	145,528			132,057
All other items	38,205			29,826
Total deferred tax assets	256,684			241,078
Deferred tax liabilities:
Property, plant and equipment	(21,507		)	(30,310		)
Intangibles	(9,665		)	(16,210		)
All other items	(11,834		)	(7,623		)
Total deferred tax liabilities	(43,006		)	(54,143		)
Valuation allowances	(189,355		)	(149,757		)
Net deferred tax assets	$	24,323		$	37,178

As of December 31, 2017, the Company’s foreign subsidiaries, primarily in France, Brazil, Italy and Germany, have operating loss carryforwards aggregating $326,000, with indefinite expiration periods. Other foreign subsidiaries in China, Mexico, Netherlands, Spain, India and Korea have operating losses aggregating $142,000, with expiration dates beginning in 2018. The Company and its domestic subsidiaries have capital loss carryforwards totaling $66,000 with expiration dates beginning in 2021. The Company has tax credit carryforwards totaling $11,700 in Poland with expiration dates beginning in 2024. The Company and its domestic subsidiaries have anticipated tax benefits of state net operating losses and credit carryforwards of $11,400 with expiration dates beginning in 2018.

The Company continues to maintain a valuation allowance related to our net deferred tax assets in several foreign jurisdictions. As of December 31, 2017, the Company had valuation allowances of $189,355 related to tax loss, capital loss, credit carryforwards, and other deferred tax assets in the U.S. and several foreign jurisdictions. The Company’s valuation allowance increased in 2017 as a result of current year losses with no benefit in certain foreign jurisdictions. The Company’s current and future provision for income taxes is significantly impacted by the initial recognition of and changes in valuation allowances in certain countries. The Company intends to maintain these allowances until it is more likely than not that the deferred tax assets will be realized. The Company’s future provision for income taxes will include no tax benefit with respect to losses incurred and no tax expense with respect to income generated in these countries until the respective valuation allowance is eliminated.

A liability for U.S. income tax has been recorded on the undistributed earnings of foreign subsidiaries in accordance with the enacted U.S. Tax Cuts and Jobs Act. As a result, all undistributed earnings are now previously taxed income for U.S. tax purposes, although the undistributed earnings may be subject to withholding taxes upon distribution. The Company has not recorded any deferred taxes for withholding taxes on approximately $608,000 of undistributed earnings of foreign subsidiaries as such amounts are considered indefinitely reinvested. The Company expects to repatriate to the U.S. approximately $50,000 of foreign earnings with no significant related tax costs in 2018.

As of December 31, 2017, the Company had $8,029 ($9,242 including interest and penalties) of total unrecognized tax benefits, all of which represented the amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate.

A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:




	2017			2016
Balance at beginning of period	$	7,851		$	7,753
Tax positions related to the current period
Gross additions	720			516
Gross reductions	—			—
Tax positions related to prior years
Gross additions	92			31
Gross reductions	(223		)	(70		)
Settlements	(411		)	(379		)
Lapses on statutes of limitations	—			—
Balance at end of period	$	8,029		$	7,851

The Company, or one of its subsidiaries, files income tax returns in the United States and other foreign jurisdictions. The Internal Revenue Service completed an examination of the Company’s U.S. income tax returns through 2011. The statute of limitations for U.S. state and local jurisdictions is closed for taxable years ending prior to 2014. The Company’s major foreign jurisdictions are Brazil, Canada, China, France, Germany, Italy, Mexico, and Poland. The Company is no longer subject to income tax examinations in major foreign jurisdictions for years prior to 2013.

During the next twelve months, it is reasonably possible that, as a result of audit settlements and the conclusion of current examinations, the Company may decrease the amount of its gross unrecognized tax benefits by approximately $5,196, all of which, if recognized, would impact the effective tax rate.

The Company classifies all tax related interest and penalties as income tax expense. The Company has recorded in liabilities $1,213 and $1,042 as of December 31, 2017 and 2016, respectively, for tax related interest and penalties on its consolidated balance sheet.