Income Taxes

Earnings before income taxes consist of the following:



	Years Ended December 31,
	2018		2017		2016
U.S.	$	30,815	$	9,315	$	25,746
Non-U.S.	27,288		30,938		31,499
Total	$	58,103	$	40,253	$	57,245

Significant components of income tax provision/(benefit) are as follows:



	Years Ended December 31,
	2018			2017			2016
Current:
U.S.	$	(397	)	$	1,635		$	(1,312	)
Non-U.S.	12,538			7,150			13,729
Total Current	12,141			8,785			12,417
Deferred:
U.S.	(330		)	17,597			13,245
Non-U.S.	(240		)	(577		)	(2,797		)
Total Deferred	(570		)	17,020			10,448
Total provision for income taxes	$	11,571		$	25,805		$	22,865

Significant components of our deferred tax assets and liabilities are as follows:



	As of December 31,
	2018			2017
Post-retirement benefits	$	1,061		$	1,160
Inventory reserves	1,236			1,128
Loss carry-forwards	4,647			5,401
Credit carry-forwards	16,909			10,793
Nondeductible accruals	5,685			7,062
Research expenditures	16,847			20,002
Stock compensation	2,142			1,803
Foreign exchange loss	2,245			1,373
Other	207			220
Gross deferred tax assets	50,979			48,942
Depreciation and amortization	11,500			9,819
Pensions	11,736			12,387
Subsidiaries' unremitted earnings	1,258			1,662
Gross deferred tax liabilities	24,494			23,868
Net deferred tax assets	26,485			25,074
Deferred tax asset valuation allowance	(8,274		)	(8,182		)
Total net deferred tax assets	$	18,211		$	16,892

The long-term deferred tax assets and long-term deferred tax liabilities are as follows below:



	As of December 31,
	2018			2017
Non-current deferred tax assets	$	22,201		$	20,694
Non-current deferred tax liabilities	$	(3,990	)	$	(3,802	)
Total net deferred tax assets	$	18,211		$	16,892

At each reporting date, we weigh all available positive and negative evidence to assess whether it is more-likely-than-not that the Company's deferred tax assets, including deferred tax assets associated with accumulated loss carryforwards and tax credits in the various jurisdictions in which it operates, will be realized. As of December 31, 2018, and 2017, we recorded deferred tax assets related to certain U.S. state and non-U.S. income tax loss carryforwards of $4,647 and $5,401, respectively, and U.S. and non-U.S. tax credits of $16,909 and $10,793, respectively. The deferred tax assets expire in various years primarily between 2021 and 2038.

Generally, we assess if it is more-likely-than-not that our net deferred tax assets will be realized during the available carry-forward periods. As a result, we have determined that valuation allowances of $8,274 and $8,182 should be provided for certain deferred tax assets at December 31, 2018, and 2017, respectively. As of December 31, 2018, the valuation allowances relate to certain U.S. state and non-U.S. loss carry-forwards and certain U.S. state tax credits that management does not anticipate will be utilized.

No valuation allowance was recorded in 2018 against the U.S. federal foreign tax credit carryforwards of $7,316, which expire in varying amounts between 2023 and 2025 as well as the research and development tax credits of $6,516, which expire in varying amounts between 2021 and 2038. We assessed the anticipated realization of those tax credits utilizing future taxable income projections. Based on those projections, management believes it is more-likely-than-not that we will realize the benefits of these credit carryforwards.

The following table reconciles taxes at the U.S. federal statutory rate to the effective income tax rate:



	Years Ended December 31,
	2018		2017		2016
Taxes at the U.S. statutory rate	21.0	%	35.0	%	35.0	%
State income taxes, net of federal income tax benefit	1.2	%	1.1	%	1.4	%
Non-U.S. income taxed at rates different than the U.S. statutory rate	0.8	%	(9.0	)%	(7.5	)%
Foreign source income, net of associated foreign tax credits	4.1	%	0.1	%	5.3	%
Benefit of tax credits	(0.9	)%	(1.4	)%	(1.0	)%
Non-deductible expenses	1.3	%	1.5	%	0.7	%
Stock compensation - excess tax benefits	(0.9	)%	(1.5	)%	(0.8	)%
Adjustment to valuation allowances	(0.6	)%	(4.4	)%	3.8	%
Other changes in tax laws and rates	(6.1	)%	—	%	—	%
Change in unrecognized tax benefits	(1.7	)%	2.0	%	3.3	%
Impacts of unremitted foreign earnings	1.1	%	0.9	%	0.6	%
Impacts related to the 2017 Tax Cuts and Jobs Act	(0.6	)%	44.7	%	—	%
Other	1.2	%	(4.9	)%	(0.9	)%
Effective income tax rate	19.9	%	64.1	%	39.9	%

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. We recognized a provisional amount of $18,001 as an additional income tax expense in the fourth quarter of 2017. This amount included $11,734 related to the mandatory deemed one-time transition tax and $6,267 related to the remeasurement of certain deferred tax assets and liabilities.

On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The remeasurement period for SAB 118 ended on December 22, 2018, and upon completion of our analysis we determined the final impact of the Tax Act resulted in an additional tax benefit of $348 during the fourth quarter of 2018. This amount included a $589 tax benefit related to the one-time transition tax and $241 tax expense related to the remeasurement of certain deferred tax assets and liabilities.

Generally, outside of Canada and the United Kingdom, it has been our historical practice to permanently reinvest the earnings of our non-U.S. subsidiaries in those operations. As previously noted, the Tax Act made significant changes to the taxation of undistributed foreign earnings, requiring that all previously untaxed earnings and profits of our controlled foreign corporation be subjected to a one-time mandatory deemed repatriation tax. The transition tax substantially eliminated the basis differences that existed prior to the Tax Act. However, there are limited other taxes that could continue to apply such as foreign withholding and certain state taxes. We completed the evaluation of our indefinite reinvestment assertion as a result of the Tax Act during the fourth quarter of 2018 and decided not to reinvest the current year earnings of our primary operations, except for in the Czech Republic, Denmark, India, Mexico and Taiwan. We intend to continue to indefinitely reinvest the earnings in these non-U.S. subsidiaries.

The Tax Act also includes provisions for Global Intangible Low-Taxed Income (“GILTI”) wherein taxes on foreign income are imposed in excess of a deemed return on tangible assets of foreign corporations. We elected to recognize the tax on GILTI as an expense in the period the tax is incurred. We have not provided deferred taxes related to temporary differences that upon their reversal will impact the amount of income subject to GILTI in the period.

We recognize the financial statement benefit of a tax position when it is more-likely-than-not, based on its technical merits, that the position will be sustained upon examination. A tax position that meets the more-likely-than-not threshold is then measured to determine the amount of benefit to be recognized in the financial statements. As of December 31, 2018, we have approximately $6,203 of unrecognized tax benefits, which if recognized, would impact the effective tax rate. We do not anticipate any significant changes in our unrecognized tax benefits within the next 12 months.

A reconciliation of the beginning and ending unrecognized tax benefits is provided below:



	2018			2017
Balance at January 1	$	7,306		$	12,347
Increase related to current year tax positions	55			—
(Decrease) increase related to prior year tax positions	(36		)	1,290
Decrease related to lapse in statute of limitation	(1,076		)	—
Decrease related to settlements with taxing authorities	(46		)	(6,331		)
Balance at December 31	$	6,203		$	7,306

Our continuing practice is to recognize interest and/or penalties related to unrecognized tax benefits as income tax expense. As of December 31, 2018, and 2017, $2,515 and $2,596, respectively, of interest and penalties were accrued.

We are subject to taxation in the U.S., various states, and in non-U.S. jurisdictions. Our U.S. income tax returns are primarily subject to examination from 2015 through 2017; however, U.S. tax authorities also have the ability to review prior tax years to the extent loss carryforwards and tax credit carryforwards are utilized. The open years for the non-U.S. tax returns range from 2010 through 2017 based on local statutes.