INCOME TAXES

On December 22, 2017, the U.S. government enacted the Tax Cut and Jobs Act Bill (“the Tax Act”). The Tax 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 the enactment of the Tax Act; however, under Staff Accounting Bulletin 118 (“SAB 118), we have made a reasonable estimate of the effects of the one-time transition tax. The one-time transition tax is based on our total post-1986 foreign earnings and profits for which we have previously deferred from U.S. income taxes. We recognized a provisional amount of $1.2 million, which is included as a component of income tax expense from continuing operations for the reasonable estimate made with regards to the one-time transition tax. Any subsequent adjustments to this amount will be recorded through current tax expense in the quarter of 2018 when the analysis is complete. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax and any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations.

We are still analyzing the Tax Act and refining our calculations, which could potentially impact the measurement of our tax balances. The substantial 2017 impacts of the enactment of the Tax Act are reflected in the tables below.

The Company's pre-tax income (loss) from continuing operations for domestic and foreign sources is as follows (in thousands):



	Year Ended December 31,
	2017			2016			2015
Domestic	$	(454	)	$	(359	)	$	1,675
Foreign	9,137			3,426			2,763
Total	$	8,683		$	3,067		$	4,438

Significant components of income tax expense attributable to continuing operations are as follows (in thousands):



	Year Ended December 31,
	2017			2016			2015
Current:
Federal	$	1,160		$	—		$	—
State	$	22		$	(16	)	$	9
Foreign	1,318			1,678			1,851
Total current	2,500			1,662			1,860
Deferred:
Federal	(131		)	158			155
Foreign	468			23			(187		)
Total deferred	337			181			(32		)
Total income tax expense	$	2,837		$	1,843		$	1,828

The following is a reconciliation of income tax expense computed at the United States statutory rate to amounts shown in the Consolidated Statements of Operations:



	2017		2016		2015
Federal income taxes at statutory rate	35.0	%	35.0	%	35.0	%
Taxes on foreign income which differ from the U.S. statutory rate	(16.4	)	(22.1	)	(1.8	)
Effect of change in the enacted rate	2.4		(1.3	)	(2.6	)
Change in valuation allowance	(203.0	)	(3.9	)	(2.3	)
U.S. taxation of international operations	15.0		32.3		6.2
Change in estimated liabilities	(2.6	)	9.5		1.8
Non-deductible items	1.5		10.8		4.8
State and local income taxes	(0.5	)	(0.1	)	0.1
Tax Cut and Jobs Act of 2017	201.3		—		—
	32.7	%	60.2	%	41.2	%

Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):



	December 31,
	2017			2016
Deferred tax assets:
Federal, state, and foreign net operating losses	$	18,998		$	20,372
Postretirement benefits	384			631
Deferred employee benefits	1,270			1,688
Accrued pension	9,256			16,410
Inventory valuation	1,576			2,766
Foreign tax credit carryforwards	—			7,693
Other	883			2,030
	$	32,367		$	51,590
Less valuation allowance	(28,035		)	(45,012		)
Total deferred tax assets	$	4,332		$	6,578

Deferred tax liabilities:
Tax over book depreciation	$	(3,215	)	$	(3,509	)
Inventory valuation	(2,003		)	(1,995		)
Intangible assets	(1,080		)	(1,600		)
Other	(118		)	(303		)
Total deferred tax liabilities	(6,416		)	(7,407		)
Net deferred tax liabilities	$	(2,084	)	$	(829	)

Non-current deferred tax assets of $3.1 million and $3.0 million for 2017 and 2016, respectively, are reported in "Other non-current assets" in the Consolidated Balance Sheets.

In 2017, the valuation allowance decreased by $17.0 million, of which $16.3 million was due to operational results and $0.7 million of valuation allowance was recorded in other comprehensive income (loss). The significant decrease in the valuation allowance due to operational results was primarily driven by the revaluation of the deferred tax assets of the U.S. group as a result of the change in the corporate tax rate from 35% to 21%, which was enacted in 2017 as part of the Tax Cuts & Jobs Act discussed above.

In 2016, the valuation allowance decreased by $1.3 million, of which $0.4 million was due to operational results and $0.9 million of valuation allowance was recorded in other comprehensive income (loss).

At December 31, 2017, there were U.S. federal and state net operating loss carryforwards of $26.2 million and $22.4 million, respectively, which expire from 2028 through 2037. If certain substantial changes in the Company's ownership occur, there would be an annual limitation on the amount of the carryforwards that can be utilized. There also are foreign net operating loss carryforwards of $53.3 million, of which $9.4 million will expire between 2020 through 2027, and of which $43.9 million have no expiration date.

A reconciliation of the beginning and ending amount of uncertain tax positions is as follows (in thousands):



	December 31,
	2017			2016			2015
Balance at beginning of year	$	1,847		$	2,305		$	2,342
Additions for tax positions related to the current year	282			302			282
Additions for tax positions of prior years	253			72			263
Reductions for tax positions of prior years	(518		)	(832		)	—
Reductions due to lapse of applicable statutes of limitation	(719		)	—			(582		)
Balance at end of year	$	1,145		$	1,847		$	2,305

If recognized, essentially all of the uncertain tax positions and related interest at December 31, 2017 would be recorded as a benefit to income tax expense on the Consolidated Statements of Operations. It is reasonably possible that certain uncertain tax positions pertaining to the foreign operations may change within the next 12 months due to audit settlements and statute of limitations expirations. The estimated change in uncertain tax positions for these items is estimated to be between $0.2 million and $0.9 million.

Interest and penalties related to uncertain tax positions are recorded as income tax expense in the Consolidated Statements of Operations. Accrued interest related to the uncertain tax positions was $0.1 million at December 31, 2017 and 2016. There were no accrued penalties related to uncertain tax positions in 2017 or 2016. The accrued interest is reported in other liabilities on the Consolidated Balance Sheets.

The tax years 2014, 2015, 2016, and 2017 remain open to examination by the U.S. federal taxing authorities. The tax years 2012 through 2017 remain open to examination by the U.S. state taxing authorities. For other major jurisdictions (Switzerland, U.K., Taiwan, India, Germany, Netherlands, and China); the tax years between 2010 and 2017 generally remain open to routine examination by foreign taxing authorities, depending on the jurisdiction.

Net taxes paid in 2017, 2016, and 2015 totaled $1.3 million, $1.7 million, and $1.5 million, respectively.