INCOME TAXES

Earnings before taxes is summarized as follows (in thousands):



	2018		2017		2016
Domestic	$	328,870	$	290,866	$	336,625
Foreign	94,643		92,663		84,680
Total	$	423,513	$	383,529	$	421,305

The provision for income taxes is summarized as follows (in thousands):



	2018		2017			2016
Federal	$	66,359	$	48,688		$	94,621
State and local	16,035		9,076			13,107
Foreign	23,967		27,637			29,361
Total	$	106,361	$	85,401		$	137,089

Current	$	85,872	$	99,893		$	115,726
Deferred	20,489		(14,492		)	21,363
Total	$	106,361	$	85,401		$	137,089

Reconciliation of the differences between income taxes computed at the federal statutory rate to the effective rate are as follows:



	2018		2017		2016
U.S. federal statutory tax rate	21.0	%	35.0	%	35.0	%

State taxes, net of federal benefit	3.0		1.5		2.3
U.S. domestic manufacturers deduction	—		(2.1	)	(2.4	)
Permanent differences	0.2		(0.7	)	(1.6	)
Foreign income tax rate at rates other than U.S. statutory	1.3		(1.6	)	(1.1	)
Tax Cuts and Jobs Act of 2017 deferred tax changes	0.2		(10.0	)	—
Tax Cuts and Jobs Act of 2017 transition tax	(0.1	)	2.0		—
Change in valuation allowances	(0.5	)	(2.0	)	—
Tax on unremitted earnings	—		1.5		—
Other	—		(1.3	)	0.3
Consolidated effective tax	25.1	%	22.3	%	32.5	%

The company’s effective tax rate for 2018 was 25.1% as compared to 22.3% in 2017. The effective tax rate for 2018 includes the continuing impact of complying with the Tax Cuts and Jobs Act of 2017 (the Tax Act); including a reduction in the federal tax rate to 21.0%, the move to a territorial U.S. tax system, certain expenses now being non-deductible and additional taxes or benefits under GILTI, BEAT and FDII. The effective tax rate for 2017 included the impact of the provisional estimates for the transition tax and deferred tax rate changes under the Tax Act and favorable benefits for the adoption of ASU 2016-09 “Compensation-Stock Compensation (Topic 718: Improvements to Employee Share-Based Payment Accounting” and valuation allowance reversal. The company elects to account for the GILTI tax as a period cost.

During 2018, the company finalized the transition tax and deferred tax rate changes under the Tax Act with the filing of its 2017 tax returns. The changes to provisional estimates resulted in a 0.1% increase in the effective rate. The company fully paid its transition tax liability in 2018.

At December 29, 2018 and December 30, 2017, the company had recorded the following deferred tax assets and liabilities:



	2018			2017
	(dollars in thousands)
Deferred tax assets:
Compensation related	$	3,776		$	3,129
Pension and post-retirement benefits	41,502			56,502
Inventory reserves	14,441			11,342
Accrued liabilities and reserves	13,835			9,813
Warranty reserves	10,641			7,232
Net operating loss carryforwards	36,629			37,911
Other	10,531			19,826
Gross deferred tax assets	131,355			145,755
Valuation allowance	(26,023		)	(23,190		)
Deferred tax assets	$	105,332		$	122,565

Deferred tax liabilities:
Intangible assets	$	(167,197	)	$	(137,871	)
Depreciable assets	(13,617		)	(10,426		)
Other	(6,226		)	(17,518		)

Deferred tax liabilities	$	(187,040	)	$	(165,815	)

Net deferred tax assets (liabilities)	$	(81,708	)	$	(43,250	)

Long-term deferred asset	32,188			44,565
Long-term deferred liability	(113,896		)	(87,815		)
Net deferred tax assets (liabilities)	$	(81,708	)	$	(43,250	)

The company has recorded tax reserves on undistributed foreign earnings not permanently reinvested of $4.1 million and $3.9 million at December 29, 2018 and December 30, 2017, respectively. No further provisions were made for income taxes that may result from future remittances of undistributed earnings of foreign subsidiaries that are determined to be permanently reinvested, which were $241.0 million on December 29, 2018. Determination of the total amount of unrecognized deferred income taxes on undistributed earnings net of foreign subsidiaries is not practicable.

The company has a deferred tax asset on net operating loss carryforwards totaling $36.6 million as of December 29, 2018. These net operating losses are available to reduce future taxable earnings of certain domestic and foreign subsidiaries. United States federal loss carryforwards total $14.6 million and expire through 2037, state loss carryforwards total $88.0 million and expire through 2038 and international loss carryforwards total $101.4 million and expire through 2030; however, some have no expiration date. Of these carryforwards, $98.9 million is subject to full valuation allowance.

As of December 29, 2018, the total amount of liability for unrecognized tax benefits related to federal, state and foreign taxes was approximately $31.9 million (of which $31.6 million would impact the effective tax rate if recognized) plus approximately $5.1 million of accrued interest and $8.1 million of penalties. The company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. Interest recognized in fiscal years 2018, 2017 and 2016 was $0.6 million, $0.7 million and $0.3 million, respectively. Penalties recognized in fiscal years 2018, 2017 and 2016 was $0.6 million, $1.3 million and $1.0 million, respectively.

Although the company believes its tax returns are correct, the final determination of tax examinations may be different than what was reported on the tax returns. In the opinion of management, adequate tax provisions have been made for the years subject to examination.

The following table summarizes the activity related to the unrecognized tax benefits for the fiscal years ended December 31, 2016, December 30, 2017 and December 29, 2018 (in thousands):



Balance at December 31, 2016	$	20,289

Increases to current year tax positions	11,843
Increase to prior year tax positions	201
Decrease to prior year tax positions	(9		)
Settlements	(439		)
Lapse of statute of limitations	(1,955		)

Balance at December 30, 2017	$	29,930

Increases to current year tax positions	3,912
Increase to prior year tax positions	2,860
Decrease to prior year tax positions	(569		)
Lapse of statute of limitations	(4,221		)

Balance at December 29, 2018	$	31,912

It is reasonably possible that the amounts of unrecognized tax benefits associated with state, federal and foreign tax positions may decrease over the next twelve months due to expiration of a statute or completion of an audit. The company believes that it is reasonably possible that $6.3 million of its remaining unrecognized tax benefits may be recognized by the end of 2019 as a result of settlements with taxing authorities or lapses of statutes of limitations.

In the normal course of business, income tax authorities in various income tax jurisdictions both in the United States and internationally conduct routine audits of our income tax returns filed in prior years. These audits are generally designed to determine if individual income tax authorities are in agreement with our interpretations of complex tax regulations regarding the allocation of income to the various income tax jurisdictions. Income tax years are open from 2014 through the current year for the United States federal jurisdiction. Income tax years open for our other major jurisdictions range from 2013 through the current year.