(

)

Income Taxes

Income before income taxes consists of the following:

	December 31,
	2016		2015		2014

Domestic	$	91,597	$	71,323	$	37,211
International		35,942		18,242		8,295
Total	$	127,539	$	89,565	$	45,506

The provision for income taxes consist of the following provisions/(benefits):

	December 31,
	2016		2015			2014
Current:
Federal	$	21,167	$	2,577		$	2,572
International		10,491		10,076			512
Total Current		31,658		12,653			3,084
Deferred:
Federal	$	8,350	$	22,005		$	(14,965	)
International		206		(2,269	)		(746	)
Total Deferred		8,556		19,736			(15,711	)
Total Income Tax Expense/ (Benefit)	$	40,214	$	32,389		$	(12,627	)

The provision/(benefit) for income taxes differs from the statutory federal income tax rate of

for

2016,

2015

and

2014

as follows:

	December 31,
	2016			2015			2014

Income tax provision at U.S federal statutory rate	$	44,638		$	31,347		$	15,927
State and local taxes, net of federal income tax benefit		(2,310	)		(2,450	)		(1,516	)
Effect of foreign income taxed at rates other than the U.S. federal statutory rate		(1,154	)		989			751
Foreign income inclusions		-			5,017			2,742
Tax credits		(200	)		(4,685	)		(2,692	)
Tax audit settlements		-			-			(3,948	)
Net change in valuation allowance		1,673			3,134			(25,169	)
Domestic production deduction		(2,327	)		(1,958	)		(1,488	)
Permanent items and other		(106	)		995			2,766
Total	$	40,214		$	32,389		$	(12,627	)

Foreign income inclusions represent distributions from foreign subsidiaries which give rise to newly recognized federal foreign tax credits. Tax audit settlements in

2014

included the final settlement of the European tax dispute concerning

2003

transactions. Net change in the valuation allowance in

2014

included the benefit of

$26,902

for the remaining release of the domestic federal valuation allowance attributable to foreign tax credits, offset by

$1,516

for domestic state items and

$217

for foreign deferred taxes subject to valuation allowances.

The components of deferred tax assets and liabilities as of

December

31,

2016

and

2015

relate to temporary differences and carryforwards as follows:

	December 31,
	2016			2015
Deferred tax assets:
Inventory	$	2,769		$	3,032
Foreign tax credit carryforwards		-			3,990
Environmental		5,776			2,795
Net operating loss carryforwards		13,272			7,930
Employee benefits		16,155			14,978
Alternative minimum tax credit carryforwards		-			1,306
Property, plant and equipment		4,448			4,188
Other		7,352			6,234
Total gross deferred tax assets		49,772			44,453
Valuation allowance		(11,459	)		(9,863	)
Total deferred tax assets	$	38,313		$	34,590

Deferred tax liabilities:
Property, plant and equipment		(17,709	)		(11,472	)
Intangibles and other		(10,583	)		(8,192	)
Unremitted foreign earnings		(635	)		(208	)
Foreign tax allocation reserve		(2,471	)		(2,071	)
Other		(775	)		(1,123	)
Total deferred tax liabilities	$	(32,173	)	$	(23,066	)
Net deferred tax assets	$	6,140		$	11,524

Classified as follows in the consolidated balance sheet:
Non-current deferred tax asset		13,061			19,259
Non-current deferred tax liability		(6,921	)		(7,735	)
Total	$	6,140		$	11,524

During

2014,

the Company received updated customer projections that impacted current and future years’ U.S. taxable income in amounts and type that supported full utilization of existing federal foreign tax credit carryforwards. As a result, the Company released

$26,902

of valuation allowance against these foreign tax credits. The Company expects to maintain a domestic valuation allowance against state NOLs, state tax credits and state deferred tax assets due to restrictive rules regarding realization. The Company expects to maintain a valuation allowance against certain foreign deferred tax assets, primarily NOL carryforwards, until such time as the Company attains an appropriate level of future profitability in the appropriate jurisdictions and is able to conclude that it is more likely than not that its foreign deferred tax assets are realizable.

The domestic valuation allowance for the years ended

December

31,

2016,

2015

and

2014

increased

$2,294,

increased

$2,450

and decreased

$25,386,

respectively. The

2016

and

2015

increases in the domestic valuation allowance are due to domestic state items. The

2014

decrease in the domestic valuation allowance was allocated as follows: the valuation allowance decreased

$26,902

for the release of valuation allowance due to domestic profitability and increased

$1,516

due to domestic state items.

The foreign valuation allowance for the years ended

December

31,

2016,

2015

and

2014

decreased

$698,

decreased

$1,531,

and increased

$1,923,

respectively. The

2016

decrease in the foreign valuation allowance was allocated as follows: the valuation allowance decreased

$621

for foreign income and decreased

$77

for deferred tax amounts and currency translation adjustments included in

other comprehensive income (“OCI”).

The

2015

decrease in the foreign valuation allowance was allocated as follows: the valuation allowance increased

$684

for foreign income and decreased

$2,215

for deferred tax amounts, the reclass of Zenara valuation allowance for assets held for sale into other current liabilities, and currency translation adjustments included in OCI.

The

2014

increase in the foreign valuation allowance was allocated as follows: the valuation allowance increased

$217

for foreign income and increased

$1,706

for deferred tax amounts and currency translation adjustments included in OCI.

Under the tax laws of the various jurisdictions in which the Company operates, NOLs

may

be carried forward or back, subject to statutory limitations, to reduce taxable income in future or prior years. Domestic federal NOLs acquired in the PharmaCore stock acquisition are approximately

$11,300

and will expire in

2021

through

2035.

These NOLs can be utilized against U.S. consolidated taxable income, subject to annual limitations due to the ownership change. A full valuation allowance has been recorded against domestic state NOLs totaling approximately

98,200

which will expire in

2018

through

2036.

A full valuation allowance has been recorded against foreign NOLs totaling approximately

2,431

which in most foreign jurisdictions will carry forward indefinitely.

As of

December

31,

2016,

all remaining domestic federal foreign tax credits and alternative minimum tax credits have been utilized against current U.S. income taxes on worldwide income.

2015

and

2014,

the Company repatriated

$9,850

and

$5,442,

respectively, of cash from its foreign subsidiaries in order to reduce its credit and currency exposure for cash held in foreign currencies or in non-U.S. banks and utilized the excess cash for debt reduction. Due in part to a continuing desire to limit credit and currency exposure related to cash held in foreign currencies or in non-U.S. banks, the Company determined that it is likely that a portion of the undistributed earnings of its foreign subsidiaries will be repatriated to the U.S. in the future. Accordingly, the Company has provided a deferred tax liability of

$635

on certain undistributed foreign earnings as of

December

31,

2016.

Subject to limitations, U.S. income tax on such foreign earnings, when actually repatriated,

may

be reduced or eliminated by unrecognized foreign tax credits that

may

be generated in connection with the repatriation or by existing foreign tax credit carryforwards or other tax attributes. The Company monitors available evidence and its plans for foreign earnings and expects to continue to provide deferred taxes based on the tax liability that would be due upon repatriation of amounts not considered permanently reinvested.

The following table summarizes the activity related to the Company’s unrecognized tax benefits as of

December

31,

2016,

2015

and

2014:

	2016			2015			2014

Balance at January 1	$	1,492		$	1,643		$	3,922
Gross increases related to current period tax positions		687			281			275
Gross decreases related to prior period tax positions		(84	)		(52	)		(1,149	)
Expirations of statute of limitations for the assessment of taxes		(257	)		(241	)		(106	)
Settlements		-			-			(1,113	)
Foreign currency translation		(60	)		(139	)		(186	)
Balance at December 31	$	1,778		$	1,492		$	1,643

Of the total balance of unrecognized tax benefits at

December

31,

2016,

$1,778,

if recognized, would affect the effective tax rate.

Gross interest and penalties at

December

31,

2016,

2015,

and

2014

$455,

$475,

and

$489,

respectively, related to the above unrecognized tax benefits are not reflected in the table above. In

2016,

2015,

and

2014,

the Company accrued

$63,

$58,

and

$337,

respectively, of interest and penalties in the income statement. Consistent with prior periods, the Company recognizes interest and penalties within its income tax provision.

Tax years

2012

and forward in the U.S. are open to examination by the IRS. The Company is also subject to examinations in its material non-U.S. jurisdictions for

2010

and later years.

The Company is also subject to audits in various states for various years in which it has filed income tax returns.

Previous state audits have resulted in immaterial adjustments. In the majority of states where the Company files, the Company is subject to examination for tax years

2012

and forward.

During the

fourth

quarter of

2014,

the Company entered into a final settlement with a tax authority, without any admission of fault or breach of laws, in order to avoid further litigation concerning intercompany transactions from

2003.

The settlement required the Company to pay

$1,487

in tax and interest during the

fourth

quarter of

2014

in full satisfaction of all liabilities for this matter, and in response the tax authority withdrew all pending litigation and renounced any outstanding claims. The settlement did not impose any penalties on the Company. Therefore, in the

fourth

quarter of

2014

the Company decreased its remaining reserve for unrecognized tax benefits for this matter by

$4,137.