Income Taxes

The Company's income (loss) before income taxes and income tax expense (benefit) from continuing operations, each by tax jurisdiction, consists of the following (dollars in thousands):



	Year ended December 31,
	2017			2016			2015
Income (loss) before income taxes:
Domestic	$	50,760		$	(69,850	)	$	(3,150	)
Foreign	15,450			11,620			(18,970		)
Total income (loss) before income taxes	$	66,210		$	(58,230	)	$	(22,120	)
Current income tax expense:
Federal	$	12,800		$	7,560		$	12,150
State and local	1,770			1,920			1,080
Foreign	5,420			4,250			2,060
Total current income tax expense	19,990			13,730			15,290
Deferred income tax expense (benefit):
Federal	15,180			(28,180		)	(1,980		)
State and local	1,280			(2,550		)	(1,530		)
Foreign	(1,200		)	(1,430		)	(5,240		)
Total deferred income tax expense	15,260			(32,160		)	(8,750		)
Income tax expense (benefit)	$	35,250		$	(18,430	)	$	6,540

The components of deferred taxes are as follows (dollars in thousands):



	December 31, 2017			December 31, 2016
Deferred tax assets:
Accounts receivable	$	1,000		$	780
Inventories	5,230			6,410
Goodwill and other intangible assets	—			3,120
Accrued liabilities and other long-term liabilities	20,350			26,110
Tax loss and credit carryforwards	7,290			6,680
Gross deferred tax asset	33,870			43,100
Valuation allowances	(6,400		)	(5,670		)
Net deferred tax asset	27,470			37,430
Deferred tax liabilities:
Property and equipment	(16,380		)	(14,580		)
Goodwill and other intangible assets	(5,350		)	—
Investment in foreign affiliates, including withholding tax	(740		)	(1,140		)
Other, principally deferred income	(1,550		)	(1,330		)
Gross deferred tax liability	(24,020		)	(17,050		)
Net deferred tax asset	$	3,450		$	20,380

The following is a reconciliation of income tax expense (benefit) computed at the U.S. federal statutory rate to income tax expense (benefit) allocated to income (loss) from continuing operations before income taxes (dollars in thousands):



	Year ended December 31,
	2017			2016			2015
U.S. federal statutory rate	35		%	35		%	35		%
Tax at U.S. federal statutory rate	$	23,170		$	(20,380	)	$	(7,740	)
State and local taxes, net of federal tax benefit	2,250			(550		)	(520		)
Differences in statutory foreign tax rates	(2,580		)	(1,930		)	110
Change in recognized tax benefits	(480		)	(1,410		)	(460		)
Goodwill and other intangible assets impairment	—			5,050			11,430
Nontaxable income	(1,050		)	(310		)	(980		)
Research and manufacturing incentives	(1,510		)	(830		)	(1,680		)
Tax on undistributed foreign earnings	(430		)	340			610
Net change in valuation allowance	520			2,140			3,770
Tax Reform Act	12,660			—			—
Other, net	2,700			(550		)	2,000
Income tax expense (benefit)	$	35,250		$	(18,430	)	$	6,540

The Company has recorded deferred tax assets on $43.4 million of various state operating loss carryforwards and $19.5 million of various foreign operating loss carryforwards. The majority of the state tax loss carryforwards expire between 2024 and 2028 and the majority of the foreign losses have indefinite carryforward periods.

The Company has not made a provision for U.S. or additional foreign withholding taxes related to investments in foreign subsidiaries that are indefinitely reinvested since any excess of the amount for financial reporting over the tax basis in these investments is not significant as of December 31, 2017.

Tax Reform

On December 22, 2017 the Tax Reform Act was signed into law, and, among the provisions, reduces the Federal statutory corporate income tax rate from 35% to 21% effective January 1, 2018, and implements a territorial tax system, imposing a one-time tax on the deemed repatriation of undistributed earnings of non-U.S. subsidiaries.

In connection with the reduction in the Federal income tax rate, the Company revalued its ending net deferred tax assets as of December 31, 2017 and recognized $3.7 million provisional tax expense.

In connection with the territorial tax change, the Company recognized a $9.0 million provisional tax expense related to the deemed repatriation of approximately $110.0 million of undistributed non-U.S. subsidiary earnings. This one-time mandatory tax is payable over eight years beginning in 2019.

On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) 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 Reform Act. The Company has recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, and additional regulatory guidance that may be issued. The financial reporting impact is expected to be complete when the Company files its 2017 U.S. corporate income tax return in late 2018.

Unrecognized tax benefits

The Company has approximately $3.4 million and $3.6 million of unrecognized tax benefits ("UTBs") as of December 31, 2017 and 2016, respectively. If the UTBs were recognized, the impact to the Company's effective tax rate would be to reduce reported income tax expense for the years ended December 31, 2017 and 2016 by approximately $2.8 million and $3.0 million, respectively.

A reconciliation of the change in the UTBs and related accrued interest and penalties for the years ended December 31, 2017 and 2016 is as follows (dollars in thousands):



	Unrecognized Tax Benefits
Balance at December 31, 2015	$	4,610
Tax positions related to current year:
Additions	120
Tax positions related to prior years:
Additions	80
Reductions	(10		)
Settlements	—
Lapses in the statutes of limitations	(1,230		)
Balance at December 31, 2016	$	3,570
Tax positions related to current year:
Additions	250
Tax positions related to prior years:
Additions	860
Reductions	(100		)
Settlements	—
Lapses in the statutes of limitations	(1,210		)
Balance at December 31, 2017	$	3,370

In addition to the UTBs summarized above, the Company has recorded approximately $1.7 million and $2.0 million in potential interest and penalties associated with uncertain tax positions as of December 31, 2017 and 2016, respectively.

The Company is subject to U.S. federal, state and local, and certain non-U.S. income tax examinations for tax years 2010 through 2016. In addition, there are currently several state examinations and one foreign income tax examination in process. The Company does not believe that the results of these examinations will have a significant impact on the Company's tax position or its effective tax rate.

Management monitors changes in tax statutes and regulations and the issuance of judicial decisions to determine the potential impact to UTBs and is not aware of, nor does it anticipate, any material subsequent events that could have a significant impact on the Company's financial position during the next twelve months.