Income Taxes



(In thousands)	2017			2016		2015
Components of income (loss) before income taxes*
U.S. (loss) income	$	(20,555	)	$	100,382	$	71,547
Non-U.S. income	50,330			51,529		39,479
Income before income taxes	29,775			151,911		111,026
Provision for income taxes*
Current
Federal	$	22,272		$	19,968	$	21,253
State	813			2,231		2,389
Non-U.S.	11,054			21,188		22,979
Total current provision	34,139			43,387		46,621
Deferred
Federal	$	(26,931	)	$	11,580	$	3,813
State	(3,630		)	1,977		(213		)
Non-U.S.	(759		)	860		(5,814		)
Total deferred (benefit) provision	(31,320		)	14,417		(2,214		)
Provision for income taxes	$	2,819		$	57,804	$	44,407

*The components of income before income taxes and the provision for income taxes relate to continuing operations.

The Tax Cuts and Jobs Act of 2017 ("the Act"), which was signed into law on December 22, 2017, has resulted in significant changes to the U.S. corporate income tax system including reducing the U.S. corporate rate to 21% starting in 2018. The Act also creates a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of U.S. subsidiaries.

On December 22, 2017, SAB 118 was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Company has calculated its best estimate of the impact of the Act and has recorded income tax expense of $19.8 million during the fourth quarter of 2017, the period in which the legislation was enacted. Of this amount, $18.0 million related to the one-time transition tax and the remaining $1.8 million was related to the revaluation of U.S. deferred tax assets and liabilities. In addition, deferred taxes have been recorded on the outside basis differences of non-U.S. subsidiaries in the amount of $7.8 million, fully offset by foreign tax credits. Changes to applicable tax law, regulations or interpretations of the Act may require further adjustments and changes in our estimates. The final determination of the transition tax and the revaluation of U.S. deferred assets and liabilities will be completed as additional information becomes available, but no later than one year from the enactment of the Act.

MSA finalized its European reorganization during 2016. The reorganization is designed to drive optimal performance by aligning certain strategic planning and decision making into a single location enabled by a common IT platform. During 2017, the Company recognized a benefit of $2.5 million associated with the reduction of exit taxes related to our European reorganization compared to incurring charges of $6.5 million and $7.7 million in 2016 and 2015, respectively, related to the European reorganization.

Included in discontinued operations is tax expense of $0.3 million in 2016 and $0.6 million in 2015. There were no discontinued operations in 2017.

Cash flows from operations in the Consolidated Statement of Cash Flows includes an insignificant deferred income tax provision (benefit) from discontinued operations for 2017 and 2016, compared to $0.5 million in 2015.

Reconciliation of the U.S. federal income tax rates for continuing operations to our effective tax rate:



	2017		2016		2015
U.S. federal income tax rate	35.0	%	35.0	%	35.0	%
U.S. tax reform	66.6		—		—
Employee shared-based payments	(28.0	)	—		—
Taxes on non-U.S. income	(24.6	)	(2.5	)	(2.1	)
Manufacturing deduction	(15.3	)	(1.3	)	(1.6	)
(Benefit) taxes on non-U.S. income - European reorganization	(8.4	)	4.3		6.9
State income taxes—U.S.	(6.2	)	1.8		1.3
Research and development credit	(4.7	)	(0.6	)	(1.1	)
Valuation allowances	(3.3	)	1.5		1.7
Other	(1.6	)	(0.1	)	(0.1	)
Effective income tax rate	9.5	%	38.1	%	40.0	%

Components of deferred tax assets and liabilities:



	December 31,
(In thousands)	2017			2016
Deferred tax assets
Product liability	$	28,481		$	1,303
Net operating losses and tax credit carryforwards	10,013			16,218
Share-based compensation	6,444			10,462
Employee benefits	6,401			9,538
Accrued expenses and other reserves	4,237			5,381
Capitalized research and development	2,442			4,654
Reserve for doubtful accounts	928			1,178
Inventory	636			1,218
Other	1,127			1,316
Total deferred tax assets	60,709			51,268
Valuation allowances	(4,559		)	(5,303		)
Net deferred tax assets	56,150			45,965
Deferred tax liabilities
Goodwill and intangibles	(30,368		)	(42,007		)
Property, plant and equipment	(8,056		)	(11,394		)
Other	(1,242		)	(3,368		)
Total deferred tax liabilities	(39,666		)	(56,769		)
Net deferred taxes	$	16,484		$	(10,804	)

At December 31, 2017, we had net operating loss carryforwards of approximately $35.1 million, all of which are in non-U.S. tax jurisdictions. All net operating loss carryforwards without a valuation allowance may be carried forward for a period of at least six years. The change in valuation allowance for the year of $0.7 million is primarily due to the release of a valuation allowance on certain losses partially offset by our inability to recognize deferred tax assets on certain foreign entities that continue to generate losses.

A reconciliation of the change in the tax liability for unrecognized tax benefits for the years ended December 31, 2017 and 2016 is as follows:



(In thousands)	2017			2016
Beginning balance	$	14,393		$	13,070
Adjustments for tax positions related to the current year	1,921			2,359
Adjustments for tax positions related to prior years	(766		)	(856		)
Statute expiration	(493		)	(180		)
Ending balance	$	15,055		$	14,393

The total amount of unrecognized tax benefits, if recognized, would reduce our future effective tax rate. We have recognized tax benefits associated with these liabilities in the amount of $5.5 million and $4.3 million at December 31, 2017 and 2016, respectively.

We recognize interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. Our liability for accrued interest and penalties related to uncertain tax positions was $2.2 million and $1.5 million at December 31, 2017 and 2016, respectively.

We file a U.S. federal income tax return along with various state and foreign income tax returns. Examinations of our U.S. federal returns have been completed through 2013, with the 2013 tax year closed by statute. Various state and foreign income tax returns may be subject to tax audits for periods after 2010.