Income Taxes



(In thousands)	2018			2017			2016
Components of income (loss) before income taxes*
U.S. income (loss)	$	85,234		$	(20,555	)	$	100,382
Non-U.S. income	77,101			50,330			51,529
Income before income taxes	162,335			29,775			151,911
Provision for income taxes*
Current
Federal	$	13,574		$	22,272		$	19,968
State	4,265			813			2,231
Non-U.S.	23,446			11,054			21,188
Total current provision	41,285			34,139			43,387
Deferred
Federal	$	291		$	(26,931	)	$	11,580
State	(1,604		)	(3,630		)	1,977
Non-U.S.	(2,752		)	(759		)	860
Total deferred (benefit) provision	(4,065		)	(31,320		)	14,417
Provision for income taxes	$	37,220		$	2,819		$	57,804

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

The Company elected to treat Global Intangible Low Taxed Income (“GILTI”), which was effective in 2018 for the Company, as a period cost.

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 calculated its best estimate of the impact of the Act and 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. The company previously considered the earnings in non-U.S. subsidiaries to be indefinitely reinvested and, accordingly, recorded no deferred income taxes. As as result of the Act, among other things, the Company determined it will repatriate earnings for all non-U.S. subsidiaries with cash in excess of working capital needs. The Company has estimated the associated tax to be $1.9 million, offset partially by $0.7 million of foreign tax credits. At December 31, 2018, the Company has now completed its accounting for all of the enactment-date income tax effects of the Act. Accordingly, we reduced our estimate for the one-time transition tax by $2.0 million and increased our estimate for the revaluation of U.S. deferred tax assets and liabilities by $2.5 million and a $2.0 million increase associated with prepaid taxes for updated regulations related to 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 in 2016 related to the European reorganization.

During 2018, the Company recorded $1.8 million of foreign income tax reserves related to the legal and operational realignment of our U.S., Canadian and European operations.

Included in discontinued operations is tax expense of $0.3 million in 2016. There were no discontinued operations in 2018 or 2017.

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



	2018		2017		2016
U.S. federal income tax rate	21.0	%	35.0	%	35.0	%
U.S. tax reform	1.6	%	66.6	%	—	%
State income taxes—U.S.	1.3	%	(6.2	)%	1.8	%
Taxes on non-U.S. income - U.S., Canadian & European reorganization	1.1	%	(8.4	)%	4.3	%
Valuation allowances	0.5	%	(3.3	)%	1.5	%
Taxes on non-U.S. income	0.4	%	(24.6	)%	(2.5	)%
Employee share-based payments	(1.6	)%	(28.0	)%	—	%
Manufacturing deduction credit	(1.0	)%	(15.3	)%	(1.3	)%
Research and development credit	(0.9	)%	(4.7	)%	(0.6	)%
Other	0.5	%	(1.6	)%	(0.1	)%
Effective income tax rate	22.9	%	9.5	%	38.1	%

Components of deferred tax assets and liabilities:



	December 31,
(In thousands)	2018			2017
Deferred tax assets
Product liability	$	31,169		$	28,481
Capitalized research and development	10,938			2,442
Employee benefits	9,641			6,401
Net operating losses and tax credit carryforwards	7,845			10,013
Share-based compensation	5,561			6,444
Accrued expenses and other reserves	4,385			4,237
Other	4,056			2,691
Total deferred tax assets	73,595			60,709
Valuation allowances	(5,039		)	(4,559		)
Net deferred tax assets	68,556			56,150
Deferred tax liabilities
Goodwill and intangibles	(31,290		)	(30,368		)
Property, plant and equipment	(9,555		)	(8,056		)
Other	(2,353		)	(1,242		)
Total deferred tax liabilities	(43,198		)	(39,666		)
Net deferred taxes	$	25,358		$	16,484

At December 31, 2018, we had net operating loss carryforwards of approximately $29.5 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 $0.5 million is primarily due to our inability to recognize deferred tax assets on certain foreign entities that continue to generate losses partially offset by the release of a valuation allowance on certain losses.

A reconciliation of the change in the tax liability for unrecognized tax benefits for the years ended December 31, 2018 and 2017 is as follows:



(In thousands)	2018			2017
Beginning balance	$	15,055		$	14,393
Adjustments for tax positions related to the current year	1,869			1,921
Adjustments for tax positions related to prior years	(32		)	(766		)
Statute expiration	(737		)	(493		)
Ending balance	$	16,155		$	15,055

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 $5.2 million and $5.5 million at December 31, 2018 and 2017, 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 $3.3 million and $2.2 million at December 31, 2018 and 2017, 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 2014 tax year closed by statute. Various state and foreign income tax returns may be subject to tax audits for periods after 2010.