INCOME TAXES

The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“Tax Reform Act”). The legislation significantly changed U.S. tax law by, among other things, lowering corporate income tax rates, assessing a one-time transition tax on a deemed repatriation of non-previously taxed earnings of foreign subsidiaries, and implementing a territorial tax system.

While the Tax Reform Act provides for a territorial tax system, beginning in 2018, it includes two new U.S. tax base erosion provisions, the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions.

The GILTI provisions require the Company to include in its U.S. income tax return any foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company recorded $0.1 million of income tax expense as a result of GILTI for the year ended December 31, 2018. The Company has elected to account for GILTI tax in the period in which it is incurred, and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements for the years ended December 31, 2018 and 2017.

The BEAT provisions in the Tax Reform Act eliminate the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax. The BEAT tax had no impact on the Company's consolidated financial statements for the years ended December 31, 2018 and 2017.

On December 22, 2017, the SEC staff 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. At December 31, 2017, the Company recorded a provisional $3.9 million of income tax expense as a result of the transition tax, and $16.2 million income tax benefit related to the remeasurement of deferred income taxes. At December 31, 2017 the Company recorded no provisional expense related to performance-based executive compensation based on the guidance available at that time.

We have completed our analysis of the one-time transition tax, performance-based executive compensation and the remeasurement of our deferred assets and liabilities as of December 31, 2018.

During the year ended December 31, 2018, the Company recognized an adjustment to the provisional amounts recorded at December 31, 2017. The following table sets forth the components of the adjustment which were recorded in income tax expense from continuing operations during year ended December 31, 2018, (in thousands):



Remeasurement of certain deferred tax balances (1)	174
One-time transition tax (1)	(94	)
Non-deductible performance based compensation (2)	145
Net adjustment recorded to provisional income tax expense (3)	225

(1) Amounts primarily related to return to provision adjustments.

(2) Amounts primarily related to further guidance of Notice 2018-68 (guidance on performance-based compensation issued in the third quarter ended September 30, 2018).

(3) The impact of the adjustment to the provisional amounts recorded at December 31, 2017 is 0.3%.

The components of income (loss) before taxes from continuing operations consisted of the following for the years ended December 31 (in thousands):



	2018		2017			2016
Domestic	$	76,953	$	78,468		$	37,316
Foreign	2,992		(560		)	12,667
Income before taxes from continuing operations	$	79,945	$	77,908		$	49,983

The provision for (benefit of) income taxes from continuing operations for the years ended December 31 consisted of the following (in thousands):



	2018			2017			2016
Current:
U.S. Federal	$	9,402		$	16,882		$	14,703
State	3,144			2,479			2,987
Foreign	(1,191		)	2,687			3,467
Total current	11,355			22,048			21,157
Deferred:
U.S. Federal	4,158			(7,466		)	(5,404		)
State	1,047			1,246			1,595
Foreign	(424		)	(885		)	(1,084		)
Total deferred	4,781			(7,105		)	(4,893		)
Provision for income taxes	$	16,136		$	14,943		$	16,264

The benefit of income taxes from discontinued operations for the years ended December 31 consisted of the following (in thousands):



	2018		2017		2016
Current:
U.S. Federal	$	—	$	219	$	24
State	—		20		2
Foreign	—		—		—
Benefit of income taxes	$	—	$	239	$	26

The provision for income taxes from continuing operations differs from the federal statutory rate of 21% for the year ended December 31, 2018 and 35% for the years ended December 31, 2017 and 2016 due to the following (in thousands):



	2018					2017					2016
Statutory rate	16,788			21.0	%	27,268			35.0	%	17,494			35.0	%
State taxes, less federal effect	3,242			4.1	%	2,442			3.1	%	3,033			6.1	%
Federal tax credits	(3,680		)	(4.6	)%	(373		)	(0.5	)%	(439		)	(0.9	)%
Uncertain tax positions	(3,051		)	(3.8	)%	(148		)	(0.2	)%	(154		)	(0.3	)%
Excess tax benefit on stock based compensation	(2,288		)	(2.9	)%	(1,415		)	(1.8	)%	—			—	%
Net operating loss (NOL) write down	1,640			2.1	%	—			—	%	—			—	%
Executive compensation	1,369			1.7	%	160			0.2	%	75			0.2	%
Change in valuation allowance	844			1.1	%	660			0.8	%	685			1.4	%
Change in Indemnification Asset	643			0.8	%	—			—	%	—			—	%
Tax effect of Tax Reform Act	—			—	%	(12,535		)	(16.1	)%	—			—	%
Domestic manufacturer's deduction	—			—	%	(1,578		)	(2.0	)%	(1,363		)	(2.7	)%
Intercompany debt discharge	—			—	%	—			—	%	(2,389		)	(4.8	)%
Worthless stock deduction	—			—	%	—			—	%	(868		)	(1.7	)%
Other	629			0.7	%	462			0.7	%	190			0.2	%
	$	16,136		20.2	%	$	14,943		19.2	%	$	16,264		32.5	%

Deferred tax liabilities (assets) at December 31 consist of the following (in thousands):



	2018			2017
Depreciation	$	9,886		$	9,563
Goodwill	35,813			32,662
Intangible assets	9,907			10,928
Foreign withholding tax	1,182			1,014
Other	696			652
Gross deferred tax liabilities	57,484			54,819
Equity compensation	(10,420		)	(12,577		)
Other	(13,529		)	(13,247		)
Gross deferred tax assets	(23,949		)	(25,824		)
Valuation allowances	2,995			2,242
Deferred tax assets, net of valuation allowances	(20,954		)	(23,582		)
Net deferred tax liabilities	$	36,530		$	31,237

At December 31, 2018, the Company had total net operating loss carry forwards of $11.9 million, which included $0.6 million for federal, $9.6 million for state, and $1.7 million for foreign income tax purposes. The federal and state net operating loss carry forwards expire between 2019 and 2038. The foreign net operating loss carry forwards expire between 2022 and 2026. The Company recognized a total of $1.2 million of deferred tax assets, net of the federal tax benefit, related to these net operating losses prior to any valuation allowances, which included $0.1 million of federal, $0.6 million of state, and $0.5 million of foreign deferred tax assets.

Deferred taxes include net deferred tax assets relating to certain state and foreign tax jurisdictions. A reduction of the carrying amount of deferred tax assets by a valuation allowance is required if it is more likely than not that such assets will not be realized. The valuation allowances on the net operating loss in Germany and Brazil were reversed since we exited both markets. The following sets forth a reconciliation of the beginning and ending amount of the Company’s valuation allowance (in thousands):



	2018			2017			2016
Balance as of January 1	$	2,242		$	1,362		$	766
Cost charged to the tax provision	2,597			1,505			983
Reductions	(1,750		)	(820		)	(338		)
Currency translation	(94		)	195			(49		)
Balance as of December 31	$	2,995		$	2,242		$	1,362

The Company made net payments for income taxes for the following amounts for the years ended December 31 (in thousands):



	2018		2017		2016
Payments made for income taxes, net	$	15,167	$	26,186	$	17,700

At December 31, 2018, the Company had approximately $30.0 million of undistributed earnings of foreign subsidiaries. The Company expects to execute a one-time repatriation of $22.5 million in cash to the U.S., net of withholding tax. The funds will be used for general corporate purposes. The Company continues to maintain its assertion that all remaining foreign earnings will be indefinitely reinvested. Any excess earnings could be used to grow the Company's foreign operations through launches of new capital projects or additional acquisitions. Determination of the amount of unrecognized deferred U.S. income tax liability related to our remaining unremitted foreign earnings is not practicable due to the complexities associated with its hypothetical calculation.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):



	2018			2017			2016
Balance as of January 1	$	3,536		$	3,466		$	3,876
Additions for tax positions of the current year	15			99			33
Additions for tax positions of prior years	—			—			—
Reductions for tax positions of prior years for:
Settlements and changes in judgment	—			(422		)	(256		)
Lapses of applicable statute of limitations	(3,060		)	—			—
Divestitures and foreign currency translation	(162		)	393			(187		)
Balance as of December 31	$	329		$	3,536		$	3,466

In 2018 and 2017, the unrecognized tax benefits of $0.3 million and $3.5 million, respectively, would affect the effective tax rate, if recognized as of December 31, 2018 and 2017. $3.1 million of unrecognized tax benefits related to the acquisition was reversed in 2018 as a result of the lapse of the statute of limitations. The corresponding indemnification asset was also reversed in pretax income. The Company classifies accrued interest and penalties related to unrecognized tax benefits in income tax expense.

The Company and its U.S. subsidiaries file a U.S. federal consolidated income tax return. Foreign and U.S. state jurisdictions have statute of limitations generally ranging from four to ten years. The Company's U.S. federal consolidated income tax return is under examination for 2015 and remains subject to examination for 2016 and 2017.

Interest (net of federal tax benefit) and penalties recognized during the years ended December 31 were (in thousands):



	2018		2017		2016
Interest and penalties recognized as income	$	13	$	130	$	122