Note

– Income Taxes

The Company is subject to income tax in multiple jurisdictions and the use of estimates is required to determine the

provision for income taxes. For the years ended

December

31,

2017,

2016

and

2015,

the Company recorded an income tax provision of

$22.7

million,

$21.5

million and

$21.3

million, respectively. The effective income tax rate for the years ended

December

31,

2017,

2016

and

2015

was

30.4

percent,

33.4

percent and

31.5

percent, respectively.

The effective tax rate decreased by

3.0%

for the year ended

December 31,

2017

when compared to

2016

primarily due to the impact of tax reform. The Tax Cuts and Jobs Act (the "Act") was enacted on

December 22, 2017.

The Act reduces the U.S. federal corporate tax rate from

35%

21%,

requires companies to pay a transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. The reduction to the U.S. tax rate resulted in revaluing deferred tax liabilities which provided a tax benefit of

$4.2

million. At

December 31, 2017,

we have

not

completed our accounting for the tax effects of the enactment of the Act. However, we have made a reasonable estimate on the effects of the transition tax and recognized a provisional

amount of

$2.4

million which is included as a component of income tax expense from continuing operations. The foreign tax effects of the transition tax is based on our total post-

1986

earnings and profits (E&P) that we previously deferred from U.S. income taxes. We have

not

yet completed our calculation of the total post-

1986

E&P. Furthermore, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount

may

change when we finalize the calculation of post-

1986

foreign E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets.

additional income taxes have been provided for any remaining undistributed foreign earnings

not

subject to the transition tax or any additional outside basis difference inherent in these entities as these amounts continue to be indefinitely reinvested in foreign operations.

The provision for income taxes is based on income before income taxes reported for financial statement purposes. The components of income before income taxes are as follows:


	Year Ended December 31,
(in thousands)	2017		2016		2015

Domestic	$	69,929	$	59,232	$	59,421
Foreign		4,506		4,989		8,440
Total	$	74,435	$	64,221	$	67,861

Significant components of the provision for income taxes for the following periods are as follows:


	Year Ended December 31,
(in thousands)	2017			2016			2015

Current:
Federal	$	17,808		$	15,119		$	15,845
State		1,367			1,091			1,074
Foreign		2,215			2,439			1,591
Deferred
Federal		865			2,758			2,798
State		193			75			(38	)
Foreign		(1,918	)		(1,960	)		294
Valuation Allowance		2,127			1,992			(217	)
Total	$	22,657		$	21,514		$	21,347

A reconciliation of the federal statutory income tax rate to the effective tax rate is as follows:


	Year Ended December 31,
	2017			2016			2015

Federal tax statutory rate		35.0	%		35.0	%		35.0	%
State tax (net of federal benefit)		1.7			0.6			0.5
Qualified subsidiary election		(0.6	)		(0.8	)		0.6
Valuation allowance against deferred tax assets		2.9			3.1			(0.3	)
Research and development credit		(2.2	)		(2.2	)		(2.9	)
Foreign rate differential		(1.9	)		(2.8	)		(1.8	)
Tax reserves		0.9			1.4			1.5
Domestic manufacturing deduction		(2.5	)		(1.8	)		(1.4	)
Miscellaneous		(0.4	)		0.9			0.3
Transition tax		3.2			-			-
Revaluation of deferred tax liability		(5.7	)		-			-
Total		30.4	%		33.4	%		31.5	%

As a result of the Tax Cuts and Jobs Act enacted on

December 22, 2017,

we have recorded a transition tax and recognized a provisional amount of

$2.4

million which is included as a component of our

2017

income tax expense from

continuing operations. In addition, we recorded a tax benefit of

$4.2

million in

2017

resulting from the revaluation of our net deferred tax liabilities utilizing the new U.S. federal corporate income tax rate.

Significant components of deferred tax assets and liabilities are as follows:


	December 31,
(in thousands)	2017			2016

Deferred tax assets:
Accrued expenses	$	756		$	857
Warrants and stock options		2,309			3,226
Intangibles		429			612
Inventories		220			169
Other assets		625			983
Net operating loss		6,374			4,333
Less valuation allowance		(6,633	)		(4,559	)
Total deferred tax assets		4,080			5,621
Deferred tax liabilities:
Depreciation		(9,528	)		(10,860	)
Goodwill		(1,518	)		(1,764	)
Total deferred tax liabilities		(11,046	)		(12,624	)
Net deferred tax liability	$	(6,966	)	$	(7,003	)

The Company has recorded

U.S. deferred taxes related to the undistributed earnings of its non-U.S. subsidiaries as of

December

31,

2017.

Such amounts are intended to be reinvested outside of the United States indefinitely. It is

not

practicable to estimate the amount of additional tax that might be payable on the foreign earnings. As of December

31,

2017,

the Company had accumulated undistributed earnings in non-U.S. subsidiaries of

$26.5

million.

As of

December 31, 2017

, the Company had estimated net operating loss carry forwards of

$21.9

million for tax purposes. The net operating losses relate to operations in Japan and Germany. Japan losses can be carried forward for

ten

years but are limited to

percent of taxable income. Germany net operating losses

may

be carried forward without any time limitations but are limited to

€1

million, plus

percent of taxable income exceeding

€1

million. Japan net operating losses begin to expire at various dates between

2018

and

2026.

The Company’s Japan operations are taxed both by local authorities and in the U.S. Accordingly, a portion of Japan net operating losses has been recognized as a benefit in the U.S.

The Company establishes valuation allowances for deferred tax assets when, after consideration of all positive and negative evidenc

e, it is considered more-likely-than-

not

that a portion of the deferred tax assets will

not

be realized. The Company's valuation allowances of

$6.6

million and

$4.6

million at

December 31, 2017

and

2016,

respectively, reduce the carrying value of deferred tax assets associated with certain net operating loss carry forwards and other assets with insufficient positive evidence for recognition. The increase in the valuation allowance is primarily attributable to fluctuations in foreign currency and the net operating losses incurred in Japan and Germany in

2017.

The Company files a U.S. federal income tax return and income tax returns in various states and foreign jurisdictions. With a few exceptions, the Company is

longer subject to U.S. federal, state, or foreign income tax examinations by tax a

uthorities for years before

2013.

The Company has liabilities related to unrecognized tax

benefits totaling

$4.2

million and

$3.8

million at

December 31, 2017

and

2016,

respectively, that if recognized would result in a reduction of the Company’s effective tax rate. The liabilities are classified as other long-term liabilities in the accompanying consolidated balance sheets. The Company does

not

anticipate that total unrecognized tax benefits will materially change in the next

twelve

months. The Company recognizes interest and penalties related to income tax matters in income tax expense and reports the liability in current or long-term income taxes payable as appropriate. Interest and penalties were immaterial for each of the years ended

December 31, 2017,

2016

and

2015.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


	December 31,
	2017			2016

Balance at beginning of period	$	3,796		$	2,769
Additions for tax positions of current year		831			1,077
Additions for tax positions of prior years		48			170
Decrease related to expiration of statutes of limitations		(442	)		(220	)
Balance at period end	$	4,233		$	3,796