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,

2018,

2017

and

2016,

the Company recorded an income tax provision of

$15.1

million,

$22.7

million and

$21.5

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

December

31,

2018,

2017

and

2016

was

16.4

percent,

30.4

percent and

33.4

percent, respectively.

The effective tax rate decreased by

14.0%

for the year ended

December 31,

2018

when compared to

2017

primarily due to the impact of the Tax Cuts and Jobs Act (the “ Act”), which was enacted on

December 22, 2017.

The Act reduced 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 results in revaluing deferred tax liabilities. At

December 31, 2017,

the Company had

not

completed its accounting for the tax effects of the enactment of the Act. However, the Company made a reasonable estimate on the effects of the transition tax and recognized a provisional amount of

$2.4

million which was included as a component of income tax expense from continuing operations. The Company was also required to revalue its deferred tax liabilities to reflect the new U.S. federal corporate income tax rate from the Act which resulted in the recognition of an estimated tax benefit of

$4.2

million in

2017.

December 31, 2018,

the Company completed its accounting for the tax effects of the enactment of the Act. As a result, the Company recorded a tax benefit of

$0.7

million for the final accounting for the transition tax and a tax benefit of

$0.5

million resulting from the completion of the accounting related to the revaluation of its net deferred tax liabilities utilizing the new U.S. federal corporate income tax rate. The impact of the tax effects for the enactment of the Act was a tax benefit of

$3.0

million. The foreign tax effects of the transition tax was based on our total post-

1986

earnings and profits that we previously deferred from U.S. income taxes.

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)	2018		2017		2016

Domestic	$	81,893	$	69,929	$	59,232
Foreign		9,762		4,506		4,989
Total	$	91,655	$	74,435	$	64,221

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


	Year Ended December 31,
(in thousands)	2018			2017			2016

Current:
Federal	$	(782	)	$	17,808		$	15,119
State		2,078			1,367			1,091
Foreign		1,810			2,215			2,439
Deferred
Federal		11,325			865			2,758
State		538			193			75
Foreign		(430	)		(1,918	)		(1,960	)
Valuation Allowance		528			2,127			1,992
Total	$	15,067		$	22,657		$	21,514

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


	Year Ended December 31,
	2018			2017			2016

Federal tax statutory rate		21.0	%		35.0	%		35.0	%
State tax (net of federal benefit)		2.0			1.7			0.6
Share based compensation		(2.8	)		(0.8	)		-
Valuation allowance against deferred tax assets		0.7			2.9			3.1
Research and development credit		(2.5	)		(2.2	)		(2.2	)
Foreign rate differential		(0.1	)		(1.9	)		(2.8	)
Tax reserves		(0.1	)		0.9			1.4
Domestic manufacturing deduction		-			(2.5	)		(1.8	)
Other		(0.5	)		(0.2	)		0.1
Transition tax		(0.8	)		3.2			-
Revaluation of deferred tax liability		(0.5	)		(5.7	)		0.0
Total		16.4	%		30.4	%		33.4	%

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


	December 31,
(in thousands)	2018			2017

Deferred tax assets:
Accrued expenses	$	931		$	756
Stock options, restricted stock and other		2,908			2,309
Intangible assets		748			429
Inventories		154			220
Other assets		666			625
Net operating loss		6,605			6,374
Less valuation allowance		(6,900	)		(6,633	)
Total deferred tax assets		5,112			4,080
Deferred tax liabilities:
Depreciation		(21,788	)		(9,528	)
Goodwill		(3,486	)		(1,518	)
Total deferred tax liabilities		(25,274	)		(11,046	)
Net deferred tax liability	$	(20,162	)	$	(6,966	)

The Company has recorded

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

December

31,

2018.

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, 2018,

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

$6.8

million.

As of

December 31, 2018,

the Company had estimated net operating loss carry forwards of

$22.5

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

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

2019

and

2026.

The Company’s Japan operations are taxed both by local authorities and in the U.S.

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

$6.9

million and

$6.6

million at

December 31, 2018

and

2017,

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 Germany in

2018.

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 authorities for years before

2015.

The Company has liabilities related to unrecognized tax benefits totaling

$4.1

million and

$4.2

million at

December 31, 2018

and

2017,

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, 2018,

2017

and

2016.

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


	December 31,
	2018			2017

Balance at beginning of period	$	4,233		$	3,796
Additions for tax positions of current year		593			831
Additions for tax positions of prior years		309			48
Decrease related to expiration of statutes of limitations		(1,039	)		(442	)
Balance at period end	$	4,096		$	4,233