11.	Income Taxes

We reasonably estimated the effects of the Tax Reform Act and recorded provisional amounts in our financial statements as of December 31, 2017. We recorded a provisional tax detriment for the impact of Tax Reform Act of approximately $47.7 million. This amount was primarily comprised of a valuation allowance on foreign tax credits, reversal of indefinite reinvestment, reduction of FIN 48 assets, write-off of net outside basis deferred tax liabilities, tax effect on other comprehensive income, and remeasurement of deferred tax assets. Changes to the provisional amounts recorded at the end of 2017 were not material to the financial results reported during 2018. In 2018, we completed our determination of the accounting implications of the Tax Reform Act. The Company continues to analyze the effects of new taxes due on certain foreign income, such as GILTI (global intangible low-taxed income), BEAT (base-erosion anti-abuse tax), FDII (foreign-derived intangible income), limitations on the deductibility of executive compensation, limitations on interest expense deductions (if certain conditions apply), and other provisions of the Tax Reform Act that were effective starting in 2018. Under U.S. GAAP, the company has elected to treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”).

Consolidated income before provision for income taxes consists of the following for the years ended December 31, 2018, 2017 and 2016 (U.S. dollars in thousands):

	2018			2017		2016

U.S.	$	(67,087	)	$	1,135	$	(19,119	)
Foreign		286,753			264,432		231,958
Total	$	219,666		$	265,567	$	212,839

The provision for current and deferred taxes for the years ended December 31, 2018, 2017 and 2016 consists of the following (U.S. dollars in thousands):

	2018			2017			2016
Current
Federal	$	─		$	(14,358	)	$	─
State		652			1,814			(718	)
Foreign		116,303			104,688			70,652
		116,955			92,144			69,934
Deferred
Federal		(17,836	)		45,593			(27,171	)
State		(1,974	)		(2,273	)		1,104
Foreign		634			666			25,886
		(19,176	)		43,986			(181	)
Provision for income taxes	$	97,779		$	136,130		$	69,753

The principal components of deferred taxes are as follows (U.S. dollars in thousands):

	Year Ended December 31,
	2018			2017
Deferred tax assets:
Inventory differences	$	4,257		$	2,861
Foreign tax credit and other foreign benefits		62,521			52,408
Stock-based compensation		7,893			6,327
Accrued expenses not deductible until paid		40,509			39,326
Foreign currency exchange		1,023			2,001
Net operating losses		4,522			5,230
Capitalized research and development		11,988			197
Interest expense limitation – 163(j)		847			─
R&D credit carryforward		807			─
Other		339			211
Gross deferred tax assets		134,706			108,561
Deferred tax liabilities:
Foreign currency exchange		124			874
Foreign withholding taxes		21,524			29,018
Intangibles step-up		5,763			6,568
Overhead allocation to inventory		2,857			3,977
Amortization of intangibles		15,812			11,475
Foreign outside basis in controlled foreign corporation		─			─
Other		833			2,676
Gross deferred tax liabilities		46,913			54,588
Valuation allowance		(68,697	)		(56,906	)
Deferred taxes, net	$	19,096		$	(2,933	)

At December 31, 2018, the Company had foreign operating loss carryforwards of $14.8 million for tax purposes, which will be available to offset future taxable income. If not used, $4.4 million of carryforwards will expire between 2019 and 2028, while $10.4 million do not expire. A valuation allowance has been placed on foreign operating loss carryforwards of $14.8 million. In addition, a valuation allowance has been recorded on the foreign tax credit carryforward, the interest expense limitation, and the R&D credit carryforward of $64.3 million which will expire between 2026 and 2028.

The Company uses the tax law ordering approach when determining when excess tax benefits have been realized.

The valuation allowance has been recognized for the foreign tax credit, the foreign net operating loss carryforwards, the interest expense limitations and the R&D credit carryforward. The valuation allowances were recognized for assets which it is more likely than not some portion or all of the deferred tax asset will not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary difference, projected future taxable income, tax planning strategies and recent financial operations. When the Company determines that there is sufficient positive evidence to utilize the foreign tax credits, the foreign net operating losses, the interest expense limitation, or the R&D credit carryforward, the valuation will be released which would reduce the provision for income taxes.

The deferred tax asset valuation adjustments for the years ended December 31, 2018, 2017 and 2016 are as follows (U.S. dollars in thousands):

	Year Ended December 31,
	2018			2017			2016

Balance at the beginning of period	$	56,906		$	9,137		$	49,271
Additions charged to cost and expenses		27,902	⁽¹⁾		53,983	⁽⁴⁾		692
Decreases		(16,215	)⁽²⁾		(6,400	)⁽⁵⁾		(40,442	)⁽⁶⁾
Adjustments		104	⁽³⁾		186	⁽³⁾		(384	)⁽³⁾
Balance at the end of the period	$	68,697		$	56,906		$	9,137

⁽¹⁾

Increase in valuation is due primarily to $27.2 million that was recorded on the foreign tax credit carryforward. The additional amount is due to research and development credits, interest expense limitation (163(j)), and net operating losses in foreign markets.

⁽²⁾

The decrease was due primarily to the utilization of foreign tax credits, the conversion of foreign tax credits to NOL’s at the filing of the US 2017 Income Tax return (note NOL’s were absorbed in 2018 due to GILTI inclusion), utilization, and expiration of foreign NOL’s.

⁽³⁾

Represents the net currency effects of translating valuation allowances at current rates of exchange.

⁽⁴⁾

Increase in valuation is due primarily to the $52.0 million that was recorded on the foreign tax credit carryforward. The additional amount is due to net operating losses in foreign markets

⁽⁵⁾

Decrease is due primarily to the write-off of Brazil deferred tax assets, which had no impact to the income statement, as a valuation allowance had been previously recorded against the asset.

⁽⁶⁾

Decrease in valuation allowance due to lapse in statute of limitation of the net operating losses carryforward and due to the write off of Venezuelan deferred tax assets, which had no impact to the income statement.

The components of deferred taxes, net on a jurisdiction basis are as follows (U.S. dollars in thousands):

	Year Ended December 31,
	2018		2017

Net noncurrent deferred tax assets	$	37,332	$	33,785

Net noncurrent deferred tax liabilities		18,236		36,718

Deferred taxes, net	$	19,096	$	(2,933	)

The Company is subject to regular audits by federal, state and foreign tax authorities. These audits may result in proposed assessments that may result in additional tax liabilities.

The actual tax rate for the years ended December 31, 2018, 2017 and 2016 compared to the statutory U.S. Federal tax rate is as follows:

	Year Ended December 31,
	2018			2017			2016

Income taxes at statutory rate		21.00	%		35.00	%		35.00	%
Indefinite reinvestment		(2.73	)		2.75			(1.98	)
Excess tax benefit from equity award		(1.41	)		(2.38	)		─
Non-U.S. income taxed at different rates		7.37			─			─
Foreign withholding taxes		7.68			─			─
Change in reserve for uncertain tax positions		3.68			─			─
Non-deductible expenses		─			0.17			0.11
Controlled foreign corporation losses		─			(0.13	)		(2.63	)
Valuation allowance recognized foreign tax credit & others		5.54			19.59			─
Write-off outside basis DTL		─			(2.89	)		─
Revaluation of deferred taxes		1.61			(1.28	)		─
Section 987 implementation		─			─			2.69
Other		1.77			0.43			(0.42	)
		44.51	%		51.26%	%		32.77	%

The effective rate for 2018 was significantly impacted by the restructuring and impairment expenses incurred in Q4 of 2018, as well as additional valuation allowances related to foreign tax credits. The effective tax rate for 2017 was impacted largely due to the Tax Reform Act.

The cumulative amount of undistributed earnings of the Company's non-U.S. Subsidiaries held for indefinite reinvestment is approximately $60.0 million, at December 31, 2018. If this amount were repatriated to the United States, the amount of incremental taxes would be approximately $6.0 million.