

	2018			2017			2016
Current
Federal	$	(2,379	)	$	458		$	(2,040	)
State	(65		)	(614		)	(62		)
Foreign	11,497			10,574			6,063
	9,053			10,418			3,961
Deferred
Federal	—			—			—
State	—			—			—
Foreign	(2,291		)	785			(680		)
	(2,291		)	785			(680		)
Income tax provision	$	6,762		$	11,203		$	3,281

The income tax provision differs from the amount of income tax determined by applying the statutory U.S. federal income tax rate to pre-tax income (loss) as a result of the following:



	2018		2017		2016
Statutory U.S. federal tax rate	21.0	%	35.0	%	35.0	%
Unrecognized tax positions	(12.4	)	(2.3	)	6.5
Impact of foreign income	(8.8	)	(8.0	)	26.9
Valuation allowance	(0.2	)	16.5		(73.6	)
State taxes, net	0.3		0.8		0.1
Nondeductible royalty	3.8		(1.4	)	(1.9	)
Tax Cuts and Jobs Act	26.6		(62.7	)	—
Other, net	3.8		0.9		(2.0	)
Effective tax rate	34.1	%	(21.2	)%	(9.0	)%

The effective tax rate for the year ended December 31, 2018, was 34.1% as compared to a negative 21.2% for the year ended December 31, 2017. The Company recorded a pre-tax loss in 2017 and had a negative effective tax rate which represents tax expense in the consolidated financial statements.

In jurisdictions where the Company operates its businesses, management analyzes the ability to utilize its deferred tax assets arising from losses in its cyclical business. The Company continues to record a valuation allowance in several jurisdictions, including the U.S., various U.S. states, Italy, Australia, and Luxembourg as these amounts remain more likely than not that the deferred tax assets would not be utilized. The Company recorded a valuation allowance of $(0.1) million and $8.7 million on the net deferred tax asset in 2018 and 2017, respectively. This amount is primarily related to net operating losses generated from operations in these certain countries.

The Company is involved in various tax matters, for some of which the outcome is uncertain. The IRS issued a final audit report during 2017 for the tax years 2010 through 2014. The Company recorded a net expense of $0.5 million to reflect the final audit results. The Company believes that it has adequate tax reserves to address these open tax matters acknowledging that the outcome and timing of these events are uncertain.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2018 and 2017, were as follows (amounts in thousands):



	2018			2017
Deferred tax assets:
Net operating loss carryforwards	$	121,804		$	118,303
Pension	5,718			5,462
Inventory	4,863			4,957
Warranty	4,376			4,847
Employee benefits and related costs	10,006			14,061
Prepaid royalties	4,780			4,383
Interest limitation	4,606			—
Other	19,360			20,930
Deferred tax assets	175,513			172,943
Deferred tax liabilities:
Fixed assets	(25,207		)	(28,769		)
Intangible assets	(3,474		)	(4,301		)
Other	(1,820		)	(1,396		)
Deferred tax liabilities	(30,501		)	(34,466		)
Subtotal	145,012			138,477
Valuation allowance	(151,554		)	(148,243		)
Net deferred tax liability	$	(6,542	)	$	(9,766	)

As of December 31, 2018 and 2017, certain tax loss carryforwards of $121.8 million and $118.3 million were available with $2.4 million expiring between 2018 and 2023 and $119.4 million expiring after 2023. At December 31, 2018, a valuation allowance of $151.6 million has been established. The net change in the valuation allowance was $3.3 million and $5.5 million for 2018 and 2017, respectively. The majority of the valuation allowance is related to deferred tax assets in the U.S., Italy, Australia, and Luxembourg.

The Company has $158.1 million of Federal net operating loss carryforward, a portion of which expires starting in 2034. Additionally, the Company has $239.5 million of state net operating losses and $293.7 million of foreign loss carryforwards.

The Tax Cuts and Jobs Act was enacted on December 22, 2017. The Tax Cuts and Jobs Act includes a number of changes in existing tax law impacting businesses, including a one-time deemed repatriation of cumulative undistributed foreign earnings and a permanent reduction in the U.S. federal statutory rate from 35% to 21%, effective on January 1, 2018. Under U.S. GAAP, changes in tax rates and tax law are accounted for in the period of enactment and deferred tax assets and liabilities are re-measured at the enacted tax rate. The re-measured U.S. net deferred asset was fully offset by a change in the valuation allowance. The Company’s net cumulative undistributed foreign earnings were a cumulative loss and therefore no additional income tax expense related to the one-time deemed repatriation toll charge was recorded in 2017.

As a result of the Tax Cuts and Jobs Act, the Company can repatriate future foreign earnings back to the U.S. when needed with minimal additional taxes other than state income and foreign withholding tax. The Company has not changed its indefinite reinvestment assertion in light of the Tax Cuts and Jobs Act and has not accrued any potential incremental taxes which could be incurred if any foreign earnings are repatriated. The Company has not calculated the potential foreign withholding taxes as the Company does not expect to repatriate those earnings.

The Company or one of its subsidiaries files income tax returns in the U.S., Federal and State, and various foreign jurisdictions. The Company’s major locations are in the U.S., Italy, Australia, Russia, and Brazil. The IRS issued a final audit report in 2017 for the 2010-2014 U.S. Federal tax returns and the Company adjusted its uncertain tax reserves. The Company also has ongoing tax audits with non-U.S. jurisdictions. Italy has open tax years from 2013-2018. Russia has open tax years from 2016-2018. Australia has open tax years from 2014-2018 and Brazil has open tax years from 2011-2018.

The Company has applied the provisions of ASC 740, “Income Taxes” related to unrecognized tax benefits. At December 31, 2018, 2017, and 2016, the unrecognized tax benefits were $8.9 million, $11.4 million, and $16.1 million, respectively. As of December 31, 2018, $8.9 million of unrecognized tax benefits would have affected income tax expense if the tax benefits were recognized. The majority of the accrual in unrecognized tax benefits relates to potential state tax exposures. Although management cannot predict with any degree of certainty the timing of ultimate resolution of matters under review by various taxing jurisdictions, it is possible that the Company’s gross unrecognized tax benefits balance will decrease by approximately $3 million within the next twelve months.



	2018			2017			2016
Balance at January 1	$	9,365		$	12,468		$	14,698
Increases to tax positions taken during the current year	19			127			288
Increases to tax positions taken during the prior years	—			6,045			3,201
Decreases to tax positions taken during prior years	(1,336		)	(858		)	(5,257		)
Decreases due to lapse of statutes of limitations	(637		)	(297		)	(4		)
Settlements	—			(8,095		)	(476		)
Foreign exchange	(5		)	(25		)	18
Balance at December 31	$	7,406		$	9,365		$	12,468