(9) INCOME TAXES

Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries are as follows:



	2017		2016		2015
United States	$	152,372	$	136,682	$	99,175
Foreign	76,092		83,772		(6,168		)
	$	228,464	$	220,454	$	93,007

The 2017 Tax Act was enacted in December 2017 which comprised a number of changes to the U.S. Internal Revenue Code that impact corporations beginning in 2018; 1) a reduction in the statutory federal corporate income tax rate from 35% to 21%, 2) limiting or eliminating certain tax deductions, and 3) changing the taxation of unremitted foreign earnings. The Company estimated and recognized approximately $41,935 of tax expense for the 2017 Tax Act. The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the 2017 Tax Act (see footnote 1).

The Company's accounting for the following element of the 2017 Tax Act is complete:

Reduction of U.S. federal corporate tax rate: The 2017 Tax Act reduces the corporate tax rate to 21 percent, effective January 1, 2018. Consequently, we have recorded a decrease related to deferred taxes of $20,372, with a corresponding net adjustment to deferred income tax expense for the year ended December 30, 2017.

(9) INCOME TAXES (Continued)

The Company's accounting for the following elements of the 2017 Tax Act is provisional. However, reasonable estimates of certain effects were made and, therefore, the Company recorded the following:

Deemed Repatriation transition tax: The Deemed Repatriation transition tax (“Transition Tax”) is a tax on previously untaxed accumulated and current earnings and profits (“E&P”) of certain of our foreign subsidiaries, which subjected the Company's unremitted foreign earnings of approximately $400,000 to tax at certain specified rates less associated foreign tax credits. To determine the amount of the Transition Tax, the Company determined, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. The Company was able to make a reasonable estimate of the Transition Tax and recorded a provisional Transition Tax obligation of $9,890. The federal portion of this is payable over eight (8) years. However, the Company may adjust this amount in 2018 to more precisely compute the amount of the Transition Tax after assessing additional implementation guidance from the IRS, state tax authorities, the SEC, the FASB, or the Joint Committee on Taxation. The Company previously considered the earnings in our non-U.S. subsidiaries to be indefinitely reinvested and, accordingly, recorded no related deferred income taxes.

Indefinite reinvestment assertion: The Company reassessed its position with respect to previously untaxed accumulated foreign earnings in its non-U.S. subsidiaries. The Company has taken the position that earnings subject to the Transition Tax are not indefinitely reinvested. The Company was able to make a reasonable estimate and recorded a provisional amount of the deferred income taxes for foreign withholding taxes and U.S. state income taxes of $10,373 and $1,300, respectively. However, the Company may adjust this amount in 2018 to more precisely compute the amount of the Transition Tax after assessing additional implementation guidance. The Company also continues to gather additional information to determine its permanently reinvested position with respect to future foreign earnings.

Income tax expense (benefit) consists of:



	2017			2016			2015
Current:
Federal	$	49,324		$	41,539		$	23,130
State	4,415			5,467			4,431
Foreign	12,880			19,123			15,077
	66,619			66,129			42,638
Non-current:	(229		)	(381		)	(69		)
Deferred:
Federal	(9,626		)	8,504			3,382
State	(385		)	202			(333		)
Foreign	49,766			(32,391		)	1,809
	39,755			(23,685		)	4,858
	$	106,145		$	42,063		$	47,427

(9) INCOME TAXES (Continued)

The reconciliations of the statutory federal income tax rate and the effective tax rate follows:



	2017		2016		2015
Statutory federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	1.4		1.7		3.1
Carryforwards, credits and changes in valuation allowances	(1.4	)	2.9		(0.1	)
Foreign tax rate differences	(4.1	)	(4.8	)	(5.7	)
Changes in unrecognized tax benefits	(0.1	)	(0.2	)	(0.1	)
Domestic production activities deduction	(2.1	)	(2.0	)	(3.8	)
Goodwill impairment	—		—		11.3
UK tax rate reduction	—		1.0		7.7
Reversal of contingent liability	—		(2.2	)	—
UK defined benefit pension plan	—		(14.6	)	—
Effects of 2017 Tax Act	18.4		—		—
Other	(0.6	)	2.3		3.6
	46.5	%	19.1	%	51.0	%

Fiscal 2016 includes $32,450 of deferred income tax benefit attributable to the re-measurement of the deferred tax asset related to the Company's U.K. defined benefit pension plan. This item arose from a 2016 international legal reorganization executed to better reflect the Company's operational business strategies. The Company considered many factors in effecting this realignment, including streamlining treasury functions, creating a platform for future growth, and capital allocation considerations. In addition, in fiscal 2016 the Company recorded a $9,888 valuation allowance against a tax credit which is not more likely than not to be realized. The reversal of a $16,591 contingent non-current liability in 2016 was not taxable.

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss and tax credit carryforwards. The tax effects of significant items comprising the Company’s net deferred income tax liabilities are as follows:

(9) INCOME TAXES (Continued)



	2017			2016
Deferred income tax assets:
Accrued expenses and allowances	$	13,373		$	16,549
Accrued insurance	818			1,071
Tax credits and loss carryforwards	54,521			104,439
Defined benefit pension liability	47,459			80,425
Inventory allowances	3,433			1,385
Accrued warranty	4,602			9,436
Deferred compensation	29,421			37,988
Gross deferred income tax assets	153,627			251,293
Valuation allowance	(27,864		)	(81,923		)
Net deferred income tax assets	125,763			169,370
Deferred income tax liabilities:
Work in progress	1,805			2,161
Property, plant and equipment	26,826			37,961
Intangible assets	39,613			50,405
Withholding taxes	11,673			—
Other liabilities	1,819			6,164
Total deferred income tax liabilities	81,736			96,691
Net deferred income tax asset	$	44,027		$	72,679

Deferred income tax assets (liabilities) are presented as follows on the Consolidated Balance Sheets:



Balance Sheet Caption	2017			2016
Other assets	$	78,933		$	108,482
Deferred income taxes	(34,906		)	(35,803		)
Net deferred income tax asset	$	44,027		$	72,679

Management of the Company has reviewed recent operating results and projected future operating results. The Company's belief that realization of its net deferred tax assets is more likely than not is based on, among other factors, changes in operations that have occurred in recent years and available tax planning strategies. At December 30, 2017 and December 31, 2016 respectively, there were $54,521 and $104,439 relating to tax credits and loss carryforwards. During 2017, several dormant UK legal entities were placed in liquidation resulting in a reduction of the capital loss carryforward of $60,691. This reduction was fully offset by a reduction in the related valuation allowance.

Valuation allowances have been established for certain losses that reduce deferred tax assets to an amount that will, more likely than not, be realized. The deferred tax assets at December 30, 2017 that are associated with tax loss and tax credit carryforwards not reduced by valuation allowances expire in periods starting 2018.

Uncertain tax positions included in other non-current liabilities are evaluated in a two-step process, whereby (1) the Company determines whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (2) for those tax positions that meet the more likely than not recognition threshold, the Company would recognize the largest amount of tax benefit that is greater than fifty percent likely to be realized upon ultimate settlement with the related tax authority.

(9) INCOME TAXES (Continued)

The following summarizes the activity related to our unrecognized tax benefits in 2017 and 2016, in thousands:



	2017			2016
Gross unrecognized tax benefits—beginning of year	$	3,400		$	3,876
Gross increases—tax positions in prior period	5			99
Gross increases—current‑period tax positions	1,044			695
Settlements with taxing authorities	(65		)	(105		)
Lapse of statute of limitations	(1,188		)	(1,165		)
Gross unrecognized tax benefits—end of year	$	3,196		$	3,400

There are approximately $777 of uncertain tax positions for which reversal is reasonably possible during the next 12 months due to the closing of the statute of limitations. The nature of these uncertain tax positions is generally the computation of a tax deduction or tax credit. During 2017, the Company recorded a reduction of its gross unrecognized tax benefit of $1,188 with $772 recorded as a reduction of income tax expense, due to the expiration of statutes of limitation in the United States. During 2016, the Company recorded a reduction of its gross unrecognized tax benefit of $1,165, with $810 recorded as a reduction of its income tax expense, due to the expiration of statutes of limitation in the United States. In addition to these amounts, there was an aggregate of $187 and $192 of interest and penalties at December 30, 2017 and December 31, 2016, respectively. The Company’s policy is to record interest and penalties directly related to income taxes as income tax expense in the Consolidated Statements of Earnings.

The Company files income tax returns in the U.S. and various states as well as foreign jurisdictions. Tax years 2014 and forward remain open under U.S. statutes of limitation. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $3,059 and $3,328 at December 30, 2017 and December 31, 2016, respectively.