TAXES ON INCOME

Income (loss) before taxes on income was as follows (in thousands):



	Years Ended December 31,
	2018			2017			2016
Domestic	$	8,142		$	(40,007	)	$	23,170
Foreign	(5,187		)	(21,570		)	12,064
Total	$	2,955		$	(61,577	)	$	35,234

Provisions for taxes on income (loss) consisted of the following components (in thousands):



	Years Ended December 31,
	2018			2017			2016
Current:
Federal	$	(4,765	)	$	3,764		$	(636	)
Foreign	6,025			7,512			3,585
State	(651		)	3,351			175
Subtotal	609			14,627			3,124
Deferred:
Federal	947			(8,706		)	2,158
Foreign	(1,531		)	(1,099		)	475
State	(157		)	183			352
Subtotal	(741		)	(9,622		)	2,985
Total tax provision	$	(132	)	$	5,005		$	6,109

Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 21% for 2018 and 35% for 2017 and 2016 to income (loss) before taxes on income as a result of the following (in thousands):



	Years Ended December 31,
	2018			2017			2016
Income taxes (benefit) at U.S. federal statutory tax rate	$	621		$	(21,552	)	$	12,332
Increase (decrease) in taxes resulting from:
Change in the balance of the valuation allowance for deferred tax assets allocated to foreign income tax expense	590			4,598			1,364
Change in the balance of the valuation allowance for deferred tax assets allocated to domestic income tax expense	(944		)	12,755			(4,202		)
State income taxes, net of federal income tax benefit	(798		)	2,270			342
Divestitures	2,133			—			271
Meals and entertainment	517			785			736
Changes in taxes previously accrued	(536		)	(1,339		)	23
Foreign tax rate differences	1,301			913			(2,559		)
Share-based compensation	(1,427		)	131			(90		)
Goodwill impairment	291			6,359			—
Recognition of uncertain tax positions	(218		)	(62		)	85
Deemed mandatory repatriation	(842		)	10,406			—
Release of deferred tax liability on foreign earnings	—			(7,051		)	—
Domestic Production Activities deduction	—			(1,921		)	(1,017		)
Other matters	(820		)	(1,287		)	(1,176		)
Total tax provision	$	(132	)	$	5,005		$	6,109
Effective tax rate	(4.5		)%	(8.1		)%	17.3		%

On December 22, 2017, the U.S. government enacted the TCJA, which includes significant changes to the U.S. corporate income tax system including: (i) a federal corporate rate reduction from 35% to 21%; (ii) limitations on the deductibility of interest expense and executive compensation; (iii) creation of new minimum taxes such as the Global Intangible Low Taxed Income (“GILTI”) tax and the base erosion anti-abuse tax (“BEAT”); and (iv) the transition of U.S. international taxation from a worldwide tax system to a modified territorial tax system, which resulted in a one time U.S. tax liability on those earnings that have not previously been repatriated to the U.S. Beginning in 2018, the Company no longer records U.S. federal income tax on its share of income from foreign subsidiaries and no longer records a benefit for foreign tax credits related to that income.

In its reporting since the TCJA was enacted, the Company had been recording provisional amounts for certain enactment-date effects of the TCJA by applying the guidance in SAB 118 because the enactment-date accounting for these effects had not yet been completed. In 2018 and 2017, the Company recorded a net tax expense related to the enactment-date effects of the TCJA that included recording the one-time transition tax liability related to undistributed earnings of certain foreign subsidiaries that were not previously taxed and adjusting deferred tax assets and liabilities for the changes in the federal tax rate.

The one-time transition tax is based on total post-1986 earnings and profits (“E&P”) that were previously deferred from U.S. income taxes. The tax is based on the amount of those earnings held in cash and other specified assets, either at the end of 2017 or the average of the year end balances for 2015 and 2016. Based on the Company’s initial analysis of the TCJA in 2017, it recorded a provisional estimated net tax expense of $2.4 million, which consisted of a charge of $10.4 million for the deemed mandatory repatriation, and reduced by a $7.1 million release of a deferred tax liability on unremitted foreign earnings and $0.9 million of other TCJA related impacts. Upon further analysis of the TCJA and notices and regulations issued and proposed by the U.S. Department of the Treasury and the Internal Revenue Service (“IRS”), the Company finalized its calculations of the transition tax liability during 2018. Adjustments included further refinement of computations related to earnings and profits, cash and cash equivalents, state income tax and foreign withholding taxes pursuant to guidance issued during the year. The final transition tax liability consisted of a charge of $9.6 million for the deemed mandatory repatriation, and reduced by the $7.1 million release of a deferred tax liability on unremitted foreign earnings and $2.0 million of other TCJA related impacts. The Company decreased its December 31, 2017 provisional amount by $1.9 million during 2018, which is included as a component of income tax expense.

The transition tax liability, as filed on the 2017 federal income tax return and after utilization of foreign tax credits, was $5.2 million. Although Congressional intent and the statutory language were clear that the transition tax could be paid over a period of eight years, and the Company properly elected to pay the transition tax liability over a period of eight years, IRS guidance published in April 2018 indicated that taxpayers in a net overpayment position would have all overpayments first applied to successive installments of the transition tax liability. Legislative proposals were passed in the U.S. House of Representatives in late December 2018 to correct the application of this IRS guidance; however there has been no action in the U.S. Senate to pass legislation addressing this issue. As a result of the overpayment from 2017 and the anticipated utilization of 2018 foreign tax credits, no further tax payments related to the transition tax will be required.

Net deferred taxes consisted of the following (in thousands):



	December 31,
	2018			2017
Deferred income tax assets:
Foreign tax credit carryforwards	$	507		$	466
Net operating loss carryforwards	22,909			23,216
Accrued expenses	12,987			12,107
Other	8,652			4,707
Total gross deferred income tax assets	45,055			40,496
Less valuation allowance	(28,451		)	(29,782		)
Net deferred income tax assets	16,604			10,714
Deferred income tax liabilities:
Property, plant and equipment	(6,038		)	(9,482		)
Intangible assets	(10,609		)	(2,201		)
Other	(6,757		)	(6,576		)
Total deferred income tax liabilities	(23,404		)	(18,259		)
Net deferred income tax liabilities	$	(6,800	)	$	(7,545	)

The Company’s tax assets and liabilities, netted by taxing location, are in the following captions in the balance sheets (in thousands):



	December 31,
	2018			2017
Noncurrent deferred income tax assets, net	$	1,561		$	1,666
Noncurrent deferred income tax liabilities, net	(8,361		)	(9,211		)
Net deferred income tax liabilities	$	(6,800	)	$	(7,545	)

The Company’s deferred tax assets at December 31, 2018 included $22.9 million in federal, state and foreign net operating loss (“NOL”) carryforwards. These NOLs include $14.3 million, which if not used will expire between the years 2019 and 2038, and $8.6 million that have no expiration dates. The Company also has deferred tax amounts related to foreign tax credit carryforwards of $0.5 million, of which, $0.4 million will expire in 2026 if not used and $0.1 million have no expiration date.

For financial reporting purposes, a valuation allowance of $28.5 million has been recognized to reduce the deferred tax assets related to certain federal, state and foreign net operating loss carryforwards and other assets, for which it is more likely than not that the related tax benefits will not be realized, due to uncertainties as to the timing and amounts of future taxable income. The valuation allowance at December 31, 2017 was $29.8 million.

As of December 31, 2018, a valuation allowance has been recorded to record only the portion of the deferred tax asset that is more likely than not to be realized. The amount of the deferred tax asset considered realizable; however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.

Activity in the valuation allowance is summarized as follows (in thousands):



	Years Ended December 31,
	2018			2017			2016
Balance, at beginning of year	$	29,782		$	15,428		$	18,897
Additions	1,879			19,260			3,095
Reversals	(2,102		)	(183		)	(4,984		)
Remeasurement of U.S. deferred tax balances	—			(5,141		)	—
Other adjustments	(1,108		)	418			(1,580		)
Balance, at end of year	$	28,451		$	29,782		$	15,428

As a result of the deemed mandatory repatriation provisions in the TCJA, the Company included $206.7 million of undistributed earnings in income subject to U.S. tax at reduced tax rates. Certain provisions within the TCJA effectively transition the U.S. to a territorial system and eliminates deferral on U.S. taxation for certain amounts of income that are not taxed at a minimum level. At this time, the Company does not intend to distribute earnings in a taxable manner; and therefore, intends to limit distributions to: (i) earnings previously taxed in the U.S.; (ii) earnings that would qualify for the 100 percent dividends received deduction provided in the TCJA; or (iii) earnings that would not result in significant foreign taxes. As a result, the Company has not recognized a deferred tax liability on any remaining undistributed foreign earnings as of December 31, 2018.

FASB ASC 740, Income Taxes (“FASB ASC 740”), prescribes a more-likely-than-not threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASC ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure of uncertain tax positions in financial statements.

A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows (in thousands):



	Years Ended December 31,
	2018			2017			2016
Balance, at beginning of year	$	2,229		$	2,465		$	2,410
Additions for tax positions of prior years related to acquisitions	—			—			148
Additions for tax positions of prior years	8			12			10
Lapse in statute of limitations	(264		)	(274		)	(83		)
Foreign currency translation	(18		)	26			(20		)
Balance, at end of year, total tax provision	$	1,955		$	2,229		$	2,465

The total amount of unrecognized tax benefits, if recognized, that would affect the effective tax rate was $0.4 million at December 31, 2018.

The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2018, 2017 and 2016, approximately $0.2 million, $0.3 million and $0.3 million, respectively, was expensed for interest and penalties.

The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits will change in 2018. The Company has certain tax return years subject to statutes of limitation that will expire within twelve months. Unless challenged by tax authorities, the expiration of those statutes of limitation is expected to result in the recognition of uncertain tax positions in the amount of approximately $0.8 million.

The Company is subject to taxation in the United States, various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state, local or foreign examinations by tax authorities for years before 2014.