14. Income Taxes

The components of the provision for income taxes were as follows:


	Year Ended December 31
	2016		2015		2014
Current
Federal	$	6,481	$	5,967	$	6,200
State and local		523		577		1,587
Foreign		4,664		6,597		6,138
		11,668		13,141		13,925
Deferred
Federal		(1,795)		5,471		7,506
State and local		435		563		488
Foreign		(4,032)		748		1,219
		(5,392)		6,782		9,213
Provision for income taxes	$	6,276	$	19,923	$	23,138

In the fourth quarter of 2015, the Company completed a U.S. research and development tax credit study for the prior years 2012 – 2014, and the Company recognized a benefit of $1.1 million related to the research and development credit. During 2014, the Internal Revenue Service (IRS) completed its joint committee review of the Company’s 2008 amended income tax return and the Company released net uncertain tax positions including related accrued interest and penalties of $1.4 million, all of which impacted the Company’s effective tax rate in 2014.

Income before income tax provision includes income generated by operations outside the U.S. of $9.6 million, $28.1 million, and $29.0 million for 2016, 2015, and 2014, respectively. No provision has been made for U.S. Federal, state, or additional foreign taxes related to approximately $77.8 million of undistributed earnings of foreign subsidiaries, which have been indefinitely reinvested. Determination of the amount of any such unrecognized deferred income tax liability on this temporary difference is not practicable as such determination involves material uncertainties about the potential extent and timing of any distributions, the availability and complexity of calculating foreign tax credits, and the potential extent and timing of any such distributions, including withholding taxes.

The differences between the U.S. federal statutory tax rate and the Company’s effective income tax rate are as follows:


	Year Ended December 31
	2016		2015		2014
U.S. federal statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal income tax benefit	2.9		1.8		2.2
Tax rate differential on foreign income	(6.5)		(3.1)		(2.9)
Permanent tax differences	3.2		(1.6)		0.3
Valuation allowance	0.8		0.3		—
Settlement of uncertain tax positions	—		—		(1.9)
Tax statute expiration	(0.3)		(0.6)		(0.6)
Change in uncertain tax positions	0.4		0.1		0.1
Deferred tax benefit for Section 987	(2.7)		—		—
Other — net	(1.5)		(0.5)		(0.3)
Effective income tax rate	31.3	%	31.4	%	31.9	%

The Company has the following gross operating loss carryforwards and tax credit carryforwards as of December 31, 2016:


Type	Amount		Expiration Date
Foreign tax credits	$	183	2017
Capital loss carryforwards		2,009	2018
State tax credits (1)		2,184	2023 - 2027; unlimited
Operating loss carryforwards — federal		485	2029
Operating loss carryforwards — state (2)		10,560	2018 - 2036
Operating loss carryforwards — foreign (3)		16,768	2023 - unlimited

(1)

Of the total state tax credit carryforwards, approximately 50% begin to expire in 2023.

(2)

Of the total state operating loss-carryforwards, approximately 92% expire in 2021 or later.

(3)

Of the total foreign tax operating loss carryforwards, approximately 99% have no expiration. The increase from the prior year is primarily due to the New Business.

The components of deferred taxes consist of the following:


	December 31
	2016		2015
Deferred tax assets
Net operating loss and credit carryforwards (1) (2)	$	7,763	$	4,875
Accruals and other timing items		15,824		11,159
Inventories		11,181		15,403
Pensions		12,186		11,303
Valuation allowance		(2,510)		(2,682)
Total deferred tax assets		44,444		40,058
Deferred tax liabilities
Property, plant and equipment	$	45,300	$	49,272
Goodwill and other intangible assets		15,716		6,108
U.S. liability on foreign deferred taxes		1,095		708
Total deferred tax liabilities		62,111		56,088
Net deferred tax liability	$	(17,667)	$	(16,030)

(1)

Uncertain tax liabilities of approximately $0.2 million partially offset the net operating losses and credit carryforwards in both 2016 and 2015.

(2)

Net indirect benefits on uncertain tax liabilities of approximately $72 thousand and $61 thousand are included in the U.S. net operating loss and credit carryforwards in 2016 and 2015, respectively.

A valuation allowance is established when it is more likely than not that a portion of the deferred tax assets will not be realized. The valuation allowance is adjusted based on the changing facts and circumstances, such as the expected expiration of an operating loss carryforward. The Company’s valuation allowance as of December 31, 2016 of $2.5 million pertained to an uncertainty related to the realization of foreign net operating loss carryforwards, domestic capital loss carryforwards, U.S. passive foreign tax credits, and state tax credits. The Company’s valuation allowance as of December 31, 2015 of $2.7 million pertained to an uncertainty related to the realization of foreign net operating loss carryforwards, U.S. foreign tax credits, domestic capital loss carryforwards, and state tax credits.

The Company has classified uncertain tax positions as non-current income tax liabilities unless the amount is expected to be paid within one year. The following is a reconciliation of the unrecognized income tax benefits:


	Year Ended December 31
	2016		2015		2014
Balance as of January 1	$	778	$	1,187	$	3,435
Gross increases for tax positions of current year		108		78		75
Lapse of statute of limitations		(101)		(417)		(500)
Settlement of uncertain tax positions		—		(70)		(1,823)
Balance as of December 31	$	785	$	778	$	1,187

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. In 2016, the Company accrued interest and penalties of approximately $23 thousand on prior year uncertain tax positions and reversed approximately $3 thousand of interest and penalties due to the expiration of the statute of limitations. In 2015, the Company accrued interest and penalties of approximately $33 thousand on current and prior year uncertain tax positions and reversed approximately $0.1 million of interest and penalties due to the expiration of the statute of limitations. As of both December 31, 2016 and 2015, the amount accrued for the payment of interest and penalties is approximately $0.3 million.

Total uncertain tax positions recorded as a component of accrued pension and other liabilities within its consolidated balance sheets were approximately $0.9 million as of December 31, 2016 and 2015. As of both December 31, 2016, and 2015, approximately $0.6 million of unrecognized tax benefits would reduce the Company’s effective tax rate if recognized. At this time, the Company believes that it is reasonably possible that approximately $0.2 million of the estimated unrecognized tax benefits as of December 31, 2016 will be recognized within the next twelve months based on the expiration of statutory review periods all of which will impact the effective tax rate.

As of December 31, 2016, the following tax years remain subject to examination for the major jurisdictions where the Company conducts business:


Jurisdiction		Years
United States		2012 - 2016
Kentucky		2012 - 2016
Pennsylvania		2013 - 2016
Belgium		2013 - 2016
China		2013 - 2016
Germany		2013 - 2016
United Kingdom		2012 - 2016
Japan		2011,2012,2016
Singapore		2012 - 2016
France		2016
Italy		2012 - 2016