Income Taxes

The provisions for income taxes were calculated based on the following components of income (loss) before income taxes:



Year ended December 31, (dollars in thousands)	2018			2017
United States	$	(12,682	)	$	(65,224	)
Non-U.S.	14,979			(12,346		)
Total income (loss) before income taxes	$	2,297		$	(77,570	)

The current and deferred provisions (benefit) for income taxes were:



Year ended December 31, (dollars in thousands)	2018			2017
Current:
U.S. federal	$	1,945		$	(183	)
Non-U.S.	6,780			4,517
U.S. state and local	694			834
Total current income tax provision	9,419			5,168

Deferred:
U.S. federal	687			9,950
Non-U.S.	310			1,190
U.S. state and local	(163		)	(510		)
Total deferred income tax provision	834			10,630

Total:
U.S. federal	2,632			9,767
Non-U.S.	7,090			5,707
U.S. state and local	531			324
Total income tax provision	$	10,253		$	15,798

U.S. income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested outside of the United States. This amount becomes taxable upon a repatriation of assets from the subsidiary or a sale or liquidation of the subsidiary. The amount of such temporary differences totaled $14.6 million and $11.4 million as of December 31, 2018 and 2017, respectively. The amount of unrecognized deferred income tax liability on this temporary difference is $3.0 million and $2.4 million as of December 31, 2018 and 2017, respectively.

Reconciliation from the statutory U.S. federal income tax rate to the consolidated effective income tax rate was as follows:



Year ended December 31,	2018			2017
Statutory U.S. federal income tax rate	21.0		%	35.0		%
Increase (decrease) in rate due to:
Non-U.S. income tax differential	19.9			1.2
U.S. state and local income taxes, net of related U.S. federal income taxes	22.6			0.1
U.S. federal credits	(9.8	)		0.3
Permanent adjustments	27.7			0.6
Foreign withholding taxes	75.9			(2.0	)
Valuation allowances	143.5			(4.4	)
Unrecognized tax benefits	48.4			(3.9	)
Impact of foreign exchange	71.6			(1.6	)
Impact of legislative changes	—			(8.7	)
Goodwill impairment	—			(36.0	)
Other	25.6			(1.0	)
Consolidated effective income tax rate	446.4		%	(20.4	)	%

Deferred income tax assets and liabilities: Deferred income tax assets and liabilities result from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and from income tax carryovers and credits. The significant components of our deferred income tax assets and liabilities are as follows:



December 31, (dollars in thousands)	2018				2017
Deferred income tax assets:
Pension	$	9,722			$	8,108
Non-pension post-retirement benefits	11,712				13,385
Other accrued liabilities	16,477				13,213
Receivables	1,994				2,118
Net operating loss and charitable contribution carryforwards	14,143			(a)	16,599
Tax credits	13,373			(b)	13,288
Total deferred income tax assets	67,421			(c)	66,711
Valuation allowances	(22,068		)		(19,076		)
Net deferred income tax assets	45,353				47,635

Deferred income tax liabilities:
Property, plant and equipment	15,332				18,246
Inventories	1,699				1,639
Intangibles and other	4,987				4,708
Total deferred income tax liabilities	22,018				24,593
Net deferred income tax asset	$	23,335			$	23,042

___________________________


(a)	At December 31, 2018, U.S. operating loss carryforwards of $3.9 million expire between 2019 and 2038, and non-U.S. operating loss carryforwards of $10.2 million expire between 2021 and 2027.


(b)	At December 31, 2018, U.S. general business credit carryforwards of $3.0 million expire between 2024 and 2038. U.S. AMT credits of $1.3 million and the foreign credits of $9.0 million do not expire.


(c)	In order to fully realize our U.S. deferred tax assets as of December 31, 2018, the Company needs to generate approximately $151.9 million of future taxable income.

Valuation Allowances: We currently have a valuation allowance in place on our deferred income tax assets in the Netherlands. We intend to maintain this allowance until a period of sustainable income is achieved and management concludes it is more likely than not that those deferred income tax assets will be realized.

A valuation allowance has been recorded against the deferred tax asset related to the limitation on the U.S. deduction for interest expense. Management concluded that it is not more likely than not that the disallowed interest expense for 2018 can be utilized in future years, due to IRS guidance that was issued in the fourth quarter of 2018. In addition, partial valuation allowances have been recorded against state operating loss carryforwards.

Uncertain Tax Positions: The Company and its subsidiaries are subject to examination by various countries' tax authorities. These examinations may lead to proposed or assessed adjustments to our taxes. In August 2016, one of our Mexican subsidiaries received a tax assessment from the Mexican tax authority (SAT) related to the audit of its 2010 tax year. The amount assessed was approximately 3 billion Mexican pesos, which was equivalent to approximately $157 million U.S. dollars as of the date of the assessment. The Company has filed an administrative appeal with SAT requesting that the assessment be fully nullified. We are awaiting the outcome of the appeal. Management, in consultation with external legal counsel, believes that if contested in the Mexican court system, it is more likely than not that the Company would prevail on all significant components of the assessment. Management intends to continue to vigorously contest all significant components of the assessment in the Mexican courts if they are not nullified at the administrative appeal level. We believe that our tax reserves related to uncertain tax positions are adequate at this time.

A reconciliation of the beginning and ending gross unrecognized tax benefits, excluding interest and penalties, is as follows:



(dollars in thousands)	2018			2017
Beginning balance	$	5,007		$	3,521
Additions based on tax positions related to the current year	438			435
Additions for tax positions of prior years	9			1,735
Reductions for tax positions of prior years	(1,698		)	(468		)
Changes due to lapse of statute of limitations	513			279
Reductions due to settlements with tax authorities	(57		)	(495		)
Ending balance	$	4,212		$	5,007

We recognize interest and penalties related to unrecognized tax benefits in the provision for income taxes. Other disclosures relating to unrecognized tax benefits are as follows:



December 31, (dollars in thousands)	2018		2017
Amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate	$	5,283	$	4,107
Interest, net of tax benefit, accrued in the Consolidated Balance Sheets	$	1,027	$	572
Penalties, accrued in the Consolidated Balance Sheets	$	43	$	38
Interest expense recognized in the Consolidated Statements of Operations	$	523	$	506
Penalties expense (benefit) recognized in the Consolidated Statements of Operations	$	5	$	(67	)

Based upon the outcome of tax examinations, judicial proceedings, other settlements with taxing jurisdictions, or expiration of statutes of limitations, it is reasonably possible that the ultimate resolution of these unrecognized tax benefits may result in a payment that is materially different from the current estimate of the tax liabilities. It is also reasonably possible that gross unrecognized tax benefits may decrease within the next twelve months by approximately $4.1 million due to settlements with tax authorities.

Other Matters: We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. As of December 31, 2018, the tax years that remained subject to examination by major tax jurisdictions were as follows:



Jurisdiction	Open Years
Canada	2015	–	2018
China	2008	–	2018
Mexico (excluding 2011 which is closed)	2010	–	2018
Netherlands	2016	–	2018
Portugal	2008	–	2018
United States (excluding 2013 which is closed)	2011	–	2018

United States Tax Reform: The Tax Cuts and Jobs Act (the Act), signed into law on December 22, 2017, changed many aspects of the U.S. tax code, by reducing the corporate income tax rate from 35 percent to 21 percent, shifting to a territorial tax system with a related one-time transition tax on accumulated, unremitted earnings of foreign subsidiaries, limiting interest deductions, allowing the current expensing of certain capital expenditures, and numerous other changes that applied prospectively beginning in 2018. We recorded a charge of $6.7 million in the fourth quarter of 2017, principally related to re-measurement of the net U.S. deferred income tax assets at the 21 percent tax rate. We applied the guidance in SAB 118 when accounting for the enactment date effects of the Act in 2017 and throughout 2018. As of December 31, 2018, we completed our accounting for all the enactment date income tax effects of the Act. There were no material revisions to the taxes recorded at December 31, 2017.

The Act subjects a U.S. shareholder to tax on Global Intangible Low-Taxed Income (GILTI) earned by certain foreign entities. The FASB Staff Q&A Topic 740, No. 5 "Accounting for Global Low-Taxed Income", states that an entity may make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax expense is incurred as a period expense. We have elected to account for GILTI as a period expense when incurred.