Income Taxes

The components of Income from continuing operations before income taxes and Income taxes follow:



	2016			2015			2014
Income from continuing operations before income taxes:
U.S.	$	34,129		$	11,525		$	33,070
International	148,492			146,421			133,430
Income from continuing operations before income taxes	$	182,621		$	157,946		$	166,500
Income tax provision:
Current:
U.S. – federal	$	7,215		$	(210	)	$	22,673
U.S. – state	755			2,019			1,236
International	41,516			32,217			35,954
	49,486			34,026			59,863
Deferred:
U.S. – federal	$	6,091		$	7,670		$	(6,737	)
U.S. – state	1,060			(1,137		)	1,279
International	(9,617		)	(3,993		)	(8,446		)
	(2,466		)	2,540			(13,904		)
Income taxes	$	47,020		$	36,566		$	45,959

Deferred income tax assets and liabilities at December 31 consist of the tax effects of temporary differences related to the following:



	2016			2015
Deferred tax assets:
Pension	$	27,410		$	25,331
Tax loss carryforwards	16,686			15,330
Inventory valuation	15,518			15,938
Other postretirement/postemployment costs	14,071			15,753
Accrued Compensation	10,121			10,242
Other	6,489			5,880
Valuation allowance	(14,957		)	(14,401		)
Total deferred tax assets	75,338			74,073
Deferred tax liabilities:
Depreciation and amortization	(89,198		)	(81,158		)
Goodwill	(14,871		)	(14,545		)
Other	(12,282		)	(16,313		)
Total deferred tax liabilities	(116,351		)	(112,016		)
Net deferred tax liabilities	$	(41,013	)	$	(37,943	)

In the first quarter of 2016, the Company prospectively adopted the amended guidance related to the balance sheet classification of deferred income taxes. The amended guidance removed the requirement to separate and classify deferred income tax liabilities and assets into current and non-current amounts and required an entity to now classify all deferred tax liabilities and assets as non-current. The provisions of the amended guidance were adopted on a prospective basis during the first quarter of 2016. Amounts related to deferred taxes in the balance sheets as of December 31, 2016 and 2015 are presented as follows:



	2016			2015
Current deferred tax assets	$	—		$	24,825
Non-current deferred tax assets	25,433			1,139
Current deferred tax liabilities (included in accrued liabilities)	—			(1,543		)
Non-current deferred tax liabilities	(66,446		)	(62,364		)
Net deferred tax liabilities	$	(41,013	)	$	(37,943	)

The standards related to accounting for income taxes require that deferred tax assets be reduced by a valuation allowance if, based on all available evidence, it is more likely than not that the deferred tax asset will not be realized. Available evidence includes the reversal of existing taxable temporary differences, future taxable income exclusive of temporary differences, taxable income in carryback years and tax planning strategies.

Management believes that sufficient taxable income should be earned in the future to realize the net deferred tax assets principally in the United States. The realization of these assets is dependent in part on the amount and timing of future taxable income in the jurisdictions where deferred tax assets reside. The Company has tax loss carryforwards of $68,752; $2,757 which relates to U.S tax loss carryforwards which have carryforward periods up to 18 years for federal purposes and ranging from one to 20 years for state purposes; $55,882 of which relates to international tax loss carryforwards with carryforward periods ranging from one to 20 years; and $10,113 of which relates to international tax loss carryforwards with unlimited carryforward periods. In addition, the Company has tax credit carryforwards of $154 with remaining carryforward periods ranging from one year to 5 years. As the ultimate realization of the remaining net deferred tax assets is dependent upon future taxable income, if such future taxable income is not earned and it becomes necessary to recognize a valuation allowance, it could result in a material increase in the Company’s tax expense which could have a material adverse effect on the Company’s financial condition and results of operations.

The Company has not recognized a deferred income liability for U.S. taxes on $1,081,352 of undistributed earnings of its international subsidiaries, since such earnings are considered to be reinvested indefinitely as defined per the indefinite reversal criterion within the accounting guidance for income taxes. If the earnings were distributed in the form of dividends, the Company would be subject, in certain cases, to both U.S. income taxes and foreign income and withholding taxes. Determination of the amount of this unrecognized deferred income tax liability is not practicable. During 2016, the Company repatriated a dividend from a portion of current year foreign earnings to the U.S. in the amount of $8,328. As a result of the dividend, tax expense increased by $2,890 and the 2016 annual consolidated effective income tax rate increased by 1.6 percentage points.

A reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate from continuing operations follows:



	2016		2015		2014
U.S. federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State taxes (net of federal benefit)	0.4		0.2		0.5
Foreign losses without tax benefit	0.7		1.1		1.1
Foreign operations taxed at lower rates	(10.9	)	(12.9	)	(9.9	)
Repatriation from current year foreign earnings	1.6		4.3		2.6
Tax withholding refund	—		(1.9	)	—
Tax Holidays	(1.2	)	(3.2	)	(2.7	)
Stock awards excess tax benefit	(1.2	)	—		—
Other	1.3		0.6		1.0
Consolidated effective income tax rate	25.7	%	23.2	%	27.6	%

The Aerospace and Industrial Segments were previously awarded a number of multi-year tax holidays in both Singapore and China. Tax benefits of $2,245 ($0.04 per diluted share), $5,000 ($0.09 per diluted share) and $4,513 ($0.08 per diluted share) were realized in 2016, 2015 and 2014, respectively. These holidays are subject to the Company meeting certain commitments in the respective jurisdictions. The significant tax holidays are due to expire in 2017.

Income taxes paid globally, net of refunds, were $40,842, $31,895 and $33,146 in 2016, 2015 and 2014, respectively.

As of December 31, 2016, 2015 and 2014, the total amount of unrecognized tax benefits recorded in the consolidated balance sheet was $13,320, $10,634 and $8,560, respectively, which, if recognized, would have reduced the effective tax rate in prior years, with the exception of amounts related to acquisitions. A reconciliation of the unrecognized tax benefits for 2016, 2015 and 2014 follows:



	2016		2015			2014
Balance at January 1	$	10,634	$	8,560		$	8,027
Increase (decrease) in unrecognized tax benefits due to:
Tax positions taken during prior periods	—		1,691			533
Tax positions taken during the current period	117		—			—
Acquisition	2,569		598			—
Lapse of the applicable statute of limitations	—		(215		)	—
Balance at December 31	$	13,320	$	10,634		$	8,560

The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense. The Company recognized interest and penalties as a component of income taxes of $(337), $616, and $0 in the years 2016, 2015, and 2014 respectively. The liability for unrecognized tax benefits include gross accrued interest and penalties of $1,838, $1,923 and $1,031 at December 31, 2016, 2015 and 2014, respectively.

The Company or its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by various taxing authorities, including the IRS in the U.S. and the taxing authorities in other major jurisdictions including China, Germany, Singapore, Sweden and Switzerland. With a few exceptions, tax years remaining open to examination in significant foreign jurisdictions include tax years 2010 and forward and for the U.S. include tax years 2014 and forward. The Company is under audit in Germany for tax years 2010 to 2014 and is also under audit in several U.S. states for the period 2011 through 2013.