Entity information:
Income Taxes
On December 22, 2017, the Act was signed into law. The Act, among other things, reduces the U.S. corporate income tax rate to 21% starting in 2018 and creates a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of U.S. subsidiaries.

The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. As a result of the Act, the Company revalued the ending net deferred tax assets and liabilities at December 31, 2017 and recorded a provisional charge of $48.7 million, included in Income tax expense on the Company’s Consolidated Statement of Operations for 2017.

The Act provides for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary E&P through 2017. Based on an analysis of E&P, no income tax expense was recorded in the Company’s Consolidated Statement of Operations for 2017.


On December 22, 2017, the SEC staff issued SAB 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. The Company has recognized the revaluation of deferred tax assets and liabilities and included these amounts in the consolidated financial statements for 2017. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Act. The accounting is expected to be completed when the Company's 2017 U.S. corporate income tax return is filed in 2018.
Income (loss) from continuing operations before income taxes and equity income as reported on the Consolidated Statements of Operations consists of the following:
(In thousands)
 
2017
 
2016
 
2015
U.S.
 
$
5,694

 
$
(99,939
)
 
$
16,169

International
 
89,757

 
20,468

 
18,646

Total income (loss) from continuing operations before income taxes and equity income
 
$
95,451

 
$
(79,471
)
 
$
34,815


Income tax expense as reported on the Consolidated Statements of Operations consists of the following:
(In thousands)
 
2017
 
2016
 
2015
Income tax expense (benefit):
 
 
 
 
 
 
Currently payable:
 
 
 
 
 
 
U.S. federal
 
$
4,107

 
$
(4,088
)
 
$
408

U.S. state
 
372

 
365

 
546

International
 
21,975

 
18,014

 
23,095

Total income taxes currently payable
 
26,454

 
14,291

 
24,049

Deferred U.S. federal
 
46,470

 
(8,195
)
 
2,651

Deferred U.S. state
 
1,142

 
2,238

 
812

Deferred international
 
9,737

 
(1,697
)
 
166

Total income tax expense
 
$
83,803

 
$
6,637

 
$
27,678


Cash payments for income taxes were $24.9 million, $14.6 million and $18.9 million for 2017, 2016 and 2015, respectively.
A reconciliation of the normal expected statutory U.S. federal income tax expense (benefit) to the actual Income tax expense as reported on the Consolidated Statements of Operations is as follows:
(In thousands)
 
2017
 
2016
 
2015
U.S. federal income tax expense (benefit)
 
$
33,408

 
$
(27,815
)
 
$
12,185

U.S. state income taxes, net of federal income tax benefit
 
786

 
(355
)
 
496

U.S. domestic manufacturing deductions and credits
 
(1,210
)
 
(661
)
 
(2,504
)
Capital loss on sale of equity interest in Brand with no realizable tax benefit
 
—

 
16,106

 
—

Difference in effective tax rates on international earnings and remittances
 
675

 
2,006

 
5,095

Uncertain tax position contingencies and settlements
 
(1,517
)
 
(1,886
)
 
1,416

Changes in realization on beginning of the year deferred tax assets
 
2,758

 
1,978

 
923

Forward Loss Provisions in SBB Contract with no realizable tax benefits
 
—

 
15,768

 
—

Restructuring and impairment charges with no realizable tax benefits
 
—

 
—

 
8,508

U.S. non-deductible expenses
 
664

 
724

 
874

(Income) loss related to the Infrastructure Transaction
 
—

 
(644
)
 
580

Impact of U.S. tax reform
 
48,680

 
—

 
—

Cumulative effect of change in statutory tax rates/laws
 
(153
)
 
(388
)
 
340

Income from unconsolidated entities
 
—

 
2,098

 
62

Other, net
 
(288
)
 
(294
)
 
(297
)
Total income tax expense
 
$
83,803

 
$
6,637

 
$
27,678



At December 31, 2017, 2016 and 2015, the Company's annual effective income tax rate on income from continuing operations was 87.8%, (8.4)% and 79.5%, respectively.



The Company’s international income from continuing operations before income taxes and equity income (loss) was
$89.8 million and $20.5 million for 2017 and 2016, respectively. This includes the estimated forward loss provision related to the SBB contracts of $45.1 million in 2016, on which no tax benefit was recognized because the losses occurred in entities where it is not more likely than not that the tax benefit will be realized. In 2017, because of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Act, the Company revalued its ending net deferred tax asset related to the outside basis difference in its international branches and recognized a provisional $6.5 million tax expense in the Company’s Consolidated Statement of Operations for 2017. The increased international income from continuing operations, the additional valuation allowance on the deferred tax assets in certain jurisdictions and the provisional tax expense because of the Act increased the Company’s total international income tax expense to $31.7 million in 2017 from $16.3 million in 2016.

The Company’s differences in effective tax rates for 2017 and 2016 on international earnings and remittances was $0.7 million and $2.0 million, respectively, which included U.S tax on international deemed remittances of $6.4 million and $7.3 million, respectively. This decrease is primarily due to the change in the mix of earnings between jurisdictions.
The Company's income from continuing operations before income taxes and equity income attributable to the U.S. was $5.7 million for 2017 compared to loss from continuing operations before income taxes and equity attributable to the U.S. of $99.9 million for 2016. In 2017, due to the impact of the Act, the Company recognized a $14.9 million provisional tax expense because of revaluing the U.S. ending net deferred tax assets from 35% to the newly enacted U.S. corporate income tax rate of 21%, and established a provisional valuation allowance on the full amount of foreign tax credit carryforward of $27.3 million due to the impact the Act had on future foreign source income. In 2016, a valuation allowance of $16.1 million was established for the deferred tax asset resulting from the capital loss on the sale of the Company's equity interest in Brand, because it is not more likely than not that the benefit will be realized in the future. However, the net operating loss created by the loss on early extinguishment of debt was realized through a carryback to prior years with taxable income.
The tax effects of the temporary differences giving rise to the Company's deferred tax assets and liabilities at December 31, 2017 and 2016 are as follows:
 
 
2017
 
2016
(In thousands)
 
Asset
 
Liability
 
Asset
 
Liability
Depreciation and amortization
 
$
6,616

 
$
—

 
$
—

 
$
10,089

Expense accruals
 
17,690

 
—

 
23,300

 
—

Inventories
 
4,390

 
—

 
6,611

 
—

Provision for receivables
 
649

 
—

 
1,015

 
—

Deferred revenue
 
—

 
979

 
—

 
1,852

Operating loss carryforwards
 
90,193

 
—

 
80,178

 
—

Foreign tax credit carryforwards
 
27,256

 
—

 
26,347

 
—

Capital loss carryforwards
 
11,011

 
—

 
18,163

 
—

Pensions
 
47,153

 
—

 
74,506

 
—

Currency adjustments
 
7,160

 
—

 
17,597

 
—

Deferred financing costs

 
—

 
2,135

 
—

 
—

Post-retirement benefits
 
403

 
—

 
760

 
—

Stock based compensation
 
4,761

 
—

 
5,812

 
—

Other
 
7,684

 
—

 
7,206

 
—

Subtotal
 
224,966

 
3,114

 
261,495

 
11,941

Valuation allowance
 
(174,227
)
 
—

 
(146,097
)
 
—

Total deferred income taxes
 
$
50,739

 
$
3,114

 
$
115,398

 
$
11,941


The deferred tax asset and liability balances recognized on the Consolidated Balance Sheets at December 31, 2017 and 2016 are as follows:
(In thousands)
 
2017
 
2016
Deferred income tax assets
 
$
51,574

 
$
106,311

Other liabilities
 
3,949

 
2,854






At December 31, 2017, the tax-effected amount of net operating loss carryforwards ("NOLs") totaled $90.2 million. Tax-effected NOLs from international operations are $73.5 million. Of that amount, $60.5 million can be carried forward indefinitely and $13.0 million will expire at various times between 2018 and 2038. Tax-effected U.S. state NOLs are $16.7 million. Of that amount, $3.9 million expire at various times between 2018 and 2022, $2.9 million expire at various times between 2023 and 2027, $4.3 million expire at various times between 2028 and 2032 and $5.6 million expire at various times between 2033 and 2038. At December 31, 2017, the tax-effected amount of capital loss carryforwards totaled $11.0 million which expire between 2018 and 2021.
Valuation allowances of $174.2 million and $146.1 million at December 31, 2017 and 2016, respectively, related principally to deferred tax assets for pension liabilities, NOLs, foreign tax credit carryforwards, capital loss carryforwards and foreign currency translation that are uncertain as to realizability. In 2017, the Company recorded a valuation allowance of $27.3 million related to foreign tax credit carryforwards due to the impact of the Act, an increase from foreign currency translation in the amount of $10.1 million and a net increase of $6.9 million related to losses in certain jurisdictions where the Company determined that it is more likely than not that these assets will not be realized. This was partially offset by a reduction related to current year pension adjustments recorded through Accumulated other comprehensive loss and a decrease related to U.S., Argentina and Belgium tax rate changes. In 2016, the Company recorded a valuation allowance of $16.1 million related to capital loss on sale of the Company's equity interest in Brand, $13.5 million related to estimated forward loss provisions related to the SBB contracts and current year pension adjustments of $19.2 million recorded through Accumulated other comprehensive loss. This was partially offset by the reduction from the effects of foreign currency translation adjustments and the decrease related to U.K. and France tax rate changes.
Based on an analysis of E&P for the Company's foreign subsidiaries, no toll charge has been recorded in 2017 related to the Act. Given the complexities of the E&P calculations and the guidance provided by SAB 118, the Company will continue to analyze this provisional amount until the Company's U.S. tax return is filed in 2018. The Company does not anticipate a change in the indefinite reinvestment assertion, as a result of the Act. However, the Company considers the indefinite reinvestment assertion to be provisional and will continue to analyze the impact of the Act on this assertion during the SAB 118 measurement period.
The Company recognizes accrued interest and penalty expense related to unrecognized income tax benefits in income tax expense. During 2016, the Company recognized an income tax benefit of $1.7 million, for interest and penalties primarily due to the expiration of statutes of limitation and resolution of examinations. The Company did not recognize any income tax expense or benefit for interest and penalties during 2017 and 2015. The Company has accrued $1.1 million, $1.1 million and $2.8 million for the payment of interest and penalties at December 31, 2017, 2016 and 2015 respectively.
A reconciliation of the change in the unrecognized income tax benefits balance from January 1, 2015 to December 31, 2017 is as follows:
(In thousands)
 
Unrecognized
Income Tax
Benefits
 
Deferred
Income Tax
Benefits
 
Unrecognized
Income Tax
Benefits, Net of
Deferred Income
Tax Benefits
Balances, January 1, 2015
 
$
12,456

 
$
(112
)
 
$
12,344

Additions for tax positions related to the current year (includes currency translation adjustment)
 
(483
)
 
(2
)
 
(485
)
Additions for tax positions related to prior years (includes currency translation adjustment)
 
1,249

 
(4
)
 
1,245

Other reductions for tax positions related to prior years
 
(7,846
)
 
—

 
(7,846
)
Statutes of limitation expirations
 
(173
)
 
59

 
(114
)
Settlements
 
(42
)
 
15

 
(27
)
Balance at December 31, 2015
 
5,161

 
(44
)
 
5,117

Additions for tax positions related to the current year (includes currency translation adjustment)
 
744

 
(1
)
 
743

Additions for tax positions related to prior years (includes currency translation adjustment)
 
358

 
(14
)
 
344

Other reductions for tax positions related to prior years
 
(837
)
 
—

 
(837
)
Statutes of limitation expirations
 
(817
)
 
27

 
(790
)
Settlements
 
(27
)
 
2

 
(25
)
Balance at December 31, 2016
 
4,582

 
(30
)
 
4,552

 
 
 
 
 
 
 
(In thousands)
 
Unrecognized
Income Tax
Benefits
 
Deferred
Income Tax
Benefits
 
Unrecognized
Income Tax
Benefits, Net of
Deferred Income
Tax Benefits
Additions for tax positions related to the current year (includes currency translation adjustment)
 
658

 
(2
)
 
656

Other reductions for tax positions related to prior years
 
(321
)
 
—

 
(321
)
Statutes of limitation expirations
 
(1,296
)
 
1

 
(1,295
)
Total unrecognized income tax benefits that, if recognized, would impact the effective income tax rate at December 31, 2017
 
$
3,623

 
$
(31
)
 
$
3,592


Included in the other reductions for tax positions related to prior year for 2015 is $7.8 million resulting from the adjustment by a foreign tax authority as a result of tax audit. The unrecognized tax benefit was related to a net operating loss carryforward that carried a full valuation allowance. As a result, the related deferred tax asset was decreased by the same amount.
Within the next twelve months, it is reasonably possible that up to $1.2 million of unrecognized income tax benefits will be recognized upon settlement of tax examinations and the expiration of various statutes of limitations.
The Company files income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. With few exceptions, the Company is no longer subject to U.S and international income tax examinations by tax authorities through 2011.