Entity information:
Income Taxes
 
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (TCJA), enacting significant changes to the U.S. Internal Revenue Code of 1986, as amended, including a reduction in the maximum U.S. federal corporate income tax rate from 35% to 21%, the transition of U.S. taxation from a worldwide tax system to a territorial system, various anti-avoidance tax provisions including a potential "global intangible low-taxed income" (GILTI) inclusion, and the imposition of a one-time tax associated with the mandatory deemed repatriation of foreign earnings not previously taxed by the U.S. Although these provisions are generally applicable for years after December 31, 2017, several impacted our 2017 earnings, including the one-time deemed repatriation tax, additional foreign withholding taxes for expected future cash repatriations, and the revaluation of our U.S. deferred taxes at the new, lower, federal tax rate. Accordingly, we recorded a provisional $50.4 net tax charge in the fourth quarter of 2017 related to these items.

The amount recorded is our best estimate, based on our current understanding of TCJA and the guidance currently available, but should be considered provisional in accordance with Staff Accounting Bulletin (SAB) 118, which addresses the application of U.S. GAAP where 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 related to TCJA. We have elected to apply the provisions of SAB 118 related to our continued analysis of the impacts from TCJA including, but not limited to, the deemed repatriation tax, the revaluation of our U.S. deferred taxes, the taxes provided for expected foreign cash repatriations, and the ongoing evaluation of our permanently reinvested earnings (discussed below). The ultimate impact may differ from the provisional amounts we have recorded, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions, additional regulatory guidance that may be issued, and actions we may take as a result of TCJA. Our accounting will be finalized no later than the fourth quarter of 2018.

Additionally, because of the complexity of the new GILTI rules, we are continuing to evaluate this provision and the application of ASC 740. We have not yet made any adjustments related to potential GILTI tax in our financial statements, nor have we made any policy decision regarding whether to record deferred taxes on GILTI. We will do so no later than the fourth quarter of 2018.

The 2017 impact from TCJA is presented below as an increase or (decrease) in the noted line items from our Consolidated Statements of Operations and Consolidated Balance Sheets:
Consolidated Statements of Operations
Year Ended December 31, 2017
($ in millions)
U.S. Deferred Tax Revaluation
Deemed Repatriation Tax
Additional Foreign Withholding Taxes
Other Items, net
Total
Income taxes
$
(26.1
)
$
67.3

$
9.0

$
.2

$
50.4

Impact on effective tax rate
(6.0
)%
15.6
%
2.1
%
—
%
11.7
%
 
 
 
 
 
 
Consolidated Balance Sheets
December 31, 2017
($ in millions)
U.S. Deferred Tax Revaluation
Deemed Repatriation Tax
Additional Foreign Withholding Taxes
Other Items, net
Total
Prepaid expenses and other current assets
$
—

$
(5.4
)
$
—

$
27.4

$
22.0

Deferred income taxes
(26.1
)
—

9.0

27.6

10.5

Other long-term liabilities
—

61.9

—

—

61.9




The components of earnings from continuing operations before income taxes are as follows:
 
Year Ended December 31
 
2017
 
2016
 
2015
Domestic
$
188.6

 
$
267.7

 
$
254.2

Foreign
243.4

 
219.4

 
195.6

 
$
432.0

 
$
487.1

 
$
449.8



Income tax expense from continuing operations is comprised of the following components:
 
Year Ended December 31
 
2017
 
2016
 
2015
Current
 
 
 
 
 
Federal
$
76.0

 
$
55.7

 
$
63.1

State and local
3.8

 
4.1

 
7.6

Foreign
43.2

 
42.5

 
40.0

 
123.0

 
102.3

 
110.7

Deferred
 
 
 
 
 
Federal
5.8

 
13.1

 
9.6

State and local
(2.6
)
 
2.3

 
.1

Foreign
12.2

 
2.3

 
1.4

 
15.4

 
17.7

 
11.1

 
$
138.4

 
$
120.0

 
$
121.8



Income tax expense from continuing operations, as a percentage of earnings before income taxes, differs from the statutory federal income tax rate as follows:
 
Year Ended December 31
 
2017
 
2016
 
2015
Statutory federal income tax rate
35.0
 %
 
35.0
 %
 
35.0
 %
Increases (decreases) in rate resulting from:
 
 
 
 
 
State taxes, net of federal benefit
.9

 
.9

 
1.6

Tax effect of foreign operations
(8.0
)
 
(6.0
)
 
(5.8
)
Deferred tax on undistributed foreign earnings
2.8

 
.5

 
(1.0
)
Deemed repatriation of foreign earnings
15.6

 
—

 
—

Deferred tax revaluation
(6.0
)
 
—

 
—

Stock-based compensation
(2.0
)
 
(3.4
)
 
—

Tax benefit for outside basis in subsidiary
(1.8
)
 
—

 
—

Change in valuation allowance
(.4
)
 
.2

 
—

Change in uncertain tax positions, net
(.6
)
 
(.6
)
 
(.5
)
Domestic production activities deduction
(1.2
)
 
(1.2
)
 
(1.2
)
Other permanent differences, net
(1.6
)
 
(.6
)
 
(1.0
)
Other, net
(.7
)
 
(.2
)
 
—

Effective tax rate
32.0
 %
 
24.6
 %
 
27.1
 %

 
For all periods presented, the tax rate benefited from income earned in various foreign jurisdictions at rates lower than the U.S. federal statutory rate, primarily related to China, Croatia, and Luxembourg. Other significant items impacting each year's tax rate are:

In 2017, we recognized a net tax expense totaling $50.4 related to the impact of TCJA, as discussed above. We also recognized tax benefits totaling $28.9, including those associated with tax attributes from a divested business and the impact of stock-based compensation.

We recognized net tax benefits in 2016 totaling $21.4, including a tax benefit related to stock-based compensation from the first quarter adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting".

In 2015, we recognized net tax benefits totaling $9.4, including a reduction in deferred taxes on undistributed foreign earnings associated with a planned reinvestment in China, and a deferred tax benefit related to our Australian operations.

Prior to the adoption of ASU 2016-09 in 2016, all net excess tax benefits related to stock plan activity were recorded to additional contributed capital, which totaled $15.4 in 2015.
 
We file tax returns in each jurisdiction where we are required to do so. In these jurisdictions, a statute of limitations period exists. After a statute period expires, the tax authorities can no longer assess additional income tax for the expired period. In addition, once the statute expires we are no longer eligible to file claims for refund for any tax that we may have overpaid.

Unrecognized Tax Benefits
 
The total amount of our gross unrecognized tax benefits at December 31, 2017, is $13.6, of which $8.8 would impact our effective tax rate, if recognized. A reconciliation of the beginning and ending balance of our gross unrecognized tax benefits for the periods presented is as follows:
 
2017
 
2016
 
2015
Gross unrecognized tax benefits, January 1
$
12.1

 
$
15.5

 
$
19.8

Gross increases—tax positions in prior periods
.1

 
.3

 
.3

Gross decreases—tax positions in prior periods
(.4
)
 
(1.0
)
 
(.5
)
Gross increases—current period tax positions
1.5

 
1.1

 
1.3

Change due to exchange rate fluctuations
.3

 
—

 
(1.3
)
Settlements
(.9
)
 
(.9
)
 
(1.5
)
Lapse of statute of limitations
(2.6
)
 
(2.9
)
 
(2.6
)
Gross unrecognized tax benefits, December 31
10.1

 
12.1

 
15.5

Interest
3.0

 
4.0

 
6.0

Penalties
.5

 
.6

 
.6

Total gross unrecognized tax benefits, December 31
$
13.6

 
$
16.7

 
$
22.1



We recognize interest and penalties related to unrecognized tax benefits as part of income tax expense in the Consolidated Statements of Operations, which is consistent with prior reporting periods.
 
As of December 31, 2017, four tax years were subject to audit by the United States Internal Revenue Service (IRS), covering the years 2014 through 2017. In 2015 and 2017, the IRS examined our 2013 and 2015 tax returns, respectively, for a U.S. non-consolidated filing entity, L&P Financial Services Co., and both audits were concluded with no adjustments. There are no current IRS examinations in process, nor are we aware of any forthcoming.

Additionally, at December 31, 2017, eight tax years were either subject to or undergoing audit by the Canada Revenue Agency, covering the periods 2010 through 2017. The examinations in process are at various stages of completion, but to date we are not aware of any likely material adjustments. In 2016, we settled an appeal with the Canada Revenue Agency relative to our 2007 and 2008 tax years related to transfer pricing issues. The net impact of this settlement on our financial statements was not material.

Various state and other foreign jurisdiction tax years also remain open to examination, though we believe any assessments would not be material to our Consolidated Financial Statements.
 
It is reasonably possible that the resolution of certain tax audits could reduce our unrecognized tax benefits within the next 12 months, as certain tax positions may either be sustained on audit or we may agree to certain adjustments, or resulting from the expiration of statutes of limitations in various jurisdictions. It is not expected that any change would have a material impact on our Consolidated Financial Statements.

Deferred Income Taxes
 
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. The major temporary differences and their associated deferred tax assets or liabilities are as follows:
 
December 31
 
2017
 
2016
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Property, plant and equipment
$
19.8

 
$
(53.5
)
 
$
5.9

 
$
(57.3
)
Inventories
1.9

 
(14.0
)
 
3.3

 
(22.1
)
Accrued expenses
59.1

 
(.2
)
 
93.3

 
(.3
)
Net operating losses and other tax carryforwards
35.0

 
—

 
48.2

 
—

Pension cost and other post-retirement benefits
11.9

 
(.6
)
 
31.4

 
(.9
)
Intangible assets
1.2

 
(77.3
)
 
1.1

 
(107.6
)
Derivative financial instruments
5.3

 
(1.7
)
 
9.9

 
(1.7
)
Tax on undistributed earnings
—

 
(21.4
)
 
—

 
(9.2
)
Uncertain tax positions
3.5

 
—

 
5.3

 
—

Other
.7

 
(7.1
)
 
2.9

 
(9.7
)
Gross deferred tax assets (liabilities)
138.4

 
(175.8
)
 
201.3

 
(208.8
)
Valuation allowance
(24.2
)
 
—

 
(22.9
)
 
—

Total deferred taxes
$
114.2

 
$
(175.8
)
 
$
178.4

 
$
(208.8
)
Net deferred tax (liability) asset
 
 
$
(61.6
)
 
 
 
$
(30.4
)



Many of the decreases in our deferred tax categories from 2016 to 2017 relate to the revaluation of our deferred tax assets and liabilities resulting from the U.S. tax rate reduction included in TCJA, discussed above. These changes decreased our overall net deferred tax liability by $26.1 in 2017, as discussed above. Other changes increased our net deferred tax liability by $57.3 from 2016 to 2017, and include:

•
A reduction of $17.1 in our "Net operating losses and other tax carryforwards" deferred tax asset, primarily related to the 2017 utilization of our foreign tax credit carryover from the TCJA one-time tax on mandatory deemed repatriation and utilization of Canadian net operating losses during the year;

•
An increase of $12.2 associated with our "Tax on undistributed earnings" deferred tax liability, primarily associated with additional foreign withholding taxes from TCJA; and

•
A $14.5 decrease in the deferred tax asset associated with "Pension cost and other post-retirement benefits", primarily related to the pension settlement charge (Note L), and the acceleration of tax deductions and other planning associated with TCJA.

The valuation allowance primarily relates to net operating loss, tax credit, and capital loss carryforwards for which utilization is uncertain. Cumulative tax losses in certain state and foreign jurisdictions during recent years, limited carryforward periods in certain jurisdictions, future reversals of existing taxable temporary differences, and reasonable tax planning strategies were among the factors considered in determining the valuation allowance. Individually, none of these tax carryforwards presents a material exposure.

Most of our tax carryforwards have expiration dates that vary generally over the next 20 years, with no amount greater than $10 expiring in any one year.
 
Deferred income and withholding taxes have been provided on earnings of our foreign subsidiaries to the extent it is anticipated that the earnings will be remitted in the future as dividends. Due to the recently enacted TCJA, we no longer asserted permanent reinvestment on $835.0 of earnings, and accrued provisional deferred taxes of $8.3 in 2017 related to certain earnings under our Canadian ownership structure, and an additional $0.7 in China. As of December 31, 2017 and 2016, we have accrued a total of $12.5 and $9.2, respectively, of deferred taxes related to incremental withholding taxes in China.

Foreign withholding taxes have not been provided on certain foreign earnings which are indefinitely reinvested outside the U.S. The cumulative undistributed earnings which are indefinitely reinvested as of December 31, 2017, are $410.3. If such earnings were repatriated to the U.S. through dividends, the resulting provisional incremental tax expense would be approximately $26.7, based on present income tax laws and after consideration of the tax we have already accrued for the mandatory deemed repatriation of our foreign earnings (as referenced above).

Deferred tax assets (liabilities) included in the consolidated balance sheets are as follows:
 
December 31
 
2017
 
2016
Sundry
$
21.4

 
$
23.9

Deferred income taxes
(83.0
)
 
(54.3
)
 
$
(61.6
)
 
$
(30.4
)