Entity information:
Income Taxes
 
 
Years ended December 31,
 
2017
 
2016
 
2015
 
 
 
(In thousands)
 
 
Income (loss) from continuing operations before taxes:
 
 
 
 
 
United States operations
$
2,177

 
$
(25,615
)
 
$
(6,924
)
Foreign operations
97,171

 
152,076

 
46,864

Income from continuing operations before taxes
$
99,348

 
$
126,461

 
$
39,940

Income tax expense (benefit):
 
 
 
 
 
Currently payable
 
 
 
 
 
United States federal
$
—

 
$
2,981

 
$
—

United States state and local
2,392

 
(1,038
)
 
1,789

Foreign
28,201

 
26,906

 
17,317

 
30,593

 
28,849

 
19,106

Deferred
 
 
 
 
 
United States federal
(11,028
)
 
(27,677
)
 
(23,709
)
United States state and local
(8,758
)
 
(3,139
)
 
(2,257
)
Foreign
(4,312
)
 
782

 
(19,708
)
 
(24,098
)
 
(30,034
)
 
(45,674
)
Income tax expense (benefit)
$
6,495

 
$
(1,185
)
 
$
(26,568
)


In addition to the above income tax expense (benefit) associated with continuing operations, we also recorded income tax expense (benefit) associated with discontinued operations $0.2 million in 2015.
 
 
Years Ended December 31,
 
2017
 
2016
 
2015
Effective income tax rate reconciliation from continuing operations:
 
 
 
 
 
United States federal statutory rate
35.0
 %
 
35.0
 %
 
35.0
 %
State and local income taxes
0.8
 %
 
(0.9
)%
 
(2.6
)%
Impact of change in tax contingencies
2.2
 %
 
2.4
 %
 
(4.2
)%
Foreign income tax rate differences
(13.1
)%
 
(14.0
)%
 
(8.4
)%
Impact of change in deferred tax asset valuation allowance
1.5
 %
 
(7.3
)%
 
(28.6
)%
Impact of change in legal entity tax status
—
 %
 
(5.5
)%
 
—
 %
Impact of non-taxable translation gain
(27.3
)%
 
—
 %
 
—
 %
Impact of non-taxable interest income
(5.5
)%
 
(4.9
)%
 
(15.6
)%
Domestic permanent differences and tax credits
(15.7
)%
 
(5.7
)%
 
(42.1
)%
       Impact of tax reform
28.6
 %
 
—
 %
 
—
 %
 
6.5
 %
 
(0.9
)%
 
(66.5
)%


On December 22, 2017, the “Tax Cuts and Jobs Act” (the “Act”) was signed into law, making significant changes to the U.S. Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial tax system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company has calculated its best estimate of the impact of the Act in its year end income tax provision in accordance with its understanding of the Act and guidance available as of the date of this filing and as a result has recorded $28.4 million as an additional income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted. This provisional income tax expense is comprised of a $36.0 million tax benefit for the remeasurement of deferred tax assets and liabilities to the 21% rate at which they are expected to reverse, offset with a one-time tax expense on deemed repatriation of $29.1 million and a valuation allowance of $35.3 million recorded against foreign tax credit carryovers that we no longer expect to be able to realize based upon the new tax law. The Company continues to analyze its provisional estimate regarding the non-deductibility of certain covered employee compensation associated with amendments to IRC section 162(m). As of the date of this filing, the Company reasonably believes that the impact of these changes is immaterial.

On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of US 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. In accordance with SAB 118, the Company has determined that the $36.0 million deferred tax benefit recorded in connection with the remeasurement of certain deferred tax assets and liabilities, the $29.1 million of current tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings, the $35.3 million deferred tax expense recorded in connection with a valuation allowance on foreign tax credits, and the $0.0 million deferred tax expense recorded in connection with covered employee compensation were provisional amounts and reasonable estimates at December 31, 2017. Additional work is necessary to do a more detailed analysis of all provisional amounts associated with the Act referenced above as a result of pending issuance of Notices and Regulations related to the Act, ongoing legal analysis of compensation plans and finalization of foreign earnings and profits for 2017. Any subsequent adjustment to these amounts will be recorded to tax expense in the quarter of 2018 when the analysis is complete.

An additional significant difference between the U.S. federal statutory tax rate and our effective tax rate was the impact of domestic permanent differences and tax credits. We recognized a total income tax benefit from domestic permanent differences and tax credits of $48.2 million in 2017. Of this income tax benefit, $27.1 million stems from a non-taxable translation gain associated with a debt instrument that is treated as a loan for U.S. GAAP purposes but as equity for tax purposes and $19.8 million stems from being able to recognize a significant balance of foreign tax credits related to one of our foreign jurisdictions as a result of implementing a tax planning strategy, net of the U.S. income tax consequences.

An additional significant difference between the U.S. federal statutory tax rate and our effective tax rate was the impact of foreign tax rate differences. The statutory tax rates associated with our foreign earnings are generally lower than the 2017 statutory U.S. tax rate of 35%. The foreign tax rate differences are most significant in Germany, Canada, and the Netherlands, which have statutory tax rates of approximately 28%, 26%, and 25%, respectively. Foreign tax rate differences resulted in an income tax benefit of $13.0 million, $17.7 million, and $3.4 million in 2017, 2016, and 2015, respectively. Additionally, in 2017 and 2016, our income tax expense was reduced by $3.5 million and $2.9 million, respectively, due to a tax holiday for our operations in St. Kitts. The tax holiday in St. Kitts is scheduled to expire in 2022.


 
December 31,
 
2017
 
2016
 
(In thousands)
Components of deferred income tax balances:
 
 
 
Deferred income tax liabilities:
 
 
 
Plant, equipment, and intangibles
$
(120,171
)
 
$
(179,229
)
Deferred income tax assets:
 
 
 
Postretirement, pensions, and stock compensation
28,736

 
35,500

Reserves and accruals
29,297

 
22,795

Net operating loss and tax credit carryforwards
228,815

 
245,135

Valuation allowances
(151,841
)
 
(104,771
)
 
135,007

 
198,659

Net deferred income tax asset
$
14,836

 
$
19,430



The decrease in deferred income tax liabilities during 2017 is primarily due to the $36.0 million deferred tax benefit recorded in connection with the remeasurement of certain deferred tax assets and liabilities associated with the Act, as discussed above. The increase in our deferred tax valuation allowance is primarily due to the Company’s limited ability to utilize foreign tax credits before expiration as a result of the Act, as discussed above.

As of December 31, 2017, we had $538.9 million of net operating loss carryforwards and $97.1 million of tax credit carryforwards. Unless otherwise utilized, net operating loss carryforwards will expire upon the filing of the tax returns for the following respective years: $1.0 million in 2017, $0.2 million in 2018, $7.9 million in 2019, $33.7 million between 2020 and 2022, and $143.4 million between 2023 and 2038. Net operating losses with an indefinite carryforward period total $352.7 million. Of the $538.9 million in net operating loss carryforwards, we have determined, based on the weight of all available evidence, both positive and negative, that we will utilize $158.6 million of these net operating loss carryforwards within their respective expiration periods. A valuation allowance has been recorded on the remaining portion of the net operating loss carryforwards.

Unless otherwise utilized, tax credit carryforwards of $97.1 million will expire as follows: $0.1 million in 2018, $0.1 million in 2019, $4.7 million between 2020 and 2022, and $85.6 million between 2023 and 2038. Tax credit carryforwards with an indefinite carryforward period total $6.6 million. We have determined, based on the weight of all available evidence, both positive and negative, that we will utilize $58.4 million of these tax credit carryforwards within their respective expiration periods. A valuation allowance has been recorded on the remaining portion of the tax credit carryforwards.
The following tables summarize our net operating loss carryforwards and tax credit carryforwards as of December 31, 2017 by jurisdiction:
 
Net Operating Loss  Carryforwards
 
(In thousands)
France
$
266,509

United States - various states
132,213

Luxembourg
25,034

Japan
22,245

Australia
16,433

Germany
14,127

Netherlands
13,063

Other
49,256

Total
$
538,880

 
 

 
Tax Credit Carryforwards
 
(In thousands)
United States
$
74,613

Canada
22,459

Total
$
97,072



In 2017, we recognized a net $1.9 million decrease to reserves for uncertain tax positions. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
 
2017
 
2016
 
(In thousands)
Balance at beginning of year
$
10,474

 
$
7,293

Additions based on tax positions related to the current year
981

 
507

Additions for tax positions of prior years
2,549

 
2,675

Reductions for tax positions of prior years - Settlement
(5,425
)
 
—

Reduction for tax positions of prior years - Statute of limitations
—

 
(1
)
Balance at end of year
$
8,579

 
$
10,474



The additions for tax positions of prior years relates to income tax audits of the U.S. and a foreign jurisdiction. The balance of $8.6 million at December 31, 2017, reflects tax positions that, if recognized, would impact our effective tax rate.

As of December 31, 2017, we believe it is reasonably possible that $1.1 million of unrecognized tax benefits will change within the next twelve months primarily attributable to the expected completion of tax audits in the U.S. and foreign jurisdictions.

Our practice is to recognize interest and penalties related to uncertain tax positions in interest expense and operating expenses, respectively. During 2017, 2016, and 2015, we recognized reductions of interest expense of $0.0 million, $(0.2) million, and $0.0 million, respectively, related to uncertain tax positions. We have approximately $0.0 million and $1.2 million accrued for the payment of interest and penalties as of December 31, 2017 and 2016, respectively.

Our federal tax return for the tax years 2013 and later remain subject to examination by the Internal Revenue Service. Our state and foreign income tax returns for the tax years 2011 and later remain subject to examination by various state and foreign tax authorities.