Entity information:
INCOME TAXES
On December 22, 2017, the Tax Act was signed into law, making comprehensive changes to the U.S. tax code affecting tax years 2017 and thereafter. Among other things, the Tax Act reduces the U.S. federal corporate income tax rate from 35% to 21%, imposes a mandatory one-time transition tax on unrepatriated foreign earnings, enhances the acceleration of depreciation deductions on qualified property, changes the U.S. taxation of foreign earnings and eliminates certain business deductions.  

In response to the enactment of the Tax Act, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the new law. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes. For the year ended December 31, 2017, we were able to make reasonable estimates of the impact of the Tax Act and have recorded provisional amounts related to the revaluation of our deferred taxes and the one-time mandatory transition tax based on information available as of December 31, 2017. Accordingly, we have recorded a $45.8 million income tax benefit related to the revaluation of our deferred tax assets and liabilities and a $2.1 million income tax expense associated with the transition tax on our accumulated foreign earnings.

Prior to the enactment of the Tax Act, we considered the earnings of our foreign subsidiary to be permanently reinvested and, therefore, no deferred income taxes have been recorded. We have analyzed our foreign working capital and cash requirements and the potential tax liabilities that would be attributable to a repatriation and currently expect that we will repatriate approximately $10 million of cash that was previously deemed to be permanently reinvested. Additionally, we will not consider the future earnings of our foreign subsidiary to be permanently reinvested and have determined that any tax effects resulting from this change would be immaterial.

Although we do not expect a material change in the provisional estimates recorded, the ultimate impact may differ from the amounts recorded as of December 31, 2017. These estimates may be impacted by additional clarification and guidance on how the Internal Revenue Service (“IRS”) will implement tax reform, further clarification and guidance on how state taxing authorities will implement tax reform and the potential for additional guidance from the SEC or the FASB related to tax reform.

The following table presents the 2017, 2016 and 2015 income tax expense (benefit):
 
Year Ended December 31
 
2017(1)
 
2016(2)
 
2015(3)
 
(In thousands)
Current income taxes:
 
 
 
 
 
Federal
$
(1,315
)
 
$
49,529

 
$
26,939

State
1,317

 
5,728

 
1,987

Foreign
844

 
879

 
513

Total current income tax expense
846

 
56,136

 
29,439

Deferred income taxes:
 
 
 
 
 
Federal
(38,100
)
 
15,164

 
(34,620
)
State
11,075

 
10,734

 
(48
)
Total deferred income tax expense (benefit)
(27,025
)
 
25,898

 
(34,668
)
Total income tax expense (benefit)
$
(26,179
)
 
$
82,034

 
$
(5,229
)
(1)
Excludes $14.2 million of income tax benefit related to discontinued operations.
(2)
Excludes $0.5 million of income tax expense related to discontinued operations.
(3)
Excludes $0.5 million of income tax expense related to discontinued operations.
The following is a reconciliation of income tax expense (benefit) computed at the U.S. federal statutory tax rate to income tax expense (benefit) reported in our Consolidated Statements of Operations:
 
Year Ended December 31
 
2017
 
2016
 
2015
 
Amount
 
Percentage
 
Amount
 
Percentage
 
Amount
 
Percentage
 
(In thousands, except percentages)
Tax expense (benefit) at statutory rate
$
7,435

 
35.0
 %
 
$
70,928

 
35.0
 %
 
$
(4,658
)
 
35.0
 %
State income taxes
1,844

 
8.7

 
9,620

 
4.8

 
3,469

 
(26.1
)
Corporate owned life insurance
(933
)
 
(4.4
)
 
—

 
—

 
(947
)
 
7.1

Nondeductible executive compensation
371

 
1.8

 
1,130

 
0.6

 
851

 
(6.4
)
Change in valuation allowances
5,851

 
27.5

 
1,080

 
0.5

 
(2,209
)
 
16.6

Share-based compensation(1)
2,995

 
14.1

 
—

 
—

 
—

 
—

Domestic production activities deduction
(244
)
 
(1.2
)
 
(4,393
)
 
(2.2
)
 
(2,456
)
 
18.5

Transition tax on unrepatriated foreign earnings
2,106

 
9.9

 
—

 
—

 
—

 
—

Tax reform revaluation of deferred taxes
(45,840
)
 
(215.8
)
 
—

 
—

 
—

 
—

Other
236

 
1.2

 
3,669

 
1.8

 
721

 
(5.4
)
Total
$
(26,179
)
 
(123.2
)%
 
$
82,034

 
40.5
 %
 
$
(5,229
)
 
39.3
 %

(1)
Includes excess tax benefits and deficiencies related to share-based payments recorded in the provision of income taxes because of the adoption of Accounting Standards Update ASU 2016-09 in 2017. See Note 1.
The tax effects of temporary differences giving rise to deferred income tax assets (liabilities) were:
 
December 31
 
2017(1)
 
2016(2)
 
(In thousands)
Deferred income tax assets:
 
 
 
Accrued liabilities
$
54,971

 
$
93,491

Retirement plans and postretirement benefits
10,379

 
34,777

Share-based compensation
3,886

 
13,322

Receivables and inventories
6,651

 
8,187

Derivative financial instruments
99

 
—

Net operating loss carryforwards
38,023

 
34,478

Tax credit carryforwards
9,965

 
8,890

Valuation allowances
(21,755
)
 
(12,048
)
 
102,219

 
181,097

Deferred income tax liabilities:
 
 
 
Property, plant and equipment
(124,185
)
 
(208,559
)
Intangible assets
(22,213
)
 
(29,356
)
Derivative financial instruments
—

 
(916
)
Cancellation of debt
(1,708
)
 
(5,576
)
Other
(3,400
)
 
(3,458
)
 
(151,506
)
 
(247,865
)
Net deferred income tax asset (liability)
$
(49,287
)
 
$
(66,768
)
(1)
Includes $7.0 million of deferred tax assets related to uncertain tax positions.
(2)
Includes $8.8 million of deferred tax assets related to uncertain tax positions.
These net deferred income tax assets (liabilities) are classified in our Consolidated Balance Sheets as follows:
 
December 31
 
2017
 
2016
 
(In thousands)
Current assets
$
—

 
$
37,504

Noncurrent assets
10,731

 
21,737

Noncurrent liabilities
(60,018
)
 
(126,009
)
Total
$
(49,287
)
 
$
(66,768
)

At December 31, 2017, we had $38.0 million of tax-effected federal and state net operating losses and $10.0 million of federal and state tax credits available for carryover to future years. These items are subject to certain limitations and begin to expire in 2018. A valuation allowance of $21.8 million has been established because we do not believe it is more likely than not that all of the deferred tax assets related to these items will be realized prior to expiration. Our valuation allowance increased $9.7 million in 2017, which included a $3.9 million effect related to the revaluation of deferred taxes as a result of the Tax Act, due to certain state net operating loss carryforwards that we no longer expect to utilize prior to their expiration.
The following is a reconciliation of gross unrecognized tax benefits, including interest, recorded in our Consolidated Balance Sheets:
 
December 31
 
2017
 
2016
 
2015
 
(In thousands)
Balance at beginning of year
$
30,410

 
$
27,829

 
$
26,463

Increases in tax positions for current year
251

 
125

 
39

Increases in tax positions for prior years
904

 
4,542

 
1,327

Decreases in tax positions for prior years
(53
)
 
(199
)
 
—

Settlement of tax matters
—

 
(1,887
)
 
—

Lapse of applicable statutes of limitations
(16,458
)
 
—

 
—

Balance at end of year
$
15,054

 
$
30,410

 
$
27,829


Of the total unrecognized tax benefit balance at December 31, 2017, $5.1 million would impact our effective tax rate and $2.9 million would be recorded in discontinued operations, if recognized. The remaining $7.0 million represents tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Due to the impact of deferred income tax accounting, the disallowance of the shorter deductibility period would not affect our effective tax rate but would accelerate payment of cash to the applicable taxing authority. Due to the anticipated resolution of several uncertain tax positions, we expect our gross liability for uncertain tax positions to decrease by approximately $5 million to $6 million during the next 12 months.
We recognize accrued interest related to uncertain tax positions as a component of income tax expense. Penalties, if incurred, are recorded in general and administrative expenses in our Consolidated Statements of Operations. Interest expense recorded in income tax expense for 2017, 2016 and 2015 was immaterial. Our liability for uncertain tax positions included accrued interest of $2.0 million and $2.7 million at December 31, 2017 and 2016, respectively.
As of December 31, 2017, our 2014 through 2016 U.S. consolidated income tax returns remain open for examination by the IRS. State income tax returns are generally subject to examination for a period of three to five years after filing. We have various state income tax returns in the process of examination, appeals or settlement.