Entity information:
Income Taxes

On December 22, 2017, the TCJA was signed into law. The TCJA includes a number of provisions, including the lowering of the U.S. corporate tax rate from 35 percent to 21 percent, effective January 1, 2018. The TCJA also includes provisions that may partially offset the benefit of such rate reduction, including the repeal of the deduction for domestic production activities. The international provisions of the TCJA establish a territorial-style system for taxing foreign-source income of domestic multinational corporations. At December 31, 2017, the Company has not completed the accounting for the tax effects of enactment of the TCJA; however, as described below, the Company recorded adjustments for the re-measurement of deferred tax assets (liabilities) and the deemed repatriation tax on unremitted foreign earnings and profits. For the items for which the Company was able to determine a reasonable estimate, a provisional amount of $17.1 million was recognized and included as a component of income tax expense. The Company will continue to assess the provision for income taxes as future guidance is issued. Any revisions will be treated in accordance with the measurement period guidance outlined in Staff Accounting Bulletin No. 118 (SAB 118).

On December 22, 2017, SAB 118 was issued to address the application of U.S. GAAP in situations where a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the TCJA. In accordance with SAB 118, the Company has determined that the $5.0 million of the deferred tax expense recorded in connection with the remeasurement of certain deferred tax assets and liabilities and the $6.1 million of current tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings were provisional amounts and reasonable estimates at December 31, 2017. Additional work is necessary for a more detailed analysis of historical foreign earnings as well as potential correlative adjustments. Any subsequent adjustments to these amounts will be recorded to current tax expense in the quarter of 2018 when the analysis is complete.

The one-time transition tax is based on the Company's total post-1986 earnings and profits (E&P) that were previously deferred from U.S. income taxes. The Company recorded a provisional amount for the one-time transition tax liability for its foreign subsidiaries, resulting in an increase in income tax expense of $6.1 million. The Company has not yet completed the calculation of the total post-1986 E&P for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. The Company will continue to assess the impact of the TCJA to determine the impact on any remaining undistributed foreign earnings and any basis differences in our foreign jurisdictions.

While the TCJA provides for a territorial tax system, beginning in 2018, it includes a new U.S. tax, the global intangible low-taxed income (GILTI). The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary's tangible assets. The Company may be subject to incremental U.S. tax on GILTI income. The Company has not provided any deferred tax impacts of GILTI in its consolidated financial statements for the year ended December 31, 2017 and will continue to further assess this portion of the TCJA.

Income before income taxes and income tax expense (benefit) are comprised of the following:
(Thousands)
 
2017
 
2016
 
2015
Income before income taxes:
 
 
 
 
 
 
Domestic
 
$
28,327


$
13,934

 
$
31,748

Foreign
 
8,069


11,381

 
11,070

Total income before income taxes
 
$
36,396

 
$
25,315

 
$
42,818

Income tax expense:
 
 
 
 
 
 
Current income tax expense:
 
 
 
 
 
 
Domestic
 
$
1,912


$
6,505

 
$
3,556

Foreign
 
2,777


2,080

 
2,736

Total current
 
$
4,689

 
$
8,585

 
$
6,292

Deferred income tax expense (benefit):
 
 
 
 
 
 
Domestic
 
$
19,935


$
(8,842
)
 
$
4,565

Foreign
 
321


(168
)
 
(197
)
Total deferred
 
$
20,256

 
$
(9,010
)
 
$
4,368

Total income tax expense (benefit)
 
$
24,945

 
$
(425
)
 
$
10,660


The domestic deferred tax expense of $19.9 million consists of $5.0 million relating to the TCJA reduction of the U.S. corporate income tax rate from 35 percent to 21 percent. The Company's U.S. deferred tax assets and liabilities were remeasured to reflect this tax rate change.
A reconciliation of the U.S. federal statutory income tax rate to the Company's effective income tax rate is as follows:
 
 
2017
 
2016
 
2015
U.S. federal statutory rate
 
35.0
 %

35.0
 %
 
35.0
 %
State and local income taxes, net of federal tax effect
 
2.3


(0.4
)
 
1.7

Effect of excess of percentage depletion over cost depletion
 
(10.0
)

(10.6
)
 
(7.1
)
Manufacturing production deduction
 
(0.8
)

(3.3
)
 
(0.9
)
Foreign rate differential
 
(3.4
)
 
(5.9
)
 
(4.2
)
Tax Cuts and Jobs Act impact
 
47.1

 
—

 
—

Research and development tax credit
 
(2.6
)
 
(6.6
)
 
(1.6
)
Foreign tax credit
 
(1.1
)
 
(28.1
)
 
(4.8
)
Foreign repatriation
 
1.3

 
13.7

 
5.9

Incremental fixed asset basis
 
(3.4
)
 
—

 
—

Adjustment to unrecognized tax benefits
 
2.8


3.2

 
(1.1
)
Stock compensation - excess tax benefits
 
(1.9
)

—

 
—

Valuation allowance
 
2.4

 
0.1

 
(0.9
)
Other items
 
0.8


1.2

 
2.9

Effective tax rate
 
68.5
 %
 
(1.7
)%
 
24.9
 %


Pursuant to the TCJA, the Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The Company continues to analyze and interpret the Act, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the remeasurement of our deferred tax balance was $5.0 million.

Due to the adoption of ASU 2016-09 in 2017, all excess tax benefits and deficiencies related to share-based payment transactions are recognized as income tax expense in the Company's Consolidated Statements of Income. This will result in volatility in the Company's effective tax rate.

The Company had domestic and foreign income tax payments of $8.1 million, $3.0 million, and $6.0 million in 2017, 2016, and 2015, respectively.

Deferred tax assets and (liabilities) are determined based on temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets and (liabilities) recorded in the Consolidated Balance Sheets consist of the following:
 
 
December 31,
(Thousands)
 
2017
 
2016
Asset (liability)
 
 
 
 
Post-employment benefits other than pensions
 
$
2,787

 
$
4,808

Other reserves
 
4,223

 
9,333

Deferred compensation
 
5,054

 
10,243

Environmental reserves
 
1,452

 
2,231

Inventory
 
4,636

 
5,876

Pensions
 
14,307

 
23,540

Alternative minimum tax credit
 
—

 
1,390

Net operating loss and credit carryforwards
 
6,374

 
5,607

Research and development tax credit carryforward
 
2,466

 
627

Foreign tax credit carryforward
 
9,481

 
4,545

Subtotal
 
50,780

 
68,200

Valuation allowance
 
(16,246
)
 
(3,990
)
Total deferred tax assets
 
34,534

 
64,210

Depreciation
 
(10,250
)
 
(13,064
)
Amortization
 
(2,900
)
 
(5,073
)
Capitalized interest expense
 
(112
)
 
(242
)
Mine development
 
(3,621
)
 
(6,683
)
Derivative instruments and hedging activities
 
(817
)
 
(13
)
Total deferred tax liabilities
 
(17,700
)
 
(25,075
)
Net deferred tax asset
 
$
16,834

 
$
39,135



The Company had deferred income tax assets offset with a valuation allowance for certain state and foreign net operating losses, the foreign tax credit, and state investment tax credit carryforwards. As of December 31, 2017, the Company recorded a valuation allowance of $9.5 million related to foreign tax credits that are not likely to be realized as a result of the TCJA, which is the primary incremental amount in 2017. The Company intends to maintain a valuation allowance on these deferred tax assets until a realization event occurs to support reversal of all or a portion of the allowance.    

At December 31, 2017, for income tax purposes, the Company had foreign net operating loss carryforwards of $6.9 million that do not expire, and $8.6 million that expire in calendar years 2018 through 2025, of which $1.0 million expires within the next twelve months. The Company also had state net operating loss carryforwards of $21.7 million that expire in calendar years 2018 through 2037 and state tax credits of $3.2 million that expire in calendar years 2018 through 2033. A valuation allowance of $6.7 million has been provided against certain foreign and state loss carryforwards and state tax credits due to uncertainty of their realization.
The Company has an alternative minimum tax credit of $1.9 million that is fully refundable by 2022, research and development tax credits of $2.5 million that expire in calendar year 2036, and foreign tax credits of $9.5 million, comprised of $3.7 million, $2.1 million, and $3.7 million that expire in calendar years 2025, 2026, and 2027, respectively.
The Company files income tax returns in the U.S. federal jurisdiction, and in various state, local, and foreign jurisdictions. With limited exceptions, the Company is no longer subject to U.S. federal examinations for years before 2015, state and local examinations for years before 2012, and foreign examinations for tax years before 2010.
A reconciliation of the Company’s unrecognized tax benefits for the year-to-date periods ending December 31, 2017 and 2016 is as follows:
(Thousands)
 
2017
 
2016
Balance at January 1
 
$
2,048

 
$
1,285

Additions to tax provisions related to the current year
 
163

 
35

Additions to tax positions related to prior years
 
1,210

 
878

Reduction to tax positions related to prior years
 
(121
)
 
—

Lapses on statutes of limitations
 
(356
)
 
(150
)
Balance at December 31
 
$
2,944

 
$
2,048


At December 31, 2017, the Company had $2.9 million of unrecognized tax benefits, of which $2.4 million would affect the Company’s effective tax rate if recognized. It is reasonably possible that the amount of unrecognized tax benefits will change in the next twelve months; however, an estimate of the range of reasonably possible adjustments cannot be made.
The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying Consolidated Statements of Income. Accrued interest and penalties are included on the related tax liability line in the Consolidated Balance Sheets. The amount of interest and penalties, net of related federal tax benefits, recognized in earnings was immaterial during 2017, 2016, and 2015. As of December 31, 2017 and 2016, accrued interest and penalties, net of related federal tax benefits, were immaterial.