Income Taxes

The Tax Cuts and Jobs Act was enacted December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21% for taxable years beginning after December 31, 2017, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were not previously subject to U.S. Federal income tax and creates new taxes on certain foreign sourced earnings. As of December 31, 2017, the Company has not completed its accounting for the tax effects of enactment of the Act; however, in certain cases, as described below, the Company has made a reasonable estimate of the effect of the Act regarding existing deferred tax balances and the one-time transition tax. For the items which the Company was able to determine a reasonable estimate, a provisional tax expense of $50,986,000 was recognized for the period ended December 31, 2017, which is included as a component of income tax expense from continuing operations. In all cases, the Company will continue to make and refine its calculations as additional analysis is completed. In addition, the Company's estimates may also be affected as regulations and additional guidance are made available.

Provisional Amounts

Deferred tax assets and liabilities: The Company remeasured U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21% for federal income tax purposes. However, the Company is still analyzing certain aspects of the Act and refining the calculations, 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 the deferred tax balance was $13,854,000 at December 31, 2017.

International tax effects: The one-time transition tax is based on the Company's total post-1986 earnings and profits (E&P) which the Company has previously deferred from U.S. income taxes pursuant to the provisions of the Internal Revenue Code prior to the Act, as well as its assertions with respect to the E&P of foreign subsidiaries. The Company recorded a provisional U.S. tax liability for the transition tax in the amount of $37,132,000, resulting in an increase in current income tax expense of $37,132,000. The Company has not yet completed the calculation of the total post -1986 E&P of 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 its calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets. No additional income taxes, where applicable (i.e., U.S. Federal, U.S. State, foreign withholding, or similar taxes under foreign law), have been provided on any remaining outside basis difference inherent in these entities. These amounts continue to be provisionally indefinitely reinvested in foreign operations. The Company's provisional calculation of its remaining outside basis difference is not considered material. Determining the amount of unrecognized deferred tax liability related to any additional outside basis difference in these entities (i.e., basis difference other than those subject to the one-time transition tax) is not practicable. This is due to the complexities associated with the hypothetical calculation to determine residual taxes on the undistributed earnings, including the availability of foreign tax credits, applicability of any additional local withholding tax and other indirect tax consequence that may arise due to the distribution of these earnings.

Global Intangible Low-Taxed Income (GILTI)

The Act subjects a U.S. shareholder to tax on GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for GILTI, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. At December 31, 2017, the Company is still evaluating the GILTI provisions and the analysis of future taxable income that is subject to GILTI. Given the complexity of the GILTI provisions, the Company has not yet determined its accounting policy and therefore has not reflected any adjustments related to GILTI in the Company's consolidated financial statements.

Significant components of the Company’s deferred tax assets and liabilities are as follows:



	2017			2016
	(In Thousands)
Deferred tax assets related to:
Expenses not yet deducted for tax purposes	$	256,728		$	344,927
Pension liability not yet deducted for tax purposes	257,766			397,391
Net operating loss	31,046			4,673
	545,540			746,991
Deferred tax liabilities related to:
Employee and retiree benefits	210,429			276,256
Inventory	93,067			141,181
Other intangible assets	287,018			120,689
Property, plant, and equipment	66,727			61,666
Other	35,859			58,468
	693,100			658,260
Net deferred tax (liability) asset before valuation allowance	(147,560		)	88,731
Valuation allowance	(5,590		)	(4,405		)
Total net deferred tax (liability) asset	$	(153,150	)	$	84,326

The Company currently holds approximately $111,006,000 in net operating losses, of which approximately $94,579,000 will carry forward indefinitely. The remaining net operating losses of approximately $16,427,000 will begin to expire in 2024.

The components of income before income taxes are as follows:



	2017		2016		2015
	(In Thousands)
United States	$	813,078	$	934,476	$	1,004,919
Foreign	196,190		139,864		118,762
Income before income taxes	$	1,009,268	$	1,074,340	$	1,123,681

The components of income tax expense are as follows:



	2017			2016		2015
	(In Thousands)
Current:
Federal	$	252,337		$	284,199	$	309,403
State	29,288			41,083		45,460
Foreign	44,896			28,593		27,602
Deferred:
Federal	71,238			26,684		28,754
State	13,663			3,857		4,225
Foreign	(18,911		)	2,684		2,565
	$	392,511		$	387,100	$	418,009

The reasons for the difference between total tax expense and the amount computed by applying the statutory Federal income tax rate to income before income taxes are as follows:



	2017			2016			2015
	(In Thousands)
Statutory rate applied to income	$	353,259		$	376,019		$	393,288
Plus state income taxes, net of Federal tax benefit	27,918			29,211			32,295
Earnings in jurisdictions taxed at rates different from the U.S. statutory rate	(33,984		)	(18,057		)	(13,684		)
U.S. tax reform - transition tax	37,132			—			—
U.S. tax reform - deferred tax remeasurement	13,854			—			—
Foreign rate change - deferred tax remeasurement	(9,338		)	—			—
Other	3,670			(73		)	6,110
	$	392,511		$	387,100		$	418,009

The Company, or one of its subsidiaries, files income tax returns in the U.S., various states, and foreign jurisdictions. With few exceptions, the Company is no longer subject to federal, state and local tax examinations by tax authorities for years before 2013 or subject to non-United States income tax examinations for years ended prior to 2011. The Company is currently under audit in various states in the U.S. and some of its foreign jurisdictions. Some audits may conclude in the next twelve months and the unrecognized tax benefits recorded in relation to the audits may differ from actual settlement amounts. It is not possible to estimate the effect, if any, of the amount of such change during the next twelve months to previously recorded uncertain tax positions in connection with the audits. The Company does not anticipate total unrecognized tax benefits will significantly change during the year.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:



	2017			2016			2015
	(In Thousands)
Balance at beginning of year	$	15,190		$	15,815		$	17,581
Additions based on tax positions related to the current year	2,644			2,184			1,969
Additions for tax positions of prior years	1,511			1,317			61
Reductions for tax positions for prior years	(430		)	(1,369		)	(3,152		)
Reduction for lapse in statute of limitations	(3,917		)	(2,516		)	(425		)
Settlements	(301		)	(241		)	(219		)
Balance at end of year	$	14,697		$	15,190		$	15,815

The amount of gross unrecognized tax benefits, including interest and penalties, as of December 31, 2017 and 2016 was approximately $16,919,000 and $17,176,000, respectively, of which approximately $10,847,000 and $9,615,000, respectively, if recognized, would affect the effective tax rate.

During the years ended December 31, 2017, 2016, and 2015, the Company paid or received refunds of interest and penalties of approximately $(3,384,000), $5,000, and $1,051,000, respectively. The Company had approximately $2,150,800 and $1,848,000 of accrued interest and penalties at December 31, 2017 and 2016, respectively. The Company recognizes potential interest and penalties related to unrecognized tax benefits as a component of income tax expense.