Income Taxes

Income tax expense for continuing operations consisted of the following:



	Year Ended December 31,
(dollars in millions)	2017			2016			2015
Current:
Federal	$	(14.8	)	$	(14.0	)	$	9.2
State and local	1.0			0.5			1.7
Total current	(13.8		)	(13.5		)	10.9
Investment tax credits	(0.1		)	(0.1		)	(0.2		)
Deferred:
Federal	51.7			72.6			149.4
State and local	2.3			5.7			5.2
Total deferred	54.0			78.3			154.6
Valuation allowance	(9.2		)	(3.6		)	(5.5		)
Total	$	30.9		$	61.1		$	159.8

The following is a reconciliation of the statutory federal income tax rate with the effective tax rate for each year:



	Year Ended December 31,
	2017		2016		2015
U.S. federal statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal income tax	0.7		0.2		0.7
Change in valuation allowance, net of federal income tax	(9.1	)	(1.4	)	(0.8	)
State net operating loss adjustments	2.0		0.9		0.3
Transaction Costs	5.5		—		—
Unrecognized tax benefit changes	1.4		2.3		0.2
Federal Rate Change	10.3		—		—
Other differences, net	1.0		0.5		0.1
Effective tax rate	46.8	%	37.5	%	35.5	%

The income tax provision (benefit) was charged to continuing operations, discontinued operations, accumulated other comprehensive income or additional paid-in capital as follows:



	Year Ended December 31,
(dollars in millions)	2017			2016		2015
Income tax provision (benefit) related to:
Continuing operations	$	30.9		$	61.1	$	159.8
Discontinued operations	—			—		34.8
Accumulated other comprehensive income (loss)	(28.3		)	43.8		2.0
Excess tax benefits on stock option exercises	—			0.1		(0.1		)

The components of our deferred tax assets and liabilities were as follows:



	December 31,
(dollars in millions)	2017			2016
Deferred tax assets:
Net operating loss carryforwards	$	88.9		$	125.2
Pension and postretirement benefits	46.1			78.7
Employee benefits	7.9			12.2
AMT Credit Carryforward	1.5			17.4
Texas Margin Credit	10.5			10.7
Other	14.9			19.1
Total deferred tax assets	169.8			263.3
Valuation allowance	(45.5		)	(54.4		)
Total deferred tax assets, net of valuation allowance	$	124.3		$	208.9
Deferred tax liabilities:
Property, plant and equipment	$	115.9		$	135.0
Investment in CyrusOne	—			9.1
Other	0.3			0.3
Total deferred tax liabilities	116.2			144.4
Net deferred tax assets	$	8.1		$	64.5

As of December 31, 2017, the Company had $187.5 million of federal tax operating loss carryforwards with a deferred tax asset value of $39.3 million, alternative minimum tax credit carryforwards of $1.5 million, $1.6 million foreign deferred tax assets related to NOLs, state tax credits of $10.5 million, and $48.0 million in deferred tax assets related to state and local tax operating loss carryforwards. Approximately $130.0 million of the remaining federal tax loss carryforwards will expire in 2023. U.S. tax laws limit the annual utilization of tax loss carryforwards of acquired entities. These limitations should not materially impact the utilization of the tax carryforwards.

The ultimate realization of the deferred income tax assets depends upon the Company’s ability to generate future taxable income during the periods in which basis differences and other deductions become deductible, and prior to the expiration of the net operating loss carryforwards. Due to its historical and future projected taxable income, management believes it will utilize future federal deductions and available net operating loss carryforwards prior to their expiration. Management also concluded that it was more likely than not that certain state and foreign tax loss carryforwards would not be realized based upon the analysis described above and therefore provided a valuation allowance.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $22.0 million and $31.0 million at December 31, 2017 and December 31, 2016, respectively. Accrued interest and penalties on income tax uncertainties were immaterial as of December 31, 2017 and 2016.

A reconciliation of the unrecognized tax benefits is as follows:



	Year Ended December 31,
(dollars in millions)	2017			2016		2015
Balance, beginning of year	$	31.4		$	27.6	$	27.1
Change in tax positions for the current year	1.0			1.2		0.5
Change in tax positions for prior years	0.3			2.6		—
Change related to decrease in federal tax rate	(10.5		)	—		—
Balance, end of year	$	22.2		$	31.4	$	27.6

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various foreign, state and local jurisdictions. With a few exceptions, the Company is no longer subject to U.S. federal, state or local examinations for years before 2014.

On December 22, 2017, the U.S. Government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex changes to the U.S. tax code including, but not limited to, reducing the U.S. federal corporate tax rate from 35 percent to 21 percent, limiting the deductibility of interest and executive compensation and eliminating the corporate alternative minimum tax (AMT). Generally Accepted Accounting Principles requires that the impact of tax legislation be recognized in the period in which the law was enacted. In addition, there are certain transitional impacts of the Tax Act. The reduction of the U.S. corporate tax rate caused the Company to adjust our U.S. deferred tax assets and liabilities to the lower federal base rate of 21 percent. The Company was able to make a reasonable estimate of the impact; therefore, recorded a provisional net charge of $6.8 million for the quarter ended December 31, 2017. This $6.8 million provisional net charge included a reduction of our uncertain tax positions of $10.5 million.

The Company considers the provisional amount recorded to be a reasonable estimate as of December 31, 2017; however, this amount could be affected by additional information and other analysis related to the Tax Act. The final transition impacts of the Tax Act may differ from the above estimate, possibly materially, due to several different reasons. The estimate could be impacted by changes in interpretation of the Tax Act, any legislative action taken to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the Company has utilized to calculate the transition impacts. Changes to the estimates the Company has utilized to calculate the transition impact may include impacts from changes to current year earnings estimates, as well as foreign exchange rates of foreign subsidiaries. The Securities Exchange Commission has issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. As a result, the provisional amount of $6.8 million could be adjusted during the measurement period ending December 31, 2018.

U.S. income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested outside the United States. The Company intends to permanently reinvest the undistributed earnings of these foreign subsidiaries in its operations outside the United States to support its international growth. Determination of the amount of any unrecognized deferred income tax liability on this temporary difference is not practicable because of the complexities of the hypothetical calculation.