Note K – Income Taxes

The Company’s effective income tax rate is calculated as the amount of income tax expense (benefit) divided by income from continuing operations before income taxes. For the three-month and nine-month periods ended September 30, 2018 and 2017, the Company’s effective income tax rates were as follows:


	2018	2017
Three months ended September 30	34.8%	(4.3%)
Nine months ended September 30	4.8%	137.7%

The effective tax rates for most periods where earnings are generated, generally exceed the U.S. statutory tax rate (21% in 2018, 35% in 2017) due to several factors, including: the effects of income generated in foreign tax jurisdictions, certain of which have income tax rates that are higher than the U.S. Federal rate; U.S. state tax expense; and certain expenses, including exploration expenses, in certain foreign jurisdictions, for which no income tax benefits are available or are not presently being recorded due to a lack of reasonable certainty of adequate future revenue against which to utilize these expenses as deductions. Conversely, the effective tax rates for most periods where losses are incurred generally are lower than U.S. statutory tax rate of 21% due to similar reasons.

Due to uncertainty related to language in Section 965(n) of the 2017 Tax Act, and specifically whether current operating losses from 2017 were required to be applied to offset a company’s deemed taxable repatriation of foreign earnings under the 2017 Tax Act, the Company’s provisional tax expense recorded in the Company’s December 31, 2017 financial statements reflected use of all the estimated 2017 tax operating loss against the deemed repatriation. This resulted in no loss carryover of 2017 tax operating losses from 2017 into 2018, and foreign tax credits of $228.2 million were fully provided for in the Company’s December 31, 2017 financial statements. On April 2, 2018, the Internal Revenue Service issued new guidance related to Section 965(n). This guidance resolved an ambiguity related to an election which allowed the Company to preserve the 2017 tax net operating loss as a carryforward which resulted in utilizing the previously unused foreign tax credits against all but $36 million of current income tax on the deemed repatriation of foreign earnings. The preservation of the tax loss carryforward reduced the deferred tax expense for the first quarter of 2018 and year to date by $156 million and resulted in a $36 million charge to taxes payable relating to the deemed inclusion. The Company anticipates paying this $36 million tax payable over eight years as permitted by the 2017 Tax Act.

Note K – Income Taxes (Contd.)

The effective tax rate for the three-month period ended September 30, 2018 was above the U.S. statutory tax rate of 21% primarily due to higher tax rates in certain foreign tax jurisdictions combined with expenses in foreign jurisdictions not fully deductible from income at the U.S. statutory rate. The effective tax rate for the three-month period ended September 30, 2017 was below the U.S. statutory tax rate primarily due to the tax effect of expenses in foreign jurisdictions not being fully deductible from losses at the U.S. statutory tax rate, an estimated U.S tax charge for undistributed foreign earnings and Canadian foreign exchange losses not fully deductible at 35%. The 2017 period income before tax was a loss.

The effective tax rate for the nine-month period ended September 30, 2018 was below the U.S. statutory tax rate of 21% primarily due to the discrete tax effect of the new guidance relating to Section 965(n), offset by higher tax rates in certain foreign tax jurisdictions and expenses in foreign jurisdictions not fully deductible from income at the U.S. statutory tax rate. The effective tax rate for the nine-month period ended September 30, 2017 was above the U.S. statutory tax rate primarily due to an estimated U.S. tax charge recognized for undistributed foreign earnings and Canadian foreign exchange losses not fully deductible at the statutory rate. During the first nine-months of 2017, the Company determined that prospective earnings from its Malaysian and Canadian subsidiaries will not be considered reinvested into local operations and recorded a deferred tax charge of $65.2 million associated with the estimated tax consequence of future repatriation of Malaysian and Canadian earnings that were deemed no longer indefinitely invested.

The Company’s tax returns in multiple jurisdictions are subject to audit by taxing authorities. These audits often take multiple years to complete and settle. Although the Company believes that recorded liabilities for unsettled issues are adequate, additional gains or losses could occur in future years from resolution of outstanding unsettled matters. As of September 30, 2018, the earliest years remaining open for audit and/or settlement in our major taxing jurisdictions are as follows: United States – 2015; Canada – 2012; Malaysia – 2011; and United Kingdom – 2016.