6.	Income Taxes

On December 22, 2017, the President signed into law H.R.1 (P.L. 115-97), originally known as the “Tax Cuts and Jobs Act” (the “Tax Act”). The Tax Act significantly revises the U.S. tax code by, among other items, reducing the federal corporate tax rate from 35% to 21%, providing for the full expensing of certain depreciable property, eliminating the corporate alternative minimum tax, limiting the deductibility of interest expense, further limiting the deductibility of certain executive compensation, limiting the use of net operating loss carryforwards created in tax years beginning after December 31, 2017, and implementing a territorial tax system imposing a deemed repatriation transition tax (“Transition Tax”) on earnings of foreign subsidiaries.

Generally accepted accounting principles require companies to record the impact of the Tax Act in their financial statements for the period during which the Tax Act becomes law, even if provisions of the Tax Act become effective at a future date. The SEC staff recently issued Staff Accounting Bulletin (“SAB”) 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, which provides guidance on accounting for the effects and includes a measurement period that ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting of the Tax Act which cannot extend beyond one year. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740, Income Taxes, is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

Based on currently available information, the Tax Act resulted in a one-time total net tax benefit of $122.1 million in the period ending December 31, 2017, primarily related to the re-measurement of our U.S. deferred tax assets and liabilities to the lower enacted corporate tax rate for $128.0 million offset by a reduction in the domestic manufacturers deduction for $5.1 million, the Transition Tax and other current year tax reform impacts of $0.8 million.

Our accounting for the following elements of the Tax Act are not yet complete; however, we were able to make reasonable estimates of certain effects and, therefore, recorded provisional adjustments. These estimates may be affected by additional analysis and are subject to change due to a variety of factors, including, among others: (i) management’s further assessment of the Tax Act and related regulatory guidance; (ii) further guidance that may be issued by the Treasury, Financial Accounting Standards Board, Securities and Exchange Commission, Internal Revenue Service, or state, local or other taxing authorities; and (iii) actions the Company may take as a result of the Tax Act.

Re-measurement of Net Deferred Tax Liability: As a result of the Company’s net deferred tax liability position, we have recorded a one-time provisional income tax benefit of $128.0 million for the year ended December 31, 2017, as a result of the reduction in the federal corporate tax rate.

Cost Recovery: While we have not yet completed a full analysis of our 2017 capital expenditures that could qualify for immediate expensing, we have recorded a provisional benefit for bonus depreciation that resulted in a decrease of approximately $24.6 million to our current income taxes payable and a corresponding increase in our deferred tax liabilities (after considering the effects of the reduction in the federal corporate tax rate).

Deemed Repatriation Transition Tax: The Transition Tax is a tax on previously untaxed accumulated and current earnings and profits (“E&P”) of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. We were able to make a reasonable estimate of the Transition Tax and recorded a provisional Transition Tax obligation of approximately $0.1 million.

The Company believes the impact of certain foreign related provisions in the Tax Act, such as the base erosion anti-abuse tax (“BEAT”), the tax on global intangible low-taxed income (“GILTI”), and the reduced rate of tax on certain foreign-derived intangible income (“FDII”), will be immaterial based on our primarily domestic operations. The impact of certain domestic related provisions in the Tax Act, such as the limitation on interest expense deductibility and net operating loss carryforwards will also be immaterial. The Company will continue to analyze the impact on future periods of the limitation on the deductibility of certain executive compensation. The Company estimates, based on forecasted 2018 results, that its combined federal and state effective tax rate will be in the range of 24% to 26%.

The following is an analysis of the components of the consolidated income tax provision (dollars in millions):

	Year Ended December 31
	2017			2016			2015
Current income tax provision (benefit) -
U.S. federal	$	209.3		$	213.6		$	205.1
State and local		34.9			29.1			20.5
Foreign		0.3			0.2			0.4
Total current provision for taxes		244.5			242.9			226.0
Deferred -
U.S. federal		(90.2	)		(1.2	)		(3.8	)
State and local		5.7			(3.0	)		5.6
Foreign		—			0.2			(0.1	)
Total deferred provision (benefit) for taxes		(84.5	)		(4.0	)		1.7
Total provision (benefit) for taxes	$	160.0		$	238.9		$	227.7

The effective tax rate varies from the U.S. federal statutory tax rate principally due to the following (dollars in millions):

	2017			2016			2015
Provision computed at U.S. federal statutory rate of 35%	$	290.0		$	241.0		$	232.6
Federal tax reform		(127.2	)		—			—
State and local taxes, net of federal benefit		24.0			19.8			20.0
Domestic manufacturers deduction		(21.1	)		(21.1	)		(19.9	)
Other		(5.7	)		(0.8	)		(5.0	)
Total	$	160.0		$	238.9		$	227.7

The following details the scheduled expiration dates of our tax effected net operating loss (NOL) and other tax carryforwards at December 31, 2017 (dollars in millions):

	2018 Through 2027		2028 Through 2037		Indefinite		Total
U.S. federal NOLs	$	—	$	35.8	$	—	$	35.8
State taxing jurisdiction NOLs		1.4		0.9		—		2.3
U.S. federal tax credit carryforwards		—		0.1		—		0.1
U.S. federal and non-U.S. capital loss carryforwards		3.0		—		0.1		3.1
Total	$	4.4	$	36.8	$	0.1	$	41.3

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Deferred income tax assets and liabilities at December 31 are summarized as follows (dollars in millions):

	December 31
	2017			2016
Deferred tax assets:
Accrued liabilities	$	13.7		$	18.1
Employee benefits and compensation		21.1			45.9
Inventories		15.4			9.9
Net operating loss carryforwards		38.1			67.4
Restricted stock and performance units		9.0			11.7
Pension and postretirement benefits		90.6			136.5
Derivatives		6.1			11.5
Capital loss and general business credit carryforwards		3.2			5.3
Gross deferred tax assets	$	197.2		$	306.3
Valuation allowance (a)		(3.1	)		(5.2	)
Net deferred tax assets	$	194.1		$	301.1
Deferred tax liabilities:
Property, plant and equipment	$	(368.6	)	$	(537.0	)
Goodwill and intangible assets		(65.0	)		(98.8	)
Total deferred tax liabilities	$	(433.6	)	$	(635.8	)
Net deferred tax liabilities (b)	$	(239.5	)	$	(334.7	)

(a)

Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized. Both the 2017 and 2016 valuation allowance relates to capital losses. We do not expect to generate capital gains before the capital losses expire. If or when recognized, the tax benefits relating to the reversal of any or all of the valuation allowance would be recognized as a benefit to income tax expense.

(b)

As of December 31, 2017, we did not recognize U.S. deferred income taxes on our cumulative total of undistributed foreign earnings for our foreign subsidiaries. We indefinitely reinvest our earnings in operations outside the United States. It is not practicable to determine the amount of unrecognized deferred tax liability on these undistributed earnings because the actual tax liability, if any, is dependent on circumstances existing when the repatriation occurs.

Cash payments for federal, state, and foreign income taxes were $298.7 million, $222.1 million, and $238.3 million for the years ended December 31, 2017, 2016, and 2015, respectively.

The following table summarizes the changes related to PCA’s gross unrecognized tax benefits excluding interest and penalties (dollars in millions):

	2017			2016				2015
Balance as of January 1	$	(5.2	)	$	(5.8	)	$	(4.4	)
Increases related to prior years’ tax positions		—			—			(2.8	)
Increases related to current year tax positions		(0.4	)		(0.5	)		(0.4	)
Decreases related to prior years' tax positions		—			0.1			—
Settlements with taxing authorities		—			0.3			0.7
Expiration of the statute of limitations		0.8			0.7			1.1
Balance at December 31	$	(4.8	)	$	(5.2	)	$	(5.8	)

At December 31, 2017, PCA had recorded a $4.8 million gross reserve for unrecognized tax benefits, excluding interest and penalties. Of the total, $4.2 million (net of the federal benefit for state taxes) would impact the effective tax rate if recognized.

PCA recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. For both years ended December 31, 2017 and 2016, we had $1.1 million of interest and penalties recorded for unrecognized tax benefits. During the next 12 months, it is reasonably possible that PCA's unrecognized tax benefits related to state apportionment issues could decrease by approximately $3.1 million due to settlements with state taxing authorities.

PCA is subject to taxation in the United States, various state and local, and foreign jurisdictions. A federal examination of the tax years 2010 - 2012 was concluded in February 2015. A federal examination of the 2013 tax year was concluded in November 2016. The tax years 2014 - 2017 remain open to federal examination. The tax years 2013 - 2017 remain open to state examinations. Some foreign tax jurisdictions are open to examination for the 2009 tax year forward. Through the Boise acquisition, PCA recorded net operating losses and credit carryforwards from 2008 through 2011 and 2013 that are subject to examinations and adjustments for at least three years following the year in which utilized.