Income Taxes

Income before income taxes consists of the following:



	Year Ended December 31,
	2017		2016		2015
	(In millions)
United States	$	21.4	$	15.4	$	44.0
Outside the United States	26.3		25.6		26.0
	$	47.7	$	41.0	$	70.0

Income taxes consists of the following:



	Year Ended December 31,
	2017			2016			2015
	(In millions)
Current expense (benefit):
Federal	$	14.3		$	(0.8	)	$	11.7
State	0.7			0.2			0.7
Foreign	7.6			6.6			6.0
	22.6			6.0			18.4
Deferred expense (benefit):
Federal	(5.4		)	1.6			2.7
State	0.3			0.5			0.6
Foreign	0.7			0.7			(0.4		)
	(4.4		)	2.8			2.9
Income tax expense	$	18.2		$	8.8		$	21.3

The Tax Cuts and Jobs Act (the “U.S. Tax Act”) was enacted on December 22, 2017. The Tax Act reduces the US federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings.

The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. 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 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 to be included 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.

At December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Tax Act; however, in certain cases, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. For the items for which we were able to determine a reasonable estimate, we recognized a net provisional amount of $4.2 million, which is included as a component of income tax expense. In all cases, we will continue to make and refine our calculations as additional analysis is completed. In addition, our estimates may also be affected as we gain a more thorough understanding of the tax law.

Provisional amounts

Deferred tax assets and liabilities: We 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%. However, we are still analyzing certain aspects of the Act and refining our 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 our deferred tax balance was a tax benefit of $10.0 million.

The one-time transition tax is based on our total post-1986 earnings and profits (E&P) that we previously deferred from US income taxes. We recorded a provisional amount for our one-time transition tax liability for each of our foreign subsidiaries, resulting in an increase in income tax expense of $14.2 million. We have not yet completed our 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 we finalize the calculation of post-1986 foreign E&P previously deferred from US federal taxation and finalize the amounts held in cash or other specified assets.

A reconciliation of income tax expense computed by applying the statutory federal income tax rate to income before income taxes as recorded is as follows:



	Year Ended December 31,
	2017			2016			2015
	(In millions)
Tax at U.S. statutory rate	$	16.7		$	14.3		$	24.5
Effect of state income taxes, net	0.7			0.2			0.6
Effect of foreign operations	(5.2		)	(2.1		)	(1.6		)
Valuation allowance	5.3			0.5			(0.7		)
Uncertain tax positions	(2.0		)	(4.0		)	0.1
Non-deductible items	0.5			0.6			0.5
Non-deductible compensation	0.4			0.8			1.2
Manufacturer's deduction	(0.8		)	(0.5		)	(1.1		)
Net impact of U.S. Tax Act	4.2			—			—
Other, net	(1.6		)	(1.0		)	(2.2		)
Total	$	18.2		$	8.8		$	21.3

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



	Year Ended December 31,
	2017			2016
	(In millions)
Deferred income tax assets:
Postretirement benefit obligation	$	2.0		$	3.6
Inventory	9.9			13.7
Net operating loss and credit carryforwards	16.1			10.8
Warranty reserve	0.4			2.1
Accrued litigation	0.1			2.8
Compensation	4.2			4.1
Other	4.8			10.0
Total deferred income tax assets	37.5			47.1
Deferred income tax liabilities:
Depreciation and amortization	9.7			14.9
Pension	16.3			22.1
Intangible assets	16.6			23.3
Other	2.8			5.2
Total deferred income tax liabilities	45.4			65.5
Net deferred income tax liabilities prior to valuation allowances	(7.9		)	(18.4		)
Valuation allowances	(11.6		)	(5.3		)
Net deferred income tax liability	$	(19.5	)	$	(23.7	)

At December 31, 2017, the Company has U.S., state and foreign net operating loss carryforwards and U.S. foreign tax credit carryforwards for income tax purposes. The foreign net operating loss carryforward is $32.4 million, of which $7.9 million expires between 2018 and 2037 and the remainder has no expiration date. The Company has a tax benefit from a state net operating loss carryforward of $2.1 million that expires between 2018 and 2037. The Company also has a tax benefit from a non-consolidated U.S. net operating loss carryforward of $1.1 million that expires between 2035 and 2036. The foreign tax credit carryforward is $3.1 million and expires in 2027.

As of December 31, 2017 and 2016, the Company was not in a cumulative three-year loss position and it was determined that it was more likely than not that its U.S. deferred tax assets will be realized. During the years ended December 31, 2017 and 2016, the Company recorded valuation allowances of $6.3 million and $4.5 million, respectively, against certain foreign net deferred tax assets and the U.S. foreign tax credits. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income (including reversals of deferred tax liabilities). The Company reviews all valuation allowances related to deferred tax assets and will reverse these valuation allowances, partially or totally, when appropriate under ASC 740.

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



	2017			2016			2015
	(In millions)
Unrecognized Tax Benefit — January 1,	$	2.9		$	6.3		$	6.5
Gross Increases to Tax Positions Related to Current Year	0.1			—			—
Gross Increases to Tax Positions Related to Prior Years	0.6			0.3			0.3
Gross Decreases to Tax Positions Related to Prior Years	—			—			(0.1		)
Gross Decreases related to settlements with taxing authorities	(0.4		)	—			—
Expiration of Statute of Limitations	(1.9		)	(3.7		)	(0.4		)
Other	(0.1		)	—			—
Unrecognized Tax Benefit — December 31,	$	1.2		$	2.9		$	6.3

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $0.9 million at December 31, 2017 and $2.4 million at December 31, 2016. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the year ended December 31, 2017 and 2016, the Company recognized approximately $(0.3) million and $(1.4) million, respectively, in net interest and penalties. The Company had approximately $0.2 million and $0.4 million for the payment of interest and penalties accrued at December 31, 2017 and 2016, respectively. It is reasonably possible that within the next twelve months the amount of gross unrecognized tax benefits could be reduced by approximately $0.1 million as a result of the closure of tax statutes related to existing uncertain tax positions.

The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. The Company’s tax years for 2014 through 2017 remain open for examination by the Internal Revenue Service and 2013 through 2017 remain open for examination by various state and foreign taxing authorities.

As a result of the Tax Act, the Company’s net unremitted foreign earnings of $136.0 million have been subject to U.S. taxation. We are currently analyzing our global working capital and cash requirements and the potential tax liabilities attributable to a repatriation, including calculating any excess of the amount for financial reporting over the tax basis in our foreign subsidiaries, but we have yet to determine whether we plan to change our prior assertion and repatriate earnings. Accordingly, we have not recorded any deferred taxes attributable to our investments in our foreign subsidiaries. We will record the tax effects of any change in our prior assertion in the period that we complete our analysis and are able to make a reasonable estimate, and disclose any unrecognized deferred tax liability for temporary differences related to our foreign investments, if practicable.