INCOME TAXES

The Tax Act, which was enacted on December 22, 2017, represents the most significant overhaul of the U.S. tax code in more than 30 years. In 2017, The Tax Act reduced the U.S. federal corporate tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and created new taxes on certain foreign earnings. During the year ended December 31, 2017, we recognized the reasonably estimated (i) effects on our existing deferred tax balances and (ii) one-time transition tax, in accordance with SEC Staff Accounting Bulletin No. 118 (“SAB 118”), which provided guidance on accounting for the tax effects of the new law. This resulted in a net tax benefit of $43.7 million recorded in our 2017 financial statements. As of December 31, 2018, we have completed our accounting for the 2017 tax effects related to enactment of the Tax Act. There were no material adjustments to the provisional amounts recorded at December 31, 2017 related to the Tax Act in our financial statements for the period ended December 31, 2018.

Prior to the enactment of the Tax Act on December 22, 2017, we considered the accumulated earnings of our foreign subsidiary to be indefinitely reinvested and, therefore, no provision had been made for U.S. income taxes on such amounts. We analyzed our foreign working capital and cash requirements and the potential tax liabilities that would be attributable to a repatriation of previously taxed earnings. In the second quarter of 2018, we repatriated $9.9 million of cash resulting in no additional tax expense. Additionally, we will not consider the future earnings of our foreign subsidiary to be permanently reinvested and have determined that any tax effects resulting from this change would be immaterial.

The following table presents the 2018, 2017 and 2016 income tax expense (benefit):



	Year Ended December 31
	2018(1)			2017(2)			2016(3)
	(In thousands)
Current income taxes:
Federal	$	(258	)	$	(1,315	)	$	49,529
State	33			1,317			5,728
Foreign	(554		)	844			879
Total current income tax expense (benefit)	(779		)	846			56,136
Deferred income taxes:
Federal	(49,115		)	(38,100		)	15,164
State	7,611			11,075			10,734
Total deferred income tax expense (benefit)	(41,504		)	(27,025		)	25,898
Total income tax expense (benefit)	$	(42,283	)	$	(26,179	)	$	82,034


(1)	Excludes $5.9 million of income tax benefit related to discontinued operations.


(2)	Excludes $14.2 million of income tax benefit related to discontinued operations.


(3)	Excludes $0.5 million of income tax expense related to discontinued operations.

The following is a reconciliation of income tax expense (benefit) computed at the U.S. federal statutory tax rate to income tax expense (benefit) reported in our Consolidated Statements of Operations:



	Year Ended December 31
	2018					2017					2016
	Amount			Percentage		Amount			Percentage		Amount			Percentage
	(In thousands, except percentages)
Tax expense (benefit) at statutory rate	$	(78,648	)	21.0	%	$	7,435		35.0	%	$	70,928		35.0	%
State income taxes	(17,159		)	4.6		1,844			8.7		9,620			4.8
Corporate owned life insurance	(85		)	—		(933		)	(4.4	)	—			—
Nondeductible executive compensation	566			(0.1	)	371			1.8		1,130			0.6
Impairment	35,109			(9.4	)	—			—		—			—
Change in valuation allowances	17,355			(4.6	)	5,851			27.5		1,080			0.5
Share-based compensation(1)	1,073			(0.3	)	2,995			14.1		—			—
Domestic production activities deduction	—			—		(244		)	(1.2	)	(4,393		)	(2.2	)
Transition tax on unrepatriated foreign earnings	—			—		2,106			9.9		—			—
Tax reform revaluation of deferred taxes	—			—		(45,840		)	(215.8	)	—			—
Other	(494		)	0.1		236			1.2		3,669			1.8
Total	$	(42,283	)	11.3	%	$	(26,179	)	(123.2	)%	$	82,034		40.5	%


(1)	Includes excess tax benefits and deficiencies related to share-based payments recorded in the provision of income taxes because of the adoption of ASU 2016-09, Compensation — Stock Compensation — Improvements to Employee Share-Based Payment Accounting in 2017.

The tax effects of temporary differences giving rise to deferred income tax assets (liabilities) were:



	December 31
	2018(1)			2017(2)
	(In thousands)
Deferred income tax assets:
Accrued liabilities	$	54,906		$	54,971
Retirement plans and postretirement benefits	12,190			10,379
Share-based compensation	2,343			3,886
Receivables and inventories	6,789			6,651
Derivative financial instruments	1,075			99
Net operating loss carryforwards	61,009			38,023
Tax credits and other carryforwards	23,195			9,965
Valuation allowances	(40,966		)	(21,755		)
	120,541			102,219
Deferred income tax liabilities:
Property, plant and equipment	(113,272		)	(124,185		)
Intangible assets	(14,475		)	(22,213		)
Cancellation of debt	—			(1,708		)
Other	(3,983		)	(3,400		)
	(131,730		)	(151,506		)
Net deferred income tax asset (liability)	$	(11,189	)	$	(49,287	)


(1)	Includes $5.4 million of deferred tax assets related to uncertain tax positions.


(2)	Includes $7.0 million of deferred tax assets related to uncertain tax positions.

These net deferred income tax assets (liabilities) are classified in our Consolidated Balance Sheets as follows:



	December 31
	2018			2017
	(In thousands)
Noncurrent assets	$	2,518		$	10,731
Noncurrent liabilities	(13,707		)	(60,018		)
Total	$	(11,189	)	$	(49,287	)

At December 31, 2018, we had $61.0 million of tax-effected federal and state net operating losses and $23.2 million of federal and state tax credits and other carryovers available for use in future years. While some of these assets can be carried forward indefinitely, certain attributes are subject to limitations and begin to expire in 2019. A valuation allowance of $41.0 million has been established because we do not believe it is more likely than not that all state deferred tax assets will be realized. Our valuation allowance increased $19.2 million in 2018, which primarily relates to our assessment of the realizability of our net deferred state tax assets, as well as certain state net operating losses and tax credits.

The following is a reconciliation of gross unrecognized tax benefits, including interest, recorded in our Consolidated Balance Sheets:



	December 31
	2018			2017			2016
	(In thousands)
Balance at beginning of year	$	15,054		$	30,410		$	27,829
Increases in tax positions for current year	211			251			125
Increases in tax positions for prior years	244			904			4,542
Decreases in tax positions for prior years	(5,842		)	(53		)	(199		)
Settlement of tax matters	(217		)	—			(1,887		)
Lapse of applicable statutes of limitations	—			(16,458		)	—
Balance at end of year	$	9,450		$	15,054		$	30,410

Of the total unrecognized tax benefit balance at December 31, 2018, $4.0 million would impact our effective tax rate if recognized. The remaining $5.4 million represents tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Due to the impact of deferred income tax accounting, the disallowance of the shorter deductibility period would not affect our effective tax rate but would accelerate payment of cash to the applicable taxing authority. We do not expect a material change to our gross liability for uncertain tax positions during the next 12 months.

We recognize accrued interest related to uncertain tax positions as a component of income tax expense. Penalties, if incurred, are recorded in general and administrative expenses in our Consolidated Statements of Operations. Interest expense recorded in income tax expense for 2018, 2017 and 2016 was immaterial. Our liability for uncertain tax positions included accrued interest of $0.8 million and $2.0 million at December 31, 2018 and 2017, respectively.

As of December 31, 2018, our 2015 through 2017 U.S. consolidated income tax returns remain open for examination by the IRS. State income tax returns are generally subject to examination for a period of three to five years after filing. We have various state income tax returns in the process of examination, appeals or settlement.