INCOME TAXES:

The components of income before income taxes for the years ended December 31, 2017, 2016 and 2015 were as follows (dollars in thousands):



	2017		2016			2015
United States	$	262,969	$	273,361		$	236,613
Foreign	32,550		(57,870		)	64,318
Total	$	295,519	$	215,491		$	300,931

The components of the (benefit from)/provision for income taxes for the years ended December 31, 2017, 2016 and 2015 were as follows (dollars in thousands):



	2017			2016			2015
United States:
Current
Federal	$	23,182		$	20,877		$	12,003
State	14,626			11,284			8,181
Deferred
Federal	(326,190		)	43,820			41,975
State	19,808			2,263			5,383
	(268,574		)	78,244			67,542
Foreign:
Current	18,435			3,289			11,031
Deferred	(11,120		)	(7,138		)	(2,679		)
	7,315			(3,849		)	8,352
Total	$	(261,259	)	$	74,395		$	75,894

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the TCJA) was enacted into law and the Securities and Exchange Commission's staff issued Staff Accounting Bulletin No.118 (SAB 118) to address the application of the TCJA on accounting for income taxes in the period that includes the enactment date. Specifically, when the initial accounting for items under the TCJA is incomplete, SAB 118 allows the Company to include provisional amounts when reasonable estimates can be made. SAB 118 provides for an up to one-year measurement period during which the tax effect of the TCJA can be recomputed based on additional guidance and analysis. Any adjustment will be recorded as a tax expense or benefit in the reporting period during which the amounts are determined.

The TCJA reduces the United States federal corporate income tax rate to 21% from 35% effective for tax years beginning after December 31, 2017, and creates a territorial tax system rather than a worldwide system, which generally eliminates United States federal income tax on dividends from foreign subsidiaries. The transition to the territorial system requires United States companies to compute a one-time transition (toll) tax on earnings of certain foreign subsidiaries, which were previously deferred for United States federal income tax purposes. The Company has determined a reasonable estimate of the effects of the TCJA based on Internal Revenue Service guidance and information available as of January 19, 2018, which was included in the Company's net benefit for income taxes for the year ended December 31, 2017. The Company estimated the impact of the reduction in the United States federal corporate income tax rate to be a reduction to the Company’s United States net deferred tax liabilities of approximately $394 million. This represents a decrease in corporate income taxes expected to be paid in the future. The Company believes this calculation to be complete except for deferred taxes related to certain equity compensation arrangements and changes in estimates which can result from finalizing the 2017 United States income tax return, which are not anticipated to be material. The Company has also estimated the toll tax to be approximately $22 million, net of applicable foreign tax credits. At this time, the Company has not gathered, prepared and analyzed the necessary information in sufficient detail to complete the complex calculations necessary to finalize the amount of the toll tax and related foreign tax credits. The Company believes the preliminary calculations result in a reasonable estimate of the toll tax and has included the provisional amount in its 2017 year-end tax provision. The toll tax can be paid over an eight-year period beginning in 2018. The payments increase from 8% of the toll tax for each of the years 2018 through 2022, to 15% in 2023, 20% in 2024 and 25% in 2025.

The United States track maintenance credit is an income tax credit for Class II and Class III railroads, as defined by the United States Surface Transportation Board (STB), to reduce their federal income tax based on qualified railroad track maintenance expenditures (the Short Line Tax Credit). Qualified expenditures include amounts incurred for maintaining track, including roadbed, bridges and related track structures owned or leased by a Class II or Class III railroad. The credit is equal to 50% of the qualified expenditures, subject to an annual limitation of $3,500 multiplied by the number of miles of railroad track owned or leased by the Class II or Class III railroad as of the end of its tax year. The United States Short Line Tax Credit was initially enacted for a three year period, 2005 through 2007, and was subsequently extended a series of times with the last extension enacted in February 2018. The February 2018 extension provided a retroactive credit, solely for fiscal year 2017. In 2018, the Company expects to record an income tax benefit of approximately $32 million as a result of this extension. Legislation is currently pending that seeks to extend the Short Line Tax Credit for fiscal year 2018 and beyond. The Company's provision for income taxes for the years ended December 31, 2016 and 2015 included income tax benefits of $28.8 million and $27.4 million, respectively, associated with the Short Line Tax Credit.

The Company's provision for income taxes for the years ended December 31, 2016 and 2015 also included $4.3 million and $9.7 million, respectively, of income tax benefits due to a change in the U.K. tax rate. The Company's effective income tax rates also included adjustments to reflect differences between book income tax expense and final tax returns filed each year related to the previous fiscal year, which the Company does not consider material.

The provision for income taxes differs from that which would be computed by applying the statutory United States federal income tax rate to income before income taxes. The following is a summary of the effective income tax rate reconciliation for the years ended December 31, 2017, 2016 and 2015:



	2017		2016		2015
Tax provision at statutory rate	35.0	%	35.0	%	35.0	%
Effect of foreign operations	(1.1	)%	4.3	%	(3.8	)%
Foreign valuation allowance	(0.3	)%	2.9	%	2.1	%
Foreign goodwill impairment	—	%	2.4	%	—	%
Effect of foreign tax rate change	—	%	(2.0	)%	(3.3	)%
Effect of U.S. transition (toll) tax	7.2	%	—	%	—	%
Effect of U.S. federal rate change	(133.3	)%	—	%	—	%
State income taxes, net of federal income tax benefit	3.8	%	4.1	%	3.0	%
Benefit of track maintenance credit	—	%	(13.4	)%	(9.1	)%
Other, net	0.3	%	1.2	%	1.3	%
Effective income tax rate	(88.4	)%	34.5	%	25.2	%

The Company’s effective income tax rate for the year ended December 31, 2017 as compared with the year ended December 31, 2016, was primarily driven by the effects of the TCJA. The estimated benefit from the reduction in the United States corporate income tax rate to 21% was partially offset by the United States transition tax and a reduction of the United States federal benefit on state income taxes.

The Company’s effective income tax rate was 9.3% higher for the year ended December 31, 2016 as compared with the year ended December 31, 2015, primarily driven by the effect of foreign operations, which resulted from losses incurred in some foreign jurisdictions (including impairments) generating a tax benefit at tax rates lower than the United States statutory rate, a portion of which were reduced by the recording of a valuation allowance. As the Company concluded it is more likely than not, some of those losses will not be able to be utilized to offset future income taxes, the Company recorded a valuation allowance. This valuation allowance further increased the Company’s consolidated effective income tax rate.

Deferred income taxes reflect the effect of temporary differences between the book and tax basis of assets and liabilities as well as available income tax credit and net operating loss carryforwards. The components of net deferred income taxes as of December 31, 2017 and 2016 were as follows (dollars in thousands):



	2017			2016
Deferred income tax assets:
Track maintenance credit carryforward	$	147,907		$	217,054
Net operating loss carryforwards	27,211			23,168
Accruals and reserves not deducted for tax purposes until paid	11,375			15,131
Stock-based compensation	8,634			10,089
Deferred revenue	4,588			8,289
Deferred compensation	3,496			3,891
Interest rate swaps	545			—
Alternative minimum tax credit carryforward	1,592			1,592
Pension and postretirement benefits	24,889			22,983
Other	1,992			2,072
	232,229			304,269
Valuation allowance	(26,674		)	(24,075		)
Deferred income tax liabilities:
Interest rate swaps	—			(4,579		)
Property and equipment basis difference	(700,488		)	(1,016,349		)
Intangible assets basis difference	(374,067		)	(418,448		)
Other	(851		)	(368		)
Net deferred tax liabilities	$	(869,851	)	$	(1,159,550	)

As of December 31, 2017, the Company had United States net operating loss carryforwards in various state jurisdictions that totaled approximately $292.3 million, United States track maintenance credit carryforwards of $147.9 million and foreign net operating loss carryforwards in the Netherlands that totaled approximately $44.1 million. Some of the Company's credit carryforwards are subject to Section 382 limitations of the Internal Revenue Code (Section 382). Section 382 imposes limitations on a corporation's ability to utilize its credits if it experiences an "ownership change." In general terms, an ownership change results from transactions increasing the ownership of certain existing stockholders or new stockholders in the stock of a corporation by more than 50% during a three-year testing period. The Company expects to fully utilize its track maintenance credit carryforwards. The state net operating losses exist in different states and expire between 2019 and 2037. The United States track maintenance credits expire between 2026 and 2036. The Netherlands net operating losses expire between 2019 and 2026.

The Company maintains a valuation allowance on state net operating losses, foreign net operating losses and certain other deferred tax assets for which, based on the weight of available evidence, it is more likely than not that some or all of the deferred income tax assets will not be realized.

A reconciliation of the beginning and ending amount of the Company's valuation allowance is as follows (dollars in thousands):



	2017		2016
Balance at beginning of year	$	24,075	$	19,315
Increase/(decrease) for state net operating losses	1,964		(1,476		)
Increase for foreign net operating losses and impairments	635		6,236
Balance at end of year	$	26,674	$	24,075

A reconciliation of the beginning and ending amount of the Company's liability for uncertain tax positions is as follows (dollars in thousands):



	2017			2016			2015
Balance at beginning of year	$	7,125		$	4,197		$	4,324
Increase for tax positions related to prior years	246			3,970			—
Decrease for tax positions related to prior years	—			(1,169		)	—
Decrease for expiration of statute of limitations	(3,271		)	—			—
Increase/(decrease) for effects of foreign exchange rates	—			127			(127		)
Balance at end of year	$	4,100		$	7,125		$	4,197

At December 31, 2017, 2016 and 2015, there was $4.1 million, $7.1 million and $4.2 million, respectively, of unrecognized tax benefits that if recognized would affect the annual effective income tax rate. The Company recognizes interest and penalties related to uncertain tax positions in its provision for income taxes.

For the period ending December 31, 2017, the Company recognized approximately $3.3 million in previously unrecognized tax benefits as a result of a lapse of the statute of limitations on acquired liabilities for uncertain tax positions.

As of December 31, 2017, the following tax years remain open to examination by the major taxing jurisdictions to which the Company is subject:



	Open Tax Years
	From		To
United States	2014	-	2017
Australia	2010	-	2017
Belgium	2015	-	2017
Canada	2009	-	2017
Germany	2013	-	2017
Mexico	2008	-	2017
Netherlands	2012	-	2017
Poland	2012	-	2017
Saudi Arabia	2015	-	2017
U.K.	2015	-	2017