INCOME TAXES

The U.S. and international components of Income before Income Taxes and Equity Income of Unconsolidated Entity consisted of the following:



	Year Ended December 31,
In millions	2017		2016		2015
U.S.	$	227.5	$	290.0	$	307.6
International	25.5		29.4		51.7
Income before Income Taxes and Equity Income of Unconsolidated Entity	$	253.0	$	319.4	$	359.3

The provisions for Income Tax Benefit (Expense) on Income before Income Taxes and Equity Income of Unconsolidated Entity consisted of the following:



	Year Ended December 31,
In millions	2017			2016			2015
Current Benefit (Expense):
U.S.	$	0.7		$	(5.1	)	$	(7.9	)
International	(9.2		)	(11.4		)	(12.5		)
Total Current	$	(8.5	)	$	(16.5	)	$	(20.4	)

Deferred Benefit (Expense):
U.S.	51.0			(78.8		)	(110.6		)
International	3.0			2.1			0.6
Total Deferred	$	54.0		$	(76.7	)	$	(110.0	)
Income Tax Benefit (Expense)	$	45.5		$	(93.2	)	$	(130.4	)

A reconciliation of Income Tax (Expense) Benefit on Income before Income Taxes and Equity Income of Unconsolidated Entity at the federal statutory rate of 35% compared with the Company’s actual Income Tax (Expense) Benefit is as follows:



	Year Ended December 31,
In millions	2017			Percent		2016			Percent		2015			Percent
Income Tax Expense at U.S. Statutory Rate	$	(88.5	)	35.0	%	$	(111.8	)	35.0	%	$	(125.8	)	35.0	%
U.S. State and Local Tax Expense	(8.7		)	3.4		(10.0		)	3.2		(11.4		)	3.2
IRS Agreement	—			—		22.8			(7.2	)	—			—
Permanent Items	(2.7		)	1.0		(1.3		)	0.5		1.7			(0.5	)
U.S. Tax Reform	138.0			(54.5	)	—			—		—			—
Change in Valuation Allowance due to Tax Reform	(2.0		)	0.8		—			—		—			—
Change in Valuation Allowance	(3.5		)	1.4		0.5			(0.2	)	1.8			(0.5	)
International Tax Rate Differences	3.2			(1.3	)	1.8			(0.6	)	2.4			(0.7	)
Foreign Withholding Tax	(0.4		)	0.2		(0.2		)	0.1		(0.2		)	0.1
Change in Tax Rates	(3.0		)	1.2		0.2			(0.1	)	1.0			(0.3	)
U.S. Federal & State Tax Credits	10.2			(4.0	)	3.5			(1.1	)	5.5			(1.5	)
Uncertain Tax Positions	(0.3		)	0.1		1.2			(0.4	)	(3.7		)	1.0
Other	3.2			(1.3	)	0.1			—		(1.7		)	0.5
Income Tax Benefit (Expense)	$	45.5		(18.0	)%	$	(93.2	)	29.2	%	$	(130.4	)	36.3	%

U.S. Tax Reform

The Tax Cuts and Jobs Act (the "Act") was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to record/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. At December 31, 2017, the Company has not completed its accounting for the tax effects of enactment of the Act; however, in certain cases, as described below, the Company has made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax. The Company recognized a provisional net tax benefit of $136.0 million, which is included as a component of income tax expense from continuing operations.

Provisional Amounts

Deferred tax assets and liabilities: The Company remeasured certain deferred tax assets and liabilities based on the federal rate at which they are expected to reverse in the future, which is generally 21%. The Company also remeasured the state rate at which certain deferred tax assets and liabilities are expected to reverse in the future associated with the reduction in the future federal benefit from state deferred tax assets and liabilities from 35% to 21%. However, the Company is still analyzing certain aspects of the Act and refining its 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 the Company's deferred tax balance was a tax benefit of $156.3 million, including the remeasurement of its federal valuation allowance.

Foreign tax effects: The one-time transition tax is based on the Company's total post-1986 earnings and profits ("E&P") that were previously deferred from U.S. income taxes. The Company recorded a provisional amount for the one-time transition tax liability for all of its foreign subsidiaries resulting in an increase in income tax expense of $20.5 million. The Company has not yet completed its 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 the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets.

The Company has not provided for any additional outside basis difference inherent in its foreign subsidiaries, as these amounts continue to be indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any additional outside basis difference in these entities is not practicable. In addition, the Company is still evaluating the impact of the one-time transition tax on the outside basis differences and cumulative temporary differences inherent in these subsidiaries as of December 31, 2017 and as a result, it is not practicable to provide the amount of any cumulative temporary differences related to unrecorded differences. The Company has adjusted the existing deferred tax liability it previously recorded associated with the Company's equity investment in the joint venture, Rengo Riverwood Packaging, Ltd. resulting in a provisional income tax benefit of $1.7 million. The remaining deferred tax liability recorded relates to future withholding tax expense attributable to the remaining outside basis difference.

The Company has not yet made a policy election with respect to its treatment of potential global intangible low-taxed income (“GILTI”). Companies can either account for taxes on GILTI as incurred or recognize deferred taxes when basis differences exist that are expected to affect the amount of the GILTI inclusion upon reversal. The Company is still in the process of analyzing the provisions of the Act associated with GILTI and the expected impact of GILTI on the Company in the future.

State tax effects: As noted above, the Company remeasured certain deferred tax assets and liabilities to account for the reduction in the future federal benefit from state deferred tax assets and liabilities. In addition, the Company reassessed its previous determination of the realizability of certain state deferred tax assets based on whether or not the state’s currently enacted legislation adopts the changes made by the Act. As a result of a reduction in projected future taxable income associated with certain state’s adoption of federal tax reform, the Company has increased its valuation allowance against certain state deferred tax assets resulting in expense of $0.9 million.

Other Federal effects: As a result of the Act, the corporate alternative minimum tax ("AMT") was repealed. In addition, taxpayers with AMT credit carryovers in excess of their regular tax liability may have the credits refunded over multiple years from 2018 to 2022. However, AMT transactions, including refunds, are subject to sequestration by the Office of Management Budget. As a result, the Company has reclassed its AMT credit carryforward to a non-current federal income tax receivable and reduced the estimated refund to account for the effects of the sequester. This provisional adjustment resulted in additional tax expense of $0.6 million.

Other Effective Tax Rate Differences

During 2017, the Company claimed U.S. federal and state tax credits associated with various investments made by the Company in previous years, in addition to claiming U.S. federal and state research and development ("R&D") tax credits. The Company claimed U.S. federal R&D and investment tax credits of $5.2 million, excluding reductions for uncertain tax positions, and U.S. state R&D and investment tax credits of $5.0 million. Of the total state tax credits claimed in 2017, $4.3 million was reduced for uncertain tax positions or by a valuation allowance.

During the second quarter of 2016, the Company executed an agreement with the Internal Revenue Service related to certain elections made on its 2011 and 2012 tax returns. As a result of the agreement, the Company has amended its 2011 and 2012 U.S. federal and state income tax returns resulting in the utilization of previously expired net operating loss carryforwards. The Company recorded a discrete benefit during the second quarter of 2016 of $22.4 million to reflect the federal and state impact of the amended returns as a reduction in its net long-term deferred tax liability.

The tax effects of differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities as of December 31 were as follows:



In millions	2017			2016
Deferred Income Tax Assets:
Compensation Based Accruals	$	16.5		$	20.1
Net Operating Loss Carryforwards	114.9			165.3
Postretirement Benefits	25.6			88.0
Tax Credits	17.6			35.3
Other	45.9			55.4
Valuation Allowance	(51.5		)	(45.5		)
Total Deferred Income Tax Assets	$	169.0		$	318.6
Deferred Income Tax Liabilities:
Property, Plant and Equipment	(219.8		)	(334.6		)
Goodwill	(192.0		)	(284.5		)
Other Intangibles	(68.7		)	(99.6		)
Other	(3.5		)	(4.7		)
Net Noncurrent Deferred Income Tax Liabilities	$	(484.0	)	$	(723.4	)
Net Deferred Income Tax Liability	$	(315.0	)	$	(404.8	)

The Company has total deferred income tax assets, excluding valuation allowance, of $220.5 million and $364.1 million as of December 31, 2017 and 2016, respectively. The Company has total deferred income tax liabilities of $484.0 million and $723.4 million as of December 31, 2017 and 2016, respectively.

According to the Income Taxes topic of the FASB Codification, a valuation allowance is required to be established or maintained when, based on currently available information and other factors, it is more likely than not that all or a portion of a deferred tax asset will not be realized. The FASB Codification provides important factors in determining whether a deferred tax asset will be realized, including whether there has been sufficient pretax income in recent years and whether sufficient income can reasonably be expected in future years in order to utilize the deferred tax asset. The Company has evaluated the need to maintain a valuation allowance for deferred tax assets based on its assessment of whether it is more likely than not that deferred tax assets will be realized through the generation of future taxable income. Appropriate consideration was given to all available evidence, both positive and negative, in assessing the need for a valuation allowance.

The Company reviewed its deferred income tax assets as of December 31, 2017 and 2016, respectively, and determined that it is more likely than not that a portion will not be realized. A valuation allowance of $51.5 million and $45.5 million at December 31, 2017 and 2016, respectively, is maintained on the deferred income tax assets for which the Company has determined that realization is not more likely than not. Of the total valuation allowance at December 31, 2017, $31.3 million relates to net deferred tax assets in certain foreign jurisdictions, $3.3 million relates to a deferred tax asset related to a U.S. federal capital loss carryforward, $11.9 million relates to tax credit carryforwards in certain states, and the remaining $5.0 million relates to net operating losses and other deferred tax assets in certain U.S. states. The need for a valuation allowance is made on a jurisdiction-by-jurisdiction basis. As of December 31, 2017, the Company concluded that due to cumulative pretax losses and the lack of sufficient future taxable income of the appropriate character, realization is less than more likely than not on the net deferred income tax assets related primarily to the Company’s Brazil, China, France and Germany operations as well as the Company's previously discontinued Canadian operations.

The following table represents a summary of the valuation allowances against deferred tax assets as of and for the three years ended December 31, 2017, 2016, and 2015, respectively:



	December 31,
In millions	2017		2016			2015
Balance Beginning of Period	$	45.5	$	44.8		$	53.6
Charges to Costs and Expenses	5.5		1.2			—
Additions (Deductions)	0.5		(0.5		)	(8.8		)
Balance at End of Period	$	51.5	$	45.5		$	44.8

The U.S. federal net operating loss carryforwards expire as follows:



In millions
2024	$	84.0
2026	22.9
2027	93.0
2028	12.1
2029	114.6
Total	$	326.6

The Company adopted ASU No. 2016-09, Compensation-Stock Compensation (Topic 718) during the first quarter of 2017 and recorded additional federal and state net operating losses of approximately $107 million that were generated through excess tax benefit deductions claimed on the Company’s 2011-2016 U.S. federal income tax returns and were previously prohibited from being recognized. The Company recognized the cumulative federal and state income tax effects of these previously unrecognized net operating losses in accumulated deficit in accordance with ASU 2016-09.

U.S. state net operating loss carryforward amounts total $243.9 million and expire in various years through 2037.

International net operating loss carryforward amounts total $117.8 million, of which substantially all have no expiration date.

Tax Credit carryforwards total $17.6 million which expire in various years from 2019 through 2037.

Uncertain Tax Positions

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



In millions	2017			2016
Balance at January 1,	$	10.1		$	9.1
Additions for Tax Positions of Current Year	0.6			1.5
Additions for Tax Positions of Prior Years	0.7			1.1
Reductions for Tax Positions of Prior Years	(0.9		)	(1.6		)
Balance at December 31,	$	10.5		$	10.1

At December 31, 2017, $10.5 million of the total gross unrecognized tax benefits, if recognized, would affect the annual effective income tax rate.

The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within its global operations in Income Tax Expense. The Company had an accrual for the payment of interest and penalties of $0.1 million and $0.1 million at December 31, 2017 and 2016, respectively.

The Company anticipates that $0.1 million of the total unrecognized tax benefits at December 31, 2017 could change within the next 12 months.

The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local tax examinations for years before 2014 or non-U.S. income tax examinations for years before 2008.