INCOME TAXES

For financial reporting purposes, (loss) earnings before income taxes includes the following components:



	Year Ended December 31,
	2017			2016			2015
	(Thousands of dollars)
United States	$	(50,871	)	$	(25,604	)	$	45,038
Foreign	(570		)	(1,546		)	(1,782		)
Total	(51,441		)	(27,149		)	43,256

The provision for income taxes for 2017, 2016, and 2015 consisted of the following:



	Year Ended December 31,
	2017			2016			2015
	(Thousands of dollars)
U.S. Federal:
Current	$	—		$	—		$	—
Deferred	(57,637		)	(5,488		)	13,629
	(57,637		)	(5,488		)	13,629

U.S. State:
Current	$	199		$	427		$	284
Deferred	$	(717	)	$	3,218		$	(740	)
	$	(518	)	$	3,645		$	(456	)

Foreign:
Current	$	108		$	1,374		$	3,159
Deferred	$	(926	)	—			—
	$	(818	)	$	1,374		$	3,159

Provision for income taxes	$	(58,973	)	$	(469	)	$	16,332

Income tax expense as a percentage of pre-tax earnings varies from the effective Federal statutory rate of 35% as a result of the following:



	Year Ended December 31, 2017					Year Ended December 31, 2016					Year Ended December 31, 2015
	(Thousands of dollars, except percentage amounts)
	Amount			Tax Rate %		Amount			Tax Rate %		Amount			Tax Rate %
Income taxes at statutory rate	$	(18,004	)	35		$	(9,502	)	35		$	15,140		35
Increase (decrease) in taxes resulting from:
Valuation allowance on foreign tax credits	6,145			(12	)	8,991			(33	)	—			—
Valuation allowance on state net operating loss carryforwards	868			(2	)	5,028			(19	)	—			—
Valuation allowance reversal–investment in foreign entity	—					—			—		(456		)	(1	)
Valuation Allowance - Other	1,353			(3	)	—			—		—			—
Change in tax rate on deferred items	—			—		(4,772		)	18		1,078			3	%
Tax reform – Impact of change in tax rate	(49,219		)	96		—			—		—			—
State income taxes, net of federal benefit	(1,386		)	3		(1,384		)	5		146			—
Other items – net	1,270			(2	)	1,170			(4	)	424			1
Total	$	(58,973	)	115		$	(469	)	2		$	16,332		38

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted which significantly reformed the U.S. Internal Revenue Code (the “Code”). The Tax Act, among other things, reduces the federal corporate income tax rate from 35% to 21% effective January 1, 2018, imposes significant additional limitations on the deductibility of interest, allows for the expensing of capital expenditures, migrates the Code from a “worldwide” system of taxation to a territorial system and modifies or repeals many business deductions and credits.

The change in rates required us under applicable accounting rules to remeasure our deferred tax assets and liabilities, and to recognize the impact of this remeasurement in the period of enactment of the rate change. As a result of the rate changes in late 2017, we remeasured our net deferred tax liability at December 31, 2017, and provisionally recognized a net benefit of $49.2 million in our consolidated statement of operations for the year ended December 31, 2017.

The Tax Act imposed a one-time repatriation tax on certain earnings of foreign subsidiaries. We do not expect this one-time tax to materially impact us, and have provisionally recorded no liability relating to this one-time repatriation tax in our consolidated statement of operations for the year ended December 31, 2017. We continue to examine the impact of other provisions of the Tax Act on our business.

On December 22, 2017, the SEC staff addressed the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. We have provisionally recognized the tax impacts related to the remeasurement of deferred tax assets and liabilities and the effect of the repatriation tax in the amounts noted above in our consolidated financial statements for the year ended December 31, 2017. The ultimate impact of the Tax Act may differ from our provisional amounts due to additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the Tax Act. The change from our current provisional estimates will be reflected in our future statements of operations. We expect to complete the accounting by the time we file our 2017 U.S. corporate income tax return in the 3rd quarter of 2018.

In 2016 and 2015, the change in tax rate on deferred items is mainly related to increases or reductions in the estimated effective tax rate that will be present at the time the deferred tax assets and liabilities reverse for tax purposes. The increase is attributable to an increase in the apportionment percentages in the various jurisdictions in which we operate as a result of increased operations in certain states. The reduction is attributable to a decline in the apportionment percentages in the various jurisdictions in which we operate, primarily as a result of a change in law related to apportionment factor calculations in one jurisdiction and a change in the composition of earnings in the various jurisdictions in which we operate. In 2016 and 2015, the overall impact of state apportionment percentage changes was a tax benefit of $4.8 million and tax expense of $1.0 million, respectively. In 2017, the impact of state apportionment changes are included within the overall provisional net benefit described above.

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 used for income tax purposes. The tax effects of significant items comprising our net deferred tax balance at December 31 are as follows:



	2017			2016
	(Thousands of dollars)
Deferred tax assets:
Deferred compensation	$	626		$	937
Foreign tax credits	19,453			21,492
Vacation and bonus accrual	3,936			1,674
Inventory valuation	4,954			7,655
Rental accrual	747			1,416
Hurricane relief credit	1,255			1,255
Stock-based compensation	988			2,202
Other	2,235			3,115
Net operating losses	82,044			89,256
Total deferred tax assets	116,238			129,002
Valuation allowance – state NOL carryforwards	(5,998		)	(5,318		)
Valuation allowance – tax credit carryforwards	(16,537		)	(11,039		)
Valuation allowance – foreign NOL carryforwards	(98		)	—
Total deferred tax assets, net	93,605			112,645
Deferred tax liabilities:
Tax depreciation in excess of book depreciation	(171,116		)	(253,560		)
Other	(5,185		)	—
Total deferred tax liabilities	(176,301		)	(253,560		)
Net deferred tax liabilities	$	(82,696	)	$	(140,915	)
Deferred tax assets – short-term	—			10,798
Deferred tax assets – long-term	3,309			—
Deferred tax liability – long-term	(86,005		)	(151,713		)
Net deferred tax liabilities	$	(82,696	)	$	(140,915	)

The Company has U.S. Federal net operating loss carryforwards (“NOLs”) of approximately $297.2 million that, if not used, will expire beginning in 2026 through 2037. Additionally, for state income tax purposes, the Company has NOLs of approximately $239.5 million available to reduce future state taxable income. These NOLs expire in varying amounts through 2037, the majority of which expire in 2024 through 2037. The Company had a valuation allowance of $6.0 million as of December 31, 2017 against certain net operating losses in six states which we have determined are more likely than not to be forfeited in future years. During 2017, the Company recorded $0.9 million of valuation allowances on state NOLs.

The Company’s deferred income tax balance as of December 31, 2017 includes deferred tax balances related to foreign entities that were acquired by the Company pursuant to the purchase of the HNZ Group Inc.’s offshore business on December 29, 2017. As of December 31, 2017, the Company has $3.3 million of net deferred tax assets related to its acquired Australian operation and $0.2 million of net deferred tax liabilities related to its acquired New Zealand operation. The net deferred tax assets related to Australia is mainly comprised of net operating losses of approximately $14.5 million that, if not used, can be carried forward indefinitely.

The Company also has foreign tax credits of approximately $19.5 million and general business credits of approximately $1.3 million which expire at various dates through 2028. The estimated future U.S. taxable income, after utilization of the available net operating loss carryforwards, will limit the ability of the Company to utilize some of the foreign tax credit carryforwards during their carry forward period and it is not more likely than not that a portion of these credits will be utilized in future years. Therefore, the Company has a valuation allowance of $16.6 million on these credits, $7.5 million of which was recorded in 2017. The increase in the valuation allowance is attributable to a change in estimate where it has been determined that the tax credits will expire before being fully utilized.

The Company files income tax returns in the U.S. federal jurisdiction and in many U.S. state jurisdictions. The tax years 2014 to 2017 remain open to examination by the major taxing jurisdictions in which the Company is subject to tax.

Income taxes paid were approximately $1.2 million, $2.6 million, and $5.5 million for each of the years ended December 31, 2017, 2016, and 2015, respectively.

At December 31, 2017, the Company had no unrecognized tax benefits. It is the Company’s practice to recognize interest and penalties related to income tax expense as part of non-operating expenses.