INCOME TAXES

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



	Year Ended December 31,
	2018			2017			2016
	(Thousands of dollars)
United States	$	(95,590	)	$	(50,871	)	$	(25,604	)
Foreign	(71,870		)	(570		)	(1,546		)
Total	(167,460		)	(51,441		)	(27,149		)

The provision for income taxes for 2018, 2017, and 2016 consisted of the following:



	Year Ended December 31,
	2018			2017			2016
	(Thousands of dollars)
U.S. Federal:
Current	$	—		$	—		$	—
Deferred	(21,061		)	(57,637		)	(5,488		)
	(21,061		)	(57,637		)	(5,488		)

U.S. State:
Current	$	392		$	199		$	427
Deferred	$	(2,058	)	$	(717	)	$	3,218
	$	(1,666	)	$	(518	)	$	3,645

Foreign:
Current	$	2,371		$	108		$	1,374
Deferred	$	(5,590	)	(926		)	—
	$	(3,219	)	$	(818	)	$	1,374

Provision for income taxes	$	(25,946	)	$	(58,973	)	$	(469	)

Income tax expense as a percentage of pre-tax earnings varies from the effective Federal statutory rate of 21% as a result of the following:



	Year Ended December 31, 2018					Year Ended December 31, 2017					Year Ended December 31, 2016
	(Thousands of dollars, except percentage amounts)
	Amount			Tax Rate %		Amount			Tax Rate %		Amount			Tax Rate %
Income taxes at statutory rate	$	(35,167	)	21.0	%	$	(18,004	)	35.0	%	$	(9,502	)	35.0	%
Increase (decrease) in taxes resulting from:
Valuation allowance on foreign tax credits	229			-0.1	%	6,145			-12.0	%	8,991			-33.0	%
Valuation allowance on state net operating loss carryforwards	107			-0.1	%	868			-2.0	%	5,028			-19.0	%
Valuation Allowance - Other	88			-0.1	%	1,353			-3.0	%	—			—	%
Goodwill impairment	17,729			-10.6	%	—			—	%	—			—	%
Change in tax rate on deferred items	(1,163		)	0.7	%	—			—	%	(4,772		)	18.0	%
Tax reform – Impact of change in tax rate	—			—	%	(49,219		)	96.0	%	—			—	%
State income taxes, net of federal benefit	(1,774		)	1.1	%	(1,386		)	3.0	%	(1,384		)	5.0	%
Foreign income tax rate differential	(6,245		)	3.7	%
Other items – net	250			-0.1	%	1,270			-2.0	%	1,170			-4.0	%
Total	$	(25,946	)	15.5	%	$	(58,973	)	115.0	%	$	(469	)	2.0	%

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted which significantly reformed the U.S. Internal Revenue Code (the “Code”). The Act, among other things, reduced the federal corporate income tax rate from 35% to 21% effective January 1, 2018. The change in the federal tax rate 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, we provisionally recognized a net benefit of $49.2 million in our consolidated statement of operations for the year ended December 31, 2017.

Pursuant to the Act, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allowed us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. As a result, we previously provided a provisional estimate of the effect of the Act in our consolidated financial statements. In the fourth quarter of 2018, we completed our analysis to determine the effect of the Act and recorded immaterial adjustments as of December 31, 2018.

In 2018 and 2016, 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 decrease in 2018 is attributable to a change in composition of earnings in the various jurisdictions in which we operate. The decrease in 2016 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 2018 and 2016, the overall impact of state apportionment percentage changes was a tax benefit of $1.2 million and $4.8 million, respectively. In 2017, the impact of state apportionment changes are included within the overall provisional net benefit described above.

In fiscal year 2018, the Company recognized tax expense of $17.7 million related to the impairment of Goodwill discussed in Note 18.

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:



	2018			2017
	(Thousands of dollars)
Deferred tax assets:
Deferred compensation	$	162		$	626
Foreign tax credits	18,826			19,453
Vacation and bonus accrual	2,170			3,936
Inventory valuation	6,686			4,954
Interest disallowance	5,497			—
Rental accrual	601			747
Hurricane relief credit	1,308			1,255
Stock-based compensation	2,118			988
Other	2,653			2,235
Net operating losses	95,307			82,044
Total deferred tax assets	135,328			116,238
Valuation allowance – state NOL carryforwards	(6,105		)	(5,998		)
Valuation allowance – tax credit carryforwards	(16,127		)	(16,537		)
Valuation allowance – foreign NOL carryforwards	(186		)	(98		)
Total deferred tax assets, net	112,910			93,605
Deferred tax liabilities:
Tax depreciation in excess of book depreciation	(165,193		)	(171,116		)
Other	(1,951		)	(5,185		)
Total deferred tax liabilities	(167,144		)	(176,301		)
Net deferred tax liabilities	$	(54,234	)	$	(82,696	)
Deferred tax assets – short-term	—			—
Deferred tax assets – long-term	4,944			3,309
Deferred tax liability – long-term	(59,178		)	(86,005		)
Net deferred tax liabilities	$	(54,234	)	$	(82,696	)

The Company has U.S. Federal net operating loss carryforwards (“NOLs”) of approximately $352.4 million that, if not used, will expire beginning in 2028 through 2038. Additionally, for state income tax purposes, the Company has NOLs of approximately $264.6 million available to reduce future state taxable income. These NOLs expire in varying amounts through 2038, the majority of which expire in 2024 through 2038. The Company had a valuation allowance of $6.1 million as of December 31, 2018 against certain net operating losses in six states which we have determined are more likely than not to be forfeited in future years. During 2018, the Company recorded $0.1 million of valuation allowances on state NOLs.

The Company’s deferred income tax balance as of December 31, 2018 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, 2018, the Company has $3.6 million of net deferred tax assets related to its acquired Australian operation and $0.6 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 $15.2 million that, if not used, can be carried forward indefinitely.

The Company also has foreign tax credits of approximately $18.8 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 $16.1 million on these credits, $0.2 million of which was recorded in 2018. 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 2015 to 2018 remain open to examination by the major taxing jurisdictions in which the Company is subject to tax.

Income taxes paid were approximately $2.3 million, $1.2 million, and $2.6 million for each of the years ended December 31, 2018, 2017, and 2016, respectively.

At December 31, 2018, 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.