Income Taxes

Income (loss) from continuing operations before income taxes and equity income (loss) as reported on the Consolidated Statements of Operations consists of the following:



(In thousands)	2016			2015		2014
U.S.	$	(99,939	)	$	16,169	$	22,951
International	20,468			18,646		(8,813		)
Total income (loss) from continuing operations before income taxes and equity income (loss)	$	(79,471	)	$	34,815	$	14,138

Income tax expense as reported on the Consolidated Statements of Operations consists of the following:



(In thousands)	2016			2015		2014
Income tax expense (benefit):
Currently payable:
U.S. federal	$	(4,088	)	$	408	$	5,622
U.S. state	365			546		557
International	18,014			23,095		14,569
Total income taxes currently payable	14,291			24,049		20,748
Deferred U.S. federal	(8,195		)	2,651		3,447
Deferred U.S. state	2,238			812		893
Deferred international	(1,697		)	166		5,278
Total income tax expense	$	6,637		$	27,678	$	30,366

Cash payments for income taxes were $14.6 million, $18.9 million and $36.0 million for 2016, 2015 and 2014, respectively.

A reconciliation of the normal expected statutory U.S. federal income tax expense (benefit) to the actual income tax expense as reported on the Consolidated Statements of Operations is as follows:



(In thousands)	2016			2015			2014
U.S. federal income tax	$	(27,815	)	$	12,185		$	4,949
U.S. state income taxes, net of federal income tax benefit	(355		)	496			713
U.S. domestic manufacturing deductions and credits	(661		)	(2,504		)	(1,882		)
Capital loss on sale of equity interest in Brand with no realizable tax benefit	16,106			—			—
Difference in effective tax rates on international earnings and remittances	2,006			5,095			4,397
Uncertain tax position contingencies and settlements	(1,886		)	1,416			(5,298		)
Changes in realization on beginning of the year deferred tax assets	1,978			923			2,283
Forward Loss Provisions in SBB Contract with no realizable tax benefits	15,768			—			—
Restructuring and impairment charges with no realizable tax benefits	—			8,508			21,969
U.S. non-deductible expenses	724			874			1,216
(Income) loss related to the Infrastructure Transaction	(644		)	580			2,592
Cumulative effect of change in statutory tax rates/laws	(388		)	340			246
Income (loss) from unconsolidated entities	2,098			62			(587		)
Other, net	(294		)	(297		)	(232		)
Total income tax expense	$	6,637		$	27,678		$	30,366

At December 31, 2016, 2015 and 2014, the Company's annual effective income tax rate on income from continuing operations was (8.4)%, 79.5% and 214.8%, respectively.

The Company’s international income from continuing operations before income taxes and equity income (loss) was

$20.5 million and $18.6 million for the years ended December 31, 2016 and 2015, respectively. This includes the estimated forward loss provision related to the SBB contracts of $45.1 million in 2016 and non-recurring impairment charges of

$24.3 million in 2015, on which no tax benefit was recognized because the losses occurred in entities where it is not more likely than not that the tax benefit will be realized. The Company’s differences in effective tax rates on international earnings and remittances for 2016 and 2015 was $2.0 million and $5.1 million, respectively. This decrease is primarily due to the change in the mix of earnings between jurisdictions. The above factors together with the non-recurring expiration of statute of limitations for uncertain tax positions in certain jurisdictions and the realization on beginning of year deferred tax assets in 2016 decreased the Company’s total international income tax expense, including discrete items, from $23.3 million in 2015 to $16.3 million in 2016.

The Company's loss from continuing operations before income taxes and equity income (loss) attributable to the U.S. was $99.9 million for the year ended December 31, 2016 compared to income from continuing operations before income taxes and equity (loss) attributable to the U.S. of $16.2 million for the year ended December 31, 2015. The loss in 2016 is due principally to the capital loss on the sale of the Company’s equity interest in Brand and the loss on early extinguishment of debt. A valuation allowance of $16.1 million was established for the deferred tax asset resulting from the capital loss on the sale of the Company's equity interest in Brand, because it is not more likely than not that the benefit will be realized in the future. However, the net operating loss created by the loss on early extinguishment of debt will be realized through a carryback to prior years with taxable income. The Company expects to have taxable income in future periods in the U.S.

The tax effects of the temporary differences giving rise to the Company's deferred tax assets and liabilities at December 31, 2016 and 2015 are as follows:



	2016					2015
(In thousands)	Asset			Liability		Asset			Liability
Depreciation and amortization	$	—		$	10,089	$	—		$	11,474
Expense accruals	23,300			—		24,538			—
Inventories	6,611			—		5,588			—
Provision for receivables	1,015			—		1,049			—
Deferred revenue	—			1,852		—			1,904
Operating loss carryforwards	80,178			—		77,151			—
Foreign tax credit carryforwards	26,347			—		19,199			—
Capital loss carryforwards	18,163			—		2,102			—
Pensions	74,506			—		66,675			—
Currency adjustments	17,597			—		28,589			—
Equity investment in Infrastructure strategic venture	—			—		—			10,688
Unit adjustment liability	—			—		29,491			—
Post-retirement benefits	760			—		869			—
Stock based compensation	5,812			—		4,790			—
Other	7,206			—		3,656			—
Subtotal	261,495			11,941		263,697			24,066
Valuation allowance	(146,097		)	—		(110,680		)	—
Total deferred income taxes	$	115,398		$	11,941	$	153,017		$	24,066

The deferred tax asset and liability balances recognized on the Consolidated Balance Sheets at December 31, 2016 and 2015 are as follows:



(In thousands)	2016		2015
Other current assets	$	27,415	$	38,899
Other assets	78,944		102,914
Other current liabilities	281		767
Deferred income taxes	2,621		12,095

At December 31, 2016, the tax-effected amount of net operating loss carryforwards ("NOLs") totaled $80.2 million. Tax-effected NOLs from international operations are $68.6 million. Of that amount, $56.7 million can be carried forward indefinitely, and $11.9 million will expire at various times between 2017 and 2032. Tax-effected U.S. state NOLs are $11.6 million. Of that amount, $1.4 million expire at various times between 2017 and 2020, $3.6 million expire at various times between 2021 and 2025, $3.3 million expire at various times between 2026 and 2030, and $3.3 million expire at various times between 2031 and 2036. At December 31, 2016, the tax-effected amount of capital loss carryforwards totaled $18.2 million which expire between 2018 and 2021.

The valuation allowances of $146.1 million and $110.7 million at December 31, 2016 and 2015, respectively, related principally to deferred tax assets for pension liabilities, NOLs, capital losses, foreign currency translation and foreign investment tax credits that are uncertain as to realizability. In 2016, the Company recorded a valuation allowance of

$16.1 million related to capital loss on sale of the Company's equity interest in Brand, $13.5 million related to estimated forward loss provisions related to the SBB contracts, and current year pension adjustments of $19.2 million recorded through Accumulated other comprehensive loss. This was partially offset by the reduction from the effects of foreign currency translation adjustments and the decrease related to U.K. and France tax rate changes. In 2015, the Company recorded a net decrease in the valuation allowance of $16.1 million related to pension adjustments recorded through Accumulated other comprehensive loss, the decrease from foreign currency translation in the amount of $11.5 million and a $6.3 million decrease related to a U.K. tax rate change. This was partially offset by a net increase of $13.2 million related to losses in certain jurisdictions where the Company determined that it is more likely than not that these assets will not be realized.

The Company has not provided U.S. income taxes on certain non-U.S. subsidiaries' undistributed earnings as such amounts are indefinitely reinvested outside the U.S. At December 31, 2016 and 2015, such earnings were approximately $528 million and $547 million, respectively. It is not practical to determine the deferred income tax liability on these earnings if, in the future, they are remitted to the U.S. because the income tax liability to be incurred, if any, is dependent on circumstances existing when remittance occurs.

The Company recognizes accrued interest and penalty expense related to unrecognized income tax benefits in income tax expense. During 2016 and 2014, the Company recognized an income tax benefit of $1.7 million and $2.1 million, respectively, for interest and penalties primarily due to the expiration of statutes of limitation and resolution of examinations. The Company did not recognize any income tax benefit for interest and penalties during 2015. The Company has accrued $1.1 million,

$2.8 million and $2.8 million for the payment of interest and penalties at December 31, 2016, 2015 and 2014 respectively.

A reconciliation of the change in the unrecognized income tax benefits balance from January 1, 2014 to December 31, 2016 is as follows:



(In thousands)	Unrecognized Income Tax Benefits			Deferred Income Tax Benefits			Unrecognized Income Tax Benefits, Net of Deferred Income Tax Benefits
Balances, January 1, 2014	$	17,549		$	(198	)	$	17,351
Additions for tax positions related to the current year (includes currency translation adjustment)	288			(2		)	286
Additions for tax positions related to prior years (includes currency translation adjustment)	156			(55		)	101
Other reductions for tax positions related to prior years	(3,056		)	—			(3,056		)
Statutes of limitation expirations	(2,481		)	143			(2,338		)
Balance at December 31, 2014	12,456			(112		)	12,344
Additions for tax positions related to the current year (includes currency translation adjustment)	(483		)	(2		)	(485		)
Additions for tax positions related to prior years (includes currency translation adjustment)	1,249			(4		)	1,245
Other reductions for tax positions related to prior years	(7,846		)	—			(7,846		)
Statutes of limitation expirations	(173		)	59			(114		)
Settlements	(42		)	15			(27		)
Balance at December 31, 2015	5,161			(44		)	5,117
Additions for tax positions related to the current year (includes currency translation adjustment)	744			(1		)	743
Additions for tax positions related to prior years (includes currency translation adjustment)	358			(14		)	344
Other reductions for tax positions related to prior years	(837		)	—			(837		)
Statutes of limitation expirations	(817		)	27			(790		)
Settlements	(27		)	2			(25		)
Total unrecognized income tax benefits that, if recognized, would impact the effective income tax rate at December 31, 2016	$	4,582		$	(30	)	$	4,552

Included in the other reductions for tax positions related to prior year for 2015 is $7.8 million resulting from the adjustment by a foreign tax authority as a result of tax audit. The unrecognized tax benefit was related to a net operating loss carryforward that carried a full valuation allowance. As a result, the related deferred tax asset was decreased by the same amount.

Within the next twelve months, it is reasonably possible that up to $0.9 million of unrecognized income tax benefits will be recognized upon settlement of tax examinations and the expiration of various statutes of limitations.

The Company files income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. With few exceptions, the Company is no longer subject to U.S and international income tax examinations by tax authorities through 2010.