On December 22, 2017, the U.S. federal government enacted the 2017 Tax Act, resulting in significant changes from existing U.S. tax laws that impact us, including, but not limited to, reducing the U.S. federal corporate income tax rate from 35% to 21%, allowing immediate 100% deduction for the cost of qualified property, eliminating the domestic production activities deduction, and imposing a one-time transition tax in 2017 on the cumulative earnings and profits of certain foreign subsidiaries that were previously not repatriated and therefore not taxed for U.S. income tax purposes. Our federal income tax expense is based on the new 21% rate for periods beginning in 2018.

In December 2017, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 118 (“SAB 118”), which addresses situations where the accounting is incomplete for the income tax effects of the 2017 Tax Act. SAB 118 directs registrants to consider the impact of the Act as “provisional” when they do not have the necessary information available, prepared or analyzed (including computations) to finalize the accounting for the change in tax law. Registrants are provided a measurement period of up to one year to obtain, prepare, and analyze information necessary to finalize the accounting for provisional amounts or amounts that cannot be estimated as of December 31, 2017. In the fourth quarter of 2017 we recorded a net provisional $82.5 million income tax benefit, primarily related to the revaluation of deferred tax assets and liabilities at the reduced 21% tax rate. The 2017 adjustments to deferred tax assets and liabilities, the liability related to the one-time 2017 transition tax, changes in our valuation allowance, the realizability of foreign tax credits and the immediate deduction of 100% of the costs of qualifying property were provisional amounts estimated based on information available as of December 31, 2017. These amounts were subject to change as we obtained information necessary to complete the calculations. Additional information that affected our provisional amounts included further clarification and guidance on how the Internal Revenue Service implemented tax reform, including guidance with respect to the one-time transition tax, further clarification and guidance on the impact of the 2017 Act from state taxing authorities and completion of our 2017 tax return filings. We applied the guidance in SAB 118 when accounting for the enactment-date effects of the 2017 Tax Act in 2017 and throughout 2018. At December 31, 2018 we have now completed our accounting for the enactment-date income tax effects of the 2017 Tax Act. We increased our December 31, 2017 estimated tax benefit of $82.5 million to $83.7 million in 2018, primarily related to the mandatory repatriation of earnings feature of federal tax reform.

The tax effects of principal temporary differences between the carrying amounts of assets and liabilities and their tax basis are summarized below. Management believes it is more likely than not that the results of future operations will generate sufficient taxable income in the appropriate jurisdiction to realize deferred tax assets, net of valuation allowances. In arriving at this conclusion, we considered the profit before tax generated for the years 2016 through 2018, future reversals of existing taxable temporary differences, and projections of future profit before tax.

We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. The need to establish valuation allowances for deferred tax assets is assessed quarterly. In assessing the requirement for, and amount of, a valuation allowance in accordance with the more likely than not standard for all periods, we give appropriate consideration to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, and our experience with operating loss and tax credit carryforward expirations. A history of cumulative losses is a significant piece of negative evidence used in our assessment. If a history of cumulative losses is incurred for a tax jurisdiction, forecasts of future profitability are not used as positive evidence related to the realization of the deferred tax assets in the assessment.

As of December 31, 2018 and 2017, we had $954.5 million and $664.6 million, respectively, of gross state net operating loss (“NOL”) carryforwards expiring between 2019 and 2036. The gross state NOL carryforward and related gross state valuation allowance, prior to being tax effected, were each grossed up by $335.0 million in 2018, there was no change to the net deferred state income tax asset, to reflect a change in Pennsylvania’s net operating loss regulations. As of December 31, 2018, we also had foreign tax credits (“FTC”) carryforwards of $19.1 million that expire between 2019 and 2028. U.S. FTC carryforwards as of December 31, 2017 were $15.7 million.

As of December 31, 2018 and 2017, we had valuation allowances of $79.6 million and $47.4 million, respectively. As of December 31, 2018, our valuation allowance consisted of $19.1 million for federal deferred tax assets related to FTC carryforwards, $13.2 million for the outside basis difference between book and tax of our EMEA and Pacific Rim businesses and $47.3 million for state deferred tax assets, primarily operating loss carryforwards. Our valuation allowance increased in comparison to December 31, 2017 for both the FTC valuation allowance and the outside basis difference due to the completion of the analysis of the 2017 Tax Act under SAB 118. The state operating loss carryforward also increased due to a state law change, but this was fully offset by a similar increase in the state valuation allowance.

We estimate we will need to generate future federal taxable foreign source income of $91.0 million to fully realize FTC carryforwards before they expire in 2028. We estimate we will need to generate future taxable income of approximately $537.5 million for state income tax purposes during the respective realization periods (ranging from 2019 to 2036) in order to fully realize the net deferred income tax assets discussed above.

Our ability to utilize deferred tax assets may be impacted by certain future events, such as changes in tax legislation or insufficient future taxable income prior to expiration of certain deferred tax assets.

	December 31, 2018			December 31, 2017
Deferred income tax assets (liabilities)
Net operating losses	$	58.7		$	35.6
Postretirement benefits		18.2			23.3
Pension benefit liabilities		14.3			16.7
Deferred compensation		11.8			12.1
Undistributed foreign earnings		32.5			17.7
Foreign tax credit carryforwards		19.1			15.7
State tax credit carryforwards		9.8			10.5
Other		17.1			12.6
Total deferred income tax assets		181.5			144.2
Valuation allowances		(79.6	)		(47.4	)
Net deferred income tax assets		101.9			96.8
Intangibles		(132.3	)		(136.3	)
Accumulated depreciation		(62.0	)		(56.1	)
Prepaid pension costs		(11.5	)		(20.4	)
Inventories		(5.5	)		(4.4	)
Other		(0.2	)		(1.7	)
Total deferred income tax liabilities		(211.5	)		(218.9	)
Net deferred income tax liabilities	$	(109.6	)	$	(122.1	)
Deferred income taxes have been classified in the Consolidated Balance Sheet as:
Deferred income tax assets - noncurrent	$	14.8		$	19.6
Deferred income tax liabilities - noncurrent		(124.4	)		(141.7	)
Net deferred income tax liabilities	$	(109.6	)	$	(122.1	)

	2018			2017			2016
Details of taxes
Earnings (loss) from continuing operations before income taxes:
Domestic	$	234.0		$	224.1		$	147.8
Foreign		8.7			(2.0	)		2.8
Total	$	242.7		$	222.1		$	150.6

Income tax expense (benefit):
Current:
Federal	$	45.7		$	26.2		$	15.1
Foreign		2.1			1.4			5.0
State		8.0			4.7			(6.7	)
Total current		55.8			32.3			13.4

Deferred:
Federal		(3.7	)		(36.6	)		22.6
Foreign		-			(0.1	)		(1.1	)
State		1.0			5.9			16.4
Total deferred		(2.7	)		(30.8	)		37.9

Total income tax expense	$	53.1		$	1.5		$	51.3

We reviewed our position with regards to foreign unremitted earnings and determined that unremitted earnings will not be permanently reinvested as a result of the anticipated sale of our EMEA and Pacific Rim businesses. Accordingly, in 2018, we have recorded foreign withholding taxes of $2.2 million, primarily within continuing operations, on approximately $208.0 million of net undistributed earnings of foreign subsidiaries. In 2017, we have recorded foreign withholding taxes of $7.6 million, primarily within continuing operations, on approximately $245.5 million of net undistributed earnings of foreign subsidiaries.

	2018			2017			2016
Reconciliation to U.S. statutory tax rate
Continuing operations tax at statutory rate	$	51.0		$	77.7		$	52.7
Increase in valuation allowances on deferred domestic income tax assets		10.0			9.1			0.8
State income tax expense, net of federal benefit		9.2			7.9			3.2
AFI separation costs		-			-			15.1
Domestic production activities		-			(5.8	)		(1.9	)
Federal statute closure		(9.6	)		(2.3	)		(15.2	)
2017 Tax Act		(1.2	)		(82.5	)		-
Excess tax benefits on share-based compensation		(3.8	)		-			-
Tax on foreign and foreign-source income		(4.4	)		-			(3.4	)
Other		1.9			(2.6	)		-
Tax expense at effective rate	$	53.1		$	1.5		$	51.3

We recognize the tax benefits of an uncertain tax position only if those benefits are more likely than not to be sustained based on existing tax law. Additionally, we establish a reserve for tax positions that are more likely than not to be sustained based on existing tax law, but uncertain in the ultimate benefit to be sustained upon examination by the relevant taxing authorities. Unrecognized tax benefits are subsequently recognized at the time the more likely than not recognition threshold is met, the tax matter is effectively settled or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired, whichever is earlier.

We have $42.6 million of Unrecognized Tax Benefits (“UTB”) as of December 31, 2018, $23.5 million ($22.1 million, net of federal benefit) of this amount, if recognized in future periods, would impact the reported effective tax rate.

It is reasonably possible that certain UTB’s may increase or decrease within the next twelve months due to tax examination changes, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities. Over the next twelve months we estimate that UTB’s may decrease by $0.7 million related to state statutes expiring and increase by $2.8 million due to uncertain tax positions expected to be taken on domestic tax returns.

We account for all interest and penalties on uncertain income tax positions as income tax expense. We reported $2.6 million of interest and penalty exposure as noncurrent income tax payable in the Consolidated Balance Sheet as of December 31, 2018.

We had the following activity for UTB’s for the years ended December 31, 2018, 2017 and 2016:

	2018			2017			2016
Unrecognized tax benefits balance at January 1,	$	53.4		$	86.9		$	150.6
Gross change for current year positions		3.6			(2.2	)		2.3
Increases for prior period positions		1.1			2.9			0.2
Decrease for prior period positions		(2.0	)		(0.1	)		(12.8	)
Decrease due to settlements and payments		-			-			-
Decrease due to statute expirations		(13.5	)		(34.1	)		(53.4	)
Unrecognized tax benefits balance at December 31,	$	42.6		$	53.4		$	86.9

We file income tax returns in the U.S., various states and international jurisdictions. In the normal course of business, we are subject to examination by taxing authorities in Canada and the United States. Generally, we have open tax years subject to tax audit on average of between three years and six years. The statute of limitations is no longer open for U.S. federal returns before 2015. With few exceptions, the statute of limitations is no longer open for state or non-U.S. income tax examinations for the years before 2013. We have not significantly extended any open statutes of limitation for any major jurisdiction and have reviewed and accrued for, where necessary, tax liabilities for open periods.