Income Taxes

The components of income before income taxes were taxed under the following jurisdictions:



(In thousands)	2018		2017		2016

Domestic	$	105,455	$	76,876	$	103,576
Foreign	44,962		50,096		42,454

Income before income taxes	$	150,417	$	126,972	$	146,030

Income tax expense consists of the following:



(In thousands)	2018			2017			2016

Current tax expense:
Federal	$	17,974		$	28,584		$	32,262
Foreign	9,650			10,219			5,667
State and local	3,158			2,241			3,210

Current tax expense	30,782			41,044			41,139

Deferred tax expense (benefit):
Federal	(1,381		)	(1,764		)	2,004
Foreign	551			1,118			5,099
State and local	1,000			(2,514		)	(105		)

Deferred tax expense (benefit)	170			(3,160		)	6,998

Income tax expense	$	30,952		$	37,884		$	48,137

The difference between the reported income tax expense and a tax determined by applying the applicable U.S. federal statutory income tax rate to income before income taxes is reconciled as follows:



(In thousands)	2018			2017			2016

Expected income tax expense	$	31,588		$	44,440		$	51,110
State and local income tax, net of federal benefit	3,495			1,135			1,982
Effect of foreign statutory rates different from U.S. and other foreign adjustments	759			(6,026		)	(4,092		)
Changes in valuation allowances	1,133			—			—
U.S. production activities deduction	—			(1,575		)	(3,063		)
Investment in unconsolidated affiliates	(3,909		)	216			1,030
Benefit of stock-based compensation deductions	(41		)	(2,160		)	(656		)
Effect of tax on accumulated foreign earnings	(4,415		)	12,893			—
Effect of tax rate change on net deferred tax liability balance	—			(12,067		)	—
Other, net	2,342			1,028			1,826

Income tax expense	$	30,952		$	37,884		$	48,137

The Tax Cuts and Jobs Act (the Act) was enacted on December 22, 2017. The Act reduced the U.S. federal corporate income tax rate from 35 percent to 21 percent, required companies to pay a one-time transition tax on the accumulated earnings of certain foreign subsidiaries, and created new taxes on certain foreign-sourced earnings. The Company applied the guidance in Staff Accounting Bulletin No. 118 in accounting for the enactment date effects of the Act. At December 30, 2017, the Company made a reasonable estimate of the one-time transition tax on accumulated foreign earnings as well as the impact of the Act on its existing deferred tax balances. During the fourth quarter of 2018, the Company completed its accounting for all of the enactment-date income tax effects of the Act.

The one-time transition tax is based on the Company’s total post-1986 earnings and profits (E&P) for which the accrual of U.S. income taxes had previously been deferred. The Company recorded a provisional amount for its one-time transition tax liability, resulting in an increase in income tax expense of $12.9 million, or 22 cents per diluted share, at December 30, 2017. During 2018, the Company finalized its calculation of the post-1986 E&P as well as the cash balances of the foreign subsidiaries whose earnings were subject to the transition tax. Following the completion of this analysis, the Company recorded a reduction to income tax expense of $4.4 million, or eight cents per diluted share, to reduce this liability. Subsequent to the Company’s year-end, the Treasury Department finalized regulations related to the calculation of the transition tax, and the Company is analyzing the impact of these regulations on its calculation of the transition tax.

The Company continues to assert that the undistributed earnings of most of its foreign subsidiaries are permanently reinvested. No additional tax liability has been accrued with respect to the earnings of any of these foreign subsidiaries. If these undistributed earnings were remitted from these foreign subsidiaries to the U.S., the Company would pay additional tax of approximately $4.0 million. No additional income taxes have been provided for any additional outside bases differences inherent in these entities, 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 differences in these entities is not practicable.

On December 30, 2017, the Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21 percent, resulting in an income tax benefit of $12.1 million, or 21 cents per diluted share. The Company has concluded that no further adjustment is needed related to this remeasurement.

The global intangible low-taxed income (GILTI) provisions of the Act impose a tax on the GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. The Company has elected to provide for the tax expense related to GILTI in the year the tax is incurred. In 2018, this amount was not material to the Consolidated Financial Statements.

The Company includes interest and penalties related to income tax matters as a component of income tax expense. The income tax expense related to penalties and interest was immaterial in 2018, 2017, and 2016.

The Internal Revenue Service completed its audit of the Company’s 2013 tax return during 2016, the results of which were immaterial to the Consolidated Financial Statements.

The statute of limitations is open for the Company’s federal tax return and most state income tax returns for 2015 and all subsequent years. The statutes of limitations for certain state and foreign returns are also open for some earlier tax years due to differing statute periods. While the Company believes that it is adequately reserved for possible audit adjustments, the final resolution of these examinations cannot be determined with certainty and could result in final settlements that differ from current estimates.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:



(In thousands)	2018			2017

Deferred tax assets:
Inventories	$	12,297		$	10,598
Other postretirement benefits and accrued items	9,213			9,239
Other reserves	7,847			9,029
Federal and foreign tax attributes	6,252			11,936
State tax attributes, net of federal benefit	27,651			29,720
Stock-based compensation	2,949			2,102
Basis difference in unconsolidated affiliates	1,067			—

Total deferred tax assets	67,276			72,624
Less valuation allowance	(25,311		)	(30,316		)

Deferred tax assets, net of valuation allowance	41,965			42,308

Deferred tax liabilities:
Property, plant, and equipment	44,910			43,972
Pension	250			3,841
Basis difference in unconsolidated affiliates	—			203

Total deferred tax liabilities	45,160			48,016

Net deferred tax liabilities	$	(3,195	)	$	(5,708	)

As of December 29, 2018, after consideration of the federal impact, the Company had state income tax credit carryforwards of $4.3 million, all of which expire by 2021, and other state income tax credit carryforwards of $11.7 million with unlimited lives. The Company had state net operating loss (NOL) carryforwards with potential tax benefits of $11.6 million, after consideration of the federal impact, expiring between 2019 and 2033. The state tax credit and NOL carryforwards are offset by valuation allowances totaling $16.0 million.

As of December 29, 2018, the Company had other foreign tax attributes with potential tax benefits of $5.8 million that have an unlimited life. These attributes were fully offset by a valuation allowance.

Income taxes paid were approximately $38.1 million in 2018, $42.5 million in 2017, and $40.1 million in 2016.