Income Taxes



	Years ended December 31,
	2018			2017			2016
				(In thousands)
Income (loss) before taxes:
United States operations	$	126,385		$	2,177		$	(25,615	)
Foreign operations	93,945			97,171			152,076
Income before taxes	$	220,330		$	99,348		$	126,461
Income tax expense (benefit):
Currently payable
United States federal	$	27,529		$	—		$	2,981
United States state and local	3,274			2,392			(1,038		)
Foreign	17,516			28,201			26,906
	48,319			30,593			28,849
Deferred
United States federal	10,942			(11,028		)	(27,677		)
United States state and local	703			(8,758		)	(3,139		)
Foreign	(345		)	(4,312		)	782
	11,300			(24,098		)	(30,034		)
Income tax expense (benefit)	$	59,619		$	6,495		$	(1,185	)



	Years Ended December 31,
	2018		2017		2016
Effective income tax rate reconciliation from continuing operations:
United States federal statutory rate	21.0	%	35.0	%	35.0	%
State and local income taxes	1.7	%	0.8	%	(0.9	)%
Impact of change in tax contingencies	(1.0	)%	2.2	%	2.4	%
Foreign income tax rate differences	(1.8	)%	(13.1	)%	(14.0	)%
Impact of change in deferred tax asset valuation allowance	2.0	%	1.5	%	(7.3	)%
Impact of change in legal entity tax status	—	%	—	%	(5.5	)%
Impact of non-taxable translation gain	—	%	(27.3	)%	—	%
Impact of non-taxable interest income	—	%	(5.5	)%	(4.9	)%
Domestic permanent differences and tax credits	0.7	%	(15.7	)%	(5.7	)%
Impact of tax reform	4.5	%	28.6	%	—	%
	27.1	%	6.5	%	(0.9	)%

On December 22, 2017, the “Tax Cuts and Jobs Act” (the “Act”) was signed into law, making significant changes to the U.S. Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial tax system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. In accordance with the Act, we recorded $28.4 million as an additional income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted. The total income tax expense included a $36.0 million tax benefit for the remeasurement of deferred tax assets and liabilities to the 21% rate at which they are expected to reverse, offset with a one-time tax expense on deemed repatriation of $29.1 million and a valuation allowance of $35.3 million recorded against foreign tax credit carryovers that we no longer expect to be able to realize based upon the new tax law. Additionally, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of US 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 Act. December 22, 2018 marked the end of the measurement period for purposes of SAB 118. As such, we have completed our analysis based on legislative updates relating to the Act currently available which resulted in an additional SAB 118 tax expense of $2.9 million in the fourth quarter of 2018 and a total tax expense of $10.0 million for the year ended December 31, 2018. The total tax provision expense included an $8.0 million tax expense associated with an increase to the valuation allowance against foreign tax credit carryovers that we no longer expect to be able to realize based upon the new tax law, a $1.3 million tax expense adjustment to the transition tax on the deemed repatriation of cumulative foreign earnings, a $1.1 million tax expense resulting from a valuation allowance established on the deferred tax assets associated with stock options of covered employees, and a $0.4 million income tax benefit associated with an adjustment to the remeasurement of certain deferred tax assets and liabilities.

If we were to repatriate foreign cash to the U.S., we may be required to accrue and pay U.S. taxes in accordance with applicable U.S. tax rules and regulations as a result of the repatriation. However, it is our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in those operations. As a result, as of December 31, 2018, we have not made a provision for U.S. or additional foreign withholding taxes.

Foreign tax rate differences resulted in an income tax benefit of $4.0 million, $13.0 million, and $17.7 million in 2018, 2017, and 2016, respectively. Additionally, in 2018 and 2017, our income tax expense was reduced by $3.0 million and $3.5 million, respectively, due to a tax holiday for our operations in St. Kitts. The tax holiday in St. Kitts is scheduled to expire in 2022.



	December 31,
	2018			2017
	(In thousands)
Components of deferred income tax balances:
Deferred income tax liabilities:
Plant, equipment, and intangibles	$	(114,413	)	$	(120,171	)
Deferred income tax assets:
Postretirement, pensions, and stock compensation	30,896			28,736
Reserves and accruals	25,641			29,297
Net operating loss and tax credit carryforwards	164,823			228,815
Valuation allowances	(90,872		)	(151,841		)
	130,488			135,007
Net deferred income tax asset	$	16,075		$	14,836

The decrease in deferred income tax liabilities associated with plant, equipment and intangibles during 2018 is primarily due to the adoption of ASU 2016-16 in the first quarter of 2018 in which deferred tax assets associated with prior intercompany sales of intangible assets were recorded onto the Company’s balance sheet. The decrease in our net operating loss carryforwards and deferred tax valuation allowances is primarily due to the write-off of certain foreign net operating loss carryforwards and the corresponding valuation allowance associated with those foreign net operating losses. The Company has determined these net operating losses are not realizable as a result of a significant change in business operations that occurred in a prior year.

As of December 31, 2018, we had $537.3 million of gross net operating loss carryforwards and $71.0 million of tax credit carryforwards. Unless otherwise utilized, net operating loss carryforwards will expire upon the filing of the tax returns for the following respective years: $0.2 million in 2018, $8.0 million in 2019, $29.4 million between 2020 and 2022, and $167.8 million between 2023 and 2038. Net operating losses with an indefinite carryforward period total $331.9 million. Of the $537.3 million in net operating loss carryforwards, we have determined, based on the weight of all available evidence, both positive and negative, that we will utilize $172.5 million of these net operating loss carryforwards within their respective expiration periods. A valuation allowance has been recorded on the remaining portion of the net operating loss carryforwards.

Unless otherwise utilized, tax credit carryforwards of $71.0 million will expire as follows: $1.6 million between 2020 and 2022, $64.2 million between 2023 and 2038. Tax credit carryforwards with an indefinite carryforward period total $5.2 million. We have determined, based on the weight of all available evidence, both positive and negative, that we will utilize $42.7 million of these tax credit carryforwards within their respective expiration periods. A valuation allowance has been recorded on the remaining portion of the tax credit carryforwards.

The following tables summarize our net operating loss carryforwards and tax credit carryforwards as of December 31, 2018 by jurisdiction:



	Net Operating Loss Carryforwards
	(In thousands)
Australia	$	12,064
France	15,538
Germany	13,436
Japan	20,203
Luxembourg	24,252
Netherlands	23,889
Other	45,171
United Kingdom	258,423
United States - Federal and various states	124,349
Total	$	537,325



	Tax Credit Carryforwards
	(In thousands)
United States	$	48,859
Canada	22,181
Total	$	71,040

In 2018, we recognized a net $1.2 million decrease to reserves for uncertain tax positions. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:



	2018			2017
	(In thousands)
Balance at beginning of year	$	8,579		$	10,474
Additions based on tax positions related to the current year	866			981
Additions for tax positions of prior years	1,292			2,549
Reductions for tax positions of prior years - Settlement	(1,689		)	(5,425		)
Reduction for tax positions of prior years - Statute of limitations	(1,631		)	—
Balance at end of year	$	7,417		$	8,579

The additions for tax positions of prior years relates to transition tax. The balance of $7.4 million at December 31, 2018, reflects tax positions that, if recognized, would impact our effective tax rate.

As of December 31, 2018, we believe it is reasonably possible that $0.9 million of unrecognized tax benefits will change within the next twelve months primarily attributable to the expected completion of tax audits in the U.S. and foreign jurisdictions.

Our practice is to recognize interest and penalties related to uncertain tax positions in interest expense and operating expenses, respectively. During 2016, we recognized reductions of interest expense of $0.2 million related to uncertain tax positions. We do not have any material amounts accrued for the payment of interest and penalties as of December 31, 2018 and 2017.

Our federal tax return for the tax years 2015 and later remain subject to examination by the Internal Revenue Service. Belden reached agreement with the Internal Revenue Service for the 2013 and 2014 tax years in December 2018. Our state and foreign income tax returns for the tax years 2010 and later remain subject to examination by various state and foreign tax authorities.