Income Taxes

On December 22, 2017, the President of the United States signed into law tax reform legislation (informally known as the Tax Cuts and Jobs Act (the “Act” or “Tax Act”)) that made significant changes to various areas of U.S. federal income tax law. The Tax Act reduced the U.S. federal corporate tax rate from 35 percent to 21 percent, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, created new taxes on certain foreign earnings, acceleration of expensing of certain business assets and reductions in the amount of executive pay that could qualify as a tax deduction.

ASC 740 requires us to recognize the effect of the tax law changes in the period of enactment. However, the SEC staff issued Staff Accounting Bulletin (SAB) 118 which allowed us to record provisional amounts during a measurement period which is similar to the measurement period used when accounting for business combinations. As of December 31, 2017, in accordance with SAB 118, the Company made a reasonable estimate of: (i) the one-time transition tax, and (ii) the effects on the Company’s existing deferred tax balances. In the current period, the Company finalized its accounting for the tax effects of enactment of the Tax Act and concluded that no material adjustments were required as of December 31, 2018.

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions of the Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. U.S. GAAP allows companies to make an accounting policy election to either treat taxes due on future GILTI inclusions in U.S. taxable income as a current-period expense when incurred (“period cost method”) or factor such amounts into the measurement of its deferred taxes (“deferred method”). We have elected to use the period cost method and the impact was immaterial.



The components of pre-tax book income (loss) consist of the following:
	Year Ended December 31,
	2018			2017		2016
U.S.	$	(39.7	)	$	26.8	$	(86.6	)
Foreign	(30.9		)	28.6		(164.3		)
Total	$	(70.6	)	$	55.4	$	(250.9	)



Significant components of income tax expense consist of the following:
	Year Ended December 31,
	2018			2017			2016
Current:
U.S. federal current expense (benefit)	$	0.0		$	(0.1	)	$	(0.2	)
State current expense (benefit)	(1.1		)	1.2			(0.1		)
Foreign current expense	0.8			12.3			5.7
Total current expense (benefit)	(0.3		)	13.4			5.4
Deferred:
U.S. federal deferred benefit	(1.6		)	(2.5		)	(1.6		)
State deferred benefit	—			(0.0		)	—
Foreign deferred tax expense (benefit)	1.7			(3.3		)	(1.0		)
Total deferred expense (benefit)	0.1			(5.8		)	(2.6		)
Total income tax expense (benefit)	$	(0.2	)	$	7.6		$	2.8



A reconciliation of the statutory U.S. Federal income tax rate to the effective income tax rate on income (loss) is as follows:
	2018		2017		2016
Federal Statutory Rate	21.0	%	35.0	%	35.0	%
Permanent differences	(25.7	)	57.5		7.7
State taxes, net of Federal benefit	3.5		(6.6	)	6.1
Rate change	(0.6	)	370.5		(4.2	)
Foreign earnings taxed at different rates than U.S.	11.8		(40.5	)	(13.5	)
Valuation allowance	81.2		(401.4	)	(27.5	)
Transition tax	(13.8	)	—		—
Net operating loss expiration and remeasurement	(75.8	)	—		—
Changes in uncertain tax reserves	(1.4	)	3.8		(1.0	)
Other	0.1		(4.6	)	(3.7	)
Effective tax rate	0.3	%	13.7	%	(1.1	)%

For the period ending December 31, 2018, the effective tax rate of 0.3% was lower than the statutory US tax rate of 21% primarily as a result of the non-recognition of current year domestic and foreign losses.

For the period ending December 31, 2017, the Company’s U.S. deferred tax asset and related valuation allowance decreased by $205.2 million as a result of the Act in 2017. As the U.S. deferred tax asset had a full valuation allowance, this change in rate from 35% to 21% had no impact on the Company’s financial position or results of operations. The increase in permanent differences is a result of tax law changes related to our foreign operations. The effect of earnings of foreign subsidiaries includes the difference between the U.S. statutory rate and local jurisdiction tax rates.

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 significant components of our deferred tax assets and liabilities as of December 31 are as follows:



	2018			2017
Deferred tax assets:
Accrued postretirement benefit cost	$	40.3		$	39.4
Accrued liabilities	10.9			3.1
Share-based compensation	2.1			1.3
Goodwill	0.4			2.0
Net operating losses and tax credits	482.8			551.1
Foreign basis differences	13.5			13.9
Ravenswood retiree legal settlement	2.4			3.1
Other	1.9			3.1
Total deferred tax assets	554.3			617.0
Valuation allowance	(552.5		)	(607.8		)
Net deferred tax assets	$	1.8		$	9.2
Deferred tax liabilities:
Tax over financial statement depreciation	$	(103.9	)	$	(109.7	)
Total deferred tax liabilities	(103.9		)	(109.7		)
Net deferred tax liability	$	(102.1	)	$	(100.5	)

We regularly assess the likelihood that deferred tax assets will be recovered from future taxable income. To the extent we believe that it is more likely than not that a deferred tax asset will not be realized, a valuation allowance is established. When a valuation allowance is established or increased, an income tax charge is included in the consolidated statement of operations and net deferred tax assets are adjusted accordingly. Future changes in tax laws, statutory tax rates and taxable income levels could result in actual realization of the deferred tax assets being materially different from the amounts provided for in the consolidated financial statements. If the actual recovery amount of the deferred tax asset is less than anticipated, we would be required to write-off the remaining deferred tax asset and increase the tax provision.

We have a valuation allowance of $552.5 million recorded for all of our U.S. deferred tax assets, and a portion of our Icelandic deferred tax assets as of December 31, 2018. The Company is subject to the provisions of ASC 740-10, Income Taxes, which requires that the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate change was enacted. The overall reduction in deferred tax assets, and the related valuation allowances, are primarily a result of the enactment of the Tax Act in 2017 and the expiration of certain NOLs.

The changes in the valuation allowance are as follows:



	2018			2017			2016
Beginning balance, valuation allowance	$	607.8		$	839.1		$	768.8
Remeasurement of deferred tax assets	(32.1		)	(205.2		)	—
Release of valuation allowance	—			—			(6.0		)
Expiration of net operating losses	(12.3		)	—			—
Other change in valuation allowance	(11.0		)	(26.1		)	76.3
Ending balance, valuation allowance	$	552.5		$	607.8		$	839.1

The significant components of our net operating loss carryforwards ("NOLs") are as follows:



	2018		2017
Federal ⁽¹⁾	$	1,470.4	$	1,514.2
State ⁽²⁾	2,205.0		2,480.5
Foreign ⁽³⁾	398.2		532.6


⁽¹⁾	The federal NOL begins to expire in 2028.


⁽²⁾	The state NOLs begin to expire in 2027.


⁽³⁾	The Icelandic NOL begins to expire in 2019; the Netherlands NOL begins to expire in 2022.

Our ability to utilize our deferred tax assets to offset future federal taxable income may be significantly limited if we experience an "ownership change" as defined in the Code. In general, an ownership change would occur if our "five-percent shareholders," as defined under the Code, collectively increase their ownership in us by more than 50 percentage points over a rolling three-year period. Future transactions in our stock that may not be in our control may cause us to experience such an ownership change and thus limit our ability to utilize net operating losses, tax credits and other tax assets to offset future taxable income.

A reconciliation of the beginning and ending amounts of gross unrecognized tax positions (excluding interest) is as follows:



	2018			2017			2016
Balance as of January 1,	$	8.4		$	6.4		$	3.8
Additions based on tax positions related to the current year	2.0			2.1			2.7
Decreases due to lapse of applicable statute of limitations	(0.9		)	(0.1		)	(0.1		)
Settlements	—			—			—
Balance as of December 31,	$	9.5		$	8.4		$	6.4

Included in the above balances are tax positions whose tax characterization is highly certain but for which there is uncertainty about the timing of tax return inclusion. Because of the impact of deferred tax accounting, other than interest and penalties, the timing would not impact the annual effective tax rate but could accelerate the payment of cash to the taxing authority to an earlier period. The remaining amounts of unrecognized tax positions would affect our effective tax rate if recognized. It is our policy to recognize potential accrued interest and penalties related to unrecognized tax positions in income tax expense.

The components of our unrecognized tax positions are as follows:



	2018		2017		2016
Highly certain tax positions	$	7.9	$	8.3	$	6.3
Other unrecognized tax benefits	1.6		0.1		0.1
Gross unrecognized tax benefits	$	9.5	$	8.4	$	6.4
Accrued interest and penalties related to unrecognized tax positions	$	0.1	$	0.0	$	—

We do not expect a significant change in the balance of unrecognized tax benefits within the next twelve months.

Century and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions, and several foreign jurisdictions.

Our federal income tax returns have been reviewed by the IRS through 2010. However, we have NOLs beginning in 2008 that are available for carryforward to future years. Under U.S. tax law, NOLs may be adjusted by the IRS until the statute of limitations expires for the year in which the NOL is used. Accordingly, our 2008 and later NOLs may be reviewed until they are used or expire. Material state and local income tax matters have been concluded for years through 2006. The majority of our state returns beginning in 2008 are subject to examination.

Our Icelandic tax returns are subject to examination beginning with the 2013 tax year.

As of December 31, 2018 and 2017 we had income taxes payable of $0.4 million and $12.2 million, respectively. The income taxes payable are included within accrued and other current liabilities in our Consolidated Balance Sheets.