SCHN 2017 Annual Report

SCHNITZER STEEL INDUSTRIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 86 / Schnitzer Steel Industries, Inc. Form 10-K 2017 Note 15 – Income Taxes Income (loss) from continuing operations before income taxes was as follows for the years ended August 31 (in thousands): 2017 2016 2015 United States $ 43,871 $ (4,303) $ (113,084) Foreign 4,819 (11,202) (87,380) Total $ 48,690 $ (15,505) $ (200,464) Income tax expense (benefit) from continuing operations consisted of the following for the years ended August 31 (in thousands): 2017 2016 2015 Current: Federal $ (1,130) $ 23 $ (11,275) State 190 180 (84) Foreign (16) 25 732 Total current tax expense (benefit) $ (956) $ 228 $ (10,627) Deferred: Federal $ 2,046 $ 502 $ (4,752) State 232 54 2,805 Foreign — (49) (41) Total deferred tax expense (benefit) 2,278 507 (1,988) Total income tax expense (benefit) $ 1,322 $ 735 $ (12,615) Areconciliation of the difference between the federal statutory rate and the Company’s effective tax rate for the years endedAugust 31 is as follows: 2017 2016 2015 Federal statutory rate 35.0% 35.0 % 35.0% State taxes, net of credits 1.8 1.3 1.1 Foreign income taxed at different rates (1.9) (12.0) (7.7) Non-deductible officers’ compensation 2.2 (2.0) (0.1) Noncontrolling interests (1.8) 4.1 0.3 Research and development credits (1.5) 2.4 0.3 Valuation allowance on deferred tax assets (31.2) (59.0) (25.2) Unrecognized tax benefits 1.3 (3.6) (0.6) Non-deductible goodwill — (0.9) (2.5) Realized foreign investment basis (0.9) 29.4 6.3 Other (0.3) 0.6 (0.6) Effective tax rate 2.7% (4.7)% 6.3% The Company's effective tax rate from continuing operations in fiscal 2017 was an expense of 2.7%, which was lower than the U.S. federal statutory rate of 35% primarily due to the Company's full valuation allowance positions and federal income tax refund claims, partially offset by increases in deferred tax liabilities from indefinite-lived assets in all jurisdictions. The valuation allowances on the Company's deferred tax assets are the result of negative objective evidence, including the effects of historical losses in our tax jurisdictions, outweighing positive objective and subjective evidence, indicating that it is more likely than not that the associated tax benefit will not be realized.