INCOME TAXES



(in millions)	2017			2016			2015
U.S. income before income taxes	$	210.9		$	283.6		$	260.1
Non-U.S. income (loss) before income taxes	(158.2		)	67.3			103.8
Income from continuing operations before income taxes	$	52.7		$	350.9		$	363.9

Income tax expense consists of the following components:
Current tax expense:
U.S. federal	$	68.1		$	63.2		$	71.8
Foreign	16.2			20.1			28.0
State and local	5.6			5.2			8.0
Total current tax expense	89.9			88.5			107.8
Deferred tax expense (benefit):
U.S. federal	(73.2		)	26.7			11.5
Foreign	(58.5		)	(3.9		)	2.1
State and local	0.5			3.4			0.6
Total deferred tax expense (benefit)	(131.2		)	26.2			14.2
Total income tax expense (benefit)	$	(41.3	)	$	114.7		$	122.0

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



(in millions)	2017			2016
Deferred Tax Assets:
Trade receivables, principally due to allowances for returns and doubtful accounts	$	2.9		$	4.1
Inventories, principally due to additional costs inventoried for tax purposes	17.7			22.9
Employee compensation and benefits accrued for financial reporting purposes	36.5			60.6
Foreign net operating losses	24.5			25.7
Foreign tax credits	34.1			24.1
Other	16.1			12.8
Total deferred tax assets	131.8			150.2
Less valuation allowance	(48.5		)	(40.3		)
Total deferred tax assets, after valuation allowance	$	83.3		$	109.9

(in millions)	2017			2016
Deferred Tax Liabilities:
Plant and equipment, principally due to differences in depreciation and capitalized interest	$	86.4		$	130.9
Goodwill and intangible assets, principally due to differences in amortization	98.9			195.2
Total deferred tax liabilities	185.3			326.1

Deferred tax liabilities, net	$	102.0		$	216.2

The net deferred tax liabilities are reflected in the balance sheet as follows:



(in millions)	2017		2016
Deferred charges and other assets	$	51.5	$	3.5
Deferred tax liabilities	153.5		219.7
Net deferred tax liabilities	$	102.0	$	216.2

The Company’s effective tax rate differs from the federal statutory rate due to the following items:



	2017					2016					2015
(dollars in millions)	Amount			% of Income Before Tax		Amount			% of Income Before Tax		Amount			% of Income Before Tax
Computed “expected” tax expense on income before taxes at federal statutory rate	$	18.5		35.0	%	$	122.8		35.0	%	$	127.4		35.0	%
Increase (decrease) in taxes resulting from:
State and local income taxes net of federal income tax benefit	3.3			6.2		5.6			1.6		5.6			1.5
Foreign tax rate differential	(4.7		)	(8.9	)	(7.4		)	(2.1	)	(7.5		)	(2.1	)
Goodwill impairment	17.7			33.6		—			—		—			—
Tax law change	(67.2		)	(127.5	)	—			—		—			—
Manufacturing tax benefits	(6.0		)	(11.3	)	(5.8		)	(1.7	)	(6.7		)	(1.8	)
Share-based payments	(0.9		)	(1.7	)	—			—		—			—
Other	(2.0		)	(3.8	)	(0.5		)	(0.1	)	3.2			0.9
Actual income tax expense (benefit)	$	(41.3	)	(78.4	)%	$	114.7		32.7	%	$	122.0		33.5	%

The Company's overall tax expense is primarily driven by operations within the jurisdictions of the United States and Brazil. The Company's foreign tax rate differential is largely the result of lower statutory rates in the jurisdictions of its other foreign operations.

The effective tax rate for the current year differs from the prior year due primarily to the impairment of the Latin America Packaging reporting unit’s goodwill and new tax legislation in the U.S.

In the fourth quarter, the Company recorded a full impairment of the Latin America Packaging reporting unit’s goodwill which included a $51.1 million deferred tax benefit related to tax deductible goodwill. The tax rate reconciliation schedule reflects the difference between the statutory rates in Latin America and the U.S. as well as the non-deductible portion of the impaired goodwill.

On December 22, 2017, the President of the United States signed comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“TCJA”). The TCJA makes broad and complex changes to the U.S. tax code which impact the Company’s year ended 2017 including, but not limited to (1) reducing the U.S. federal corporate tax rate, (2) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that may be paid over eight years, and (3) accelerating expensing of certain capital expenditures. The TCJA reduces the federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for the TCJA. The Company has recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the TCJA. The accounting is expected to be completed within the one year measurement period allowed under SAB 118.

The Company recorded a provisional discrete net tax benefit of $67.2 million related to the TCJA in the period ending December 31, 2017. This consists of a $77.8 million net benefit due to the remeasurement of the Company’s deferred tax accounts for the corporate rate reduction and a net expense for the transition tax of $10.6 million. The Company has not completed the accounting for the income tax effects of certain elements of the TCJA as discussed below.

Reduction in U.S. Corporate Rate: The TCJA reduces the statutory corporate tax rate to 21 percent for the Company’s tax years ending in 2018 and beyond. While the Company is able to make a reasonable estimate of the impact of the reduction in corporate rate, the Company continues to analyze the temporary differences that existed on the date of enactment.

Transition Tax: The transition tax is a 2017 tax on the previously untaxed accumulated and current earnings and profits ("E&P") of the Company’s foreign subsidiaries. To calculate the transition tax, the Company must determine post-1986 E&P of the subsidiaries, as well as non-U.S. income taxes paid on such earnings in addition to other factors. E&P is similar to retained earnings of the subsidiary, but requires other adjustments to conform to U.S. tax rules. The Company recorded an estimated transition tax obligation expected to be paid over eight years beginning in 2018. These amounts are presented in Accrued income and other taxes and Other liabilities and deferred credits. The Company is awaiting further interpretative guidance, assessing available tax methods and elections, and gathering additional information to more precisely compute the transition tax.

Global intangible low-taxed income ("GILTI"): The TCJA includes a provision designed to currently tax certain low taxed income starting in 2018. Due to the complexity of the new GILTI tax rules, the Company is evaluating the application of ASC 740, and is considering accounting policy alternatives to either record the U.S. income tax of GILTI inclusions in the period they arise or establish deferred taxes for future GILTI inclusions. In addition, the Company is awaiting further interpretive guidance for the computation of the GILTI tax. For these reasons, the Company has not made any adjustments relating to potential GILTI tax in the financial statements and has not made a policy decision regarding the accounting for GILTI.

The Company has $255.8 million of undistributed earnings of foreign subsidiaries which are considered to be indefinitely reinvested in the operations of those subsidiaries. As a result of the transition tax mentioned above, the Company estimates that minimal federal and state income tax would be due upon the actual remittance of the undistributed earnings. In addition, the Company also estimates minimal foreign withholding tax on any potential remittance. The Company will continue to evaluate the impact of the Tax Act and further interpretive guidance on the indefinite reinvestment assertion.

As of December 31, 2017, the Company had foreign net operating loss carryovers of approximately $88.5 million that are available to offset future taxable income. Approximately $23.0 million of the carryover expires over the period 2018-2033. The remaining balance has no expiration. In addition, the Company had $34.1 million of foreign tax credit carryover that is available to offset future tax. This carryover expires over the period 2018-2027.

Current authoritative guidance issued by the FASB requires that a valuation allowance be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. The Company has, and continues to generate, both net operating losses and deferred tax assets in certain jurisdictions for which a valuation allowance is required. The Company’s management determined that a valuation allowance of $48.5 million and $40.3 million against deferred tax assets primarily associated with the foreign net operating loss carryover and the foreign tax credit carryover was necessary at December 31, 2017 and 2016, respectively.

The Company had total unrecognized tax benefits of $35.2 million and $32.9 million at December 31, 2017 and 2016, respectively. The approximate amount of unrecognized tax benefits that would impact the effective income tax rate if recognized in any future periods was $35.2 million and $32.9 million for the years ended December 31, 2017 and 2016, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, in millions, is as follows:



	2017			2016
Balance at beginning of year	$	32.9		$	30.7
Additions based on tax positions related to the current year	3.9			2.3
Additions for tax positions of prior years	4.1			7.0
Reductions for tax positions of prior years	(1.1		)	(4.5		)
Reductions due to a lapse of the statute of limitations	(4.5		)	(1.7		)
Settlements	(0.1		)	(0.9		)
Balance at end of year	$	35.2		$	32.9

The Company recognizes interest and penalties related to unrecognized tax benefits as components of income tax expense. The Company recognized $1.1 million of net tax expense and $1.2 million and $1.5 million of net tax benefit related to interest and penalties during the years ended December 31, 2017, 2016, and 2015, respectively. The Company had approximately $14.5 million and $13.2 million accrued for interest and penalties, net of tax benefits, at December 31, 2017 and 2016, respectively.

As a result of acquisitions, the Company recorded $2.6 million of unrecognized tax benefits and $2.5 million of interest and penalties related to pre-acquisition tax positions in 2016 for which the Company is indemnified. Corresponding assets related to these indemnified provisions have also been recorded for these amounts.

During the next 12 months it is reasonably possible that a reduction of gross unrecognized tax benefits will occur in an amount of up to $10.0 million, exclusive of currency movements, as a result of the resolution of positions taken on previously filed returns.

The Company and its subsidiaries are subject to U.S. federal and state income tax as well as income tax in multiple international jurisdictions. The Company's U.S. federal income tax returns prior to 2014 are no longer subject to examination. With few exceptions, the Company is no longer subject to examinations by tax authorities for years prior to 2012 in the significant jurisdictions in which it operates.