INCOME TAXES



(in millions)	2018		2017			2016
U.S. income before income taxes	$	201.7	$	210.9		$	283.6
Non-U.S. income (loss) before income taxes	84.0		(158.2		)	67.3
Income before income taxes	$	285.7	$	52.7		$	350.9

Income tax expense consists of the following components:
Current tax expense:
U.S. federal	$	10.2	$	68.1		$	63.2
Foreign	22.3		16.2			20.1
State and local	2.0		5.6			5.2
Total current tax expense	34.5		89.9			88.5
Deferred tax expense (benefit):
U.S. federal	14.7		(73.2		)	26.7
Foreign	6.9		(58.5		)	(3.9		)
State and local	3.9		0.5			3.4
Total deferred tax expense (benefit)	25.5		(131.2		)	26.2
Total income tax expense (benefit)	$	60.0	$	(41.3	)	$	114.7

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



(in millions)	2018			2017
Deferred Tax Assets:
Trade receivables, principally due to allowances for returns and doubtful accounts	$	2.8		$	2.9
Inventories, principally due to additional costs inventoried for tax purposes	14.0			17.7
Employee compensation and benefits accrued for financial reporting purposes	45.5			36.5
Foreign net operating losses	19.4			24.5
Foreign tax credits	15.1			34.1
Other	13.2			16.1
Total deferred tax assets	110.0			131.8
Less valuation allowance	(33.1		)	(48.5		)
Total deferred tax assets, after valuation allowance	$	76.9		$	83.3

(in millions)	2018			2017
Deferred Tax Liabilities:
Plant and equipment, principally due to differences in depreciation and capitalized interest	$	89.5		$	86.4
Goodwill and intangible assets, principally due to differences in amortization	$	103.8		$	98.9
Prepaid Expenses	13.1			—
Total deferred tax liabilities	206.4			185.3

Deferred tax liabilities, net	$	129.5		$	102.0

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



(in millions)	2018		2017
Deferred charges and other assets	$	37.2	$	51.5
Deferred tax liabilities	166.7		153.5
Net deferred tax liabilities	$	129.5	$	102.0

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



	2018					2017					2016
(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	$	60.0		21.0	%	$	18.5		35.0	%	$	122.8		35.0	%
Increase (decrease) in taxes resulting from:
State and local income taxes net of federal income tax benefit	3.8			1.4		3.3			6.2		5.6			1.6
Foreign tax rate differential	5.8			2.0		(4.7		)	(8.9	)	(7.4		)	(2.1	)
Goodwill impairment	—			—		17.7			33.6		—			—
Valuation Allowance	5.2			1.8		—			—		—			—
Tax law change	(8.2		)	(2.9	)	(67.2		)	(127.5	)	—			—
Manufacturing tax benefits	—			—		(6.0		)	(11.3	)	(5.8		)	(1.7	)
Statute Closings	(7.5		)	(2.6	)	(3.7		)	(6.9	)	(1.0		)	(0.3	)
Share-based payments	0.4			0.1		(0.9		)	(1.7	)	—			—
Other	0.5			0.2		1.7			3.1		0.5			0.2
Actual income tax expense (benefit)	$	60.0		21.0	%	$	(41.3	)	(78.4	)%	$	114.7		32.7	%

In 2018, the Company's overall tax expense is primarily driven by operations within the United States. The Company's foreign tax rate differential is largely the result of a higher statutory rate in Brazil.

The effective tax rate for 2017 differs from the other years 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 of 2017, 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 TCJA. The TCJA made broad and complex changes to the U.S. tax code which impacted the Company’s years ended 2017 and 2018 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 reduced 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 Company recorded a provisional discrete net tax benefit of $67.2 million related to the TCJA in the year ended December 31, 2017. This consisted 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 adjustments to these provisional amounts are discussed below.

Reduction in U.S. Corporate Rate: The TCJA reduced the statutory corporate tax rate to 21 percent for the Company’s tax years ending in 2018 and beyond. While the Company was able to make a reasonable estimate of the impact of the reduction in corporate rate, the Company continued to analyze the temporary differences that existed on the date of enactment throughout 2018. The Company recognized a measurement-period benefit of $5.0 million related to temporary differences. The benefit of the measurement-period adjustment on the 2018 effective tax rate was a benefit of 1.8%. The calculation of the adjustment to temporary differences is now complete and resulted in recording a total net benefit of $5.0 million to income tax expense in 2018.

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 determined the 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 were presented in Accrued income and other taxes and Other liabilities and deferred credits. On the basis of revised E&P computations and published guidance, the Company recognized a measurement-period adjustment of $3.2 million related to the overall transition tax obligation. The effect of the measurement-period adjustment on the 2018 effective tax rate was a benefit of 1.1%. The transition tax, which has now been determined to be complete, resulted in recording a net transition tax obligation of $7.4 million, with a corresponding net benefit of $3.2 million to income tax expense in 2018. Due to IRS rules regarding the application of overpayments, the entire liability was paid in full in 2018.

Global Intangible Low-Taxed Income ("GILTI"): The TCJA includes a provision designed to tax certain low taxed income starting in 2018. The Company currently estimates GILTI will be immaterial for the year ended December 31, 2018, although interpretive guidance continues to be issued and future guidance may impact this analysis. The Company has not recorded any deferred taxes for future GILTI inclusions.

The Company has $293.8 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.

As of December 31, 2018, the Company had foreign net operating loss carryovers of approximately $71.0 million that are available to offset future taxable income. Approximately $12.2 million of the carryover expires over the period 2019-2033. The remaining balance has no expiration. In addition, the Company had $15.1 million of foreign tax credit carryover that is available to offset future tax. This carryover expires over the period 2023-2024.

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 tax rate reconciliation reflects the recording of a valuation allowance of $5.2 million against certain deferred tax assets in Brazil in 2018. In total, the Company’s management has determined that a valuation allowance of $33.1 million and $48.5 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, 2018 and 2017, respectively.

The Company had total unrecognized tax benefits of $25.1 million and $35.2 million at December 31, 2018 and 2017, respectively. The approximate amount of unrecognized tax benefits that would impact the effective income tax rate if recognized in any future periods was $25.1 million and $35.2 million for the years ended December 31, 2018 and 2017, respectively.

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



	2018			2017
Balance at beginning of year	$	35.2		$	32.9
Additions based on tax positions related to the current year	3.1			3.9
Additions for tax positions of prior years	2.0			4.1
Reductions for tax positions of prior years	(3.0		)	(1.1		)
Reductions due to a lapse of the statute of limitations	(11.8		)	(4.5		)
Settlements	(0.4		)	(0.1		)
Balance at end of year	$	25.1		$	35.2

The Company recognizes interest and penalties related to unrecognized tax benefits as components of income tax expense. The Company recognized $0.4 million of net tax benefit, $1.1 million of net tax expense and $1.2 million of net tax benefit related to interest and penalties during the years ended December 31, 2018, 2017 and 2016, respectively. The Company had approximately $11.5 million and $14.5 million accrued for interest and penalties, net of tax benefits, at December 31, 2018 and 2017, 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 $6.0 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 2015 are no longer subject to examination. With few exceptions, the Company is no longer subject to examinations by tax authorities for years prior to 2013 in the significant jurisdictions in which it operates.