Income Taxes

Provision for Income Taxes

The Company’s income (loss) before taxes is as follows:



(in millions) For year ended December 31,	2015		2014		2013
U.S. operations	$	261.9	$	141.8	$	177.2
Non-U.S. operations	74.6		139.4		148.8
Total	$	336.5	$	281.2	$	326.0

The Company’s provision (benefit) for income taxes consists of:



(in millions) For year ended December 31,	2015			2014		2013
Current:
U.S. federal tax	$	43.0		$	14.0	$	11.4
U.S. state and local tax	5.4			2.6		3.4
Non-U.S. tax	18.4			33.1		41.3
Total current	66.8			49.7		56.1
Deferred:
U.S. federal tax	36.5			30.1		43.8
U.S. state and local tax	(0.4		)	1.3		0.6
Non-U.S. tax	3.6			6.5		4.6
Total deferred	39.7			37.9		49.0
Total provision (benefit) for income taxes	$	106.5		$	87.6	$	105.1

A reconciliation of the statutory U.S. federal tax rate to the Company’s effective tax rate is as follows:



(in millions) For year ended December 31,	2015		2014		2013
Statutory U.S. federal tax rate	35.0	%	35.0	%	35.0	%
Increase (reduction) from:
Income taxed at non-U.S. rates	(2.0	)%	(4.0	)%	(2.0	)%
Non-U.S. income inclusion, net of tax credits	—	%	0.1	%	0.1	%
State and local taxes, net of federal benefit	1.3	%	1.3	%	1.2	%
U.S. research and development tax credit	(0.9	)%	(1.0	)%	(1.9	)%
U.S. domestic manufacturing deduction	(1.3	)%	(0.7	)%	(1.0	)%
Non-deductible acquisition costs	—	%	—	%	2.3	%
Other	(0.4	)%	0.5	%	(1.5	)%
Effective tax rate	31.7	%	31.2	%	32.2	%

As of December 31, 2015, the Company has not provided deferred taxes on $660 million of undistributed earnings of its non-U.S. subsidiaries because the Company intends to permanently reinvest these earnings outside the U.S. Determination of the U.S. income taxes and non-U.S. withholding taxes due upon the repatriation of this $660 million of earnings is not practicable because the amount of such taxes depends upon circumstances existing in numerous taxing jurisdictions when the remittance occurs.

The Company’s non-U.S. subsidiaries held cash of $358 million and $330 million at December 31, 2015 and 2014, respectively, and these balances are generally subject to U.S. income and non-U.S. withholding taxation upon repatriation.

The Company’s income taxes payable has been reduced by excess tax benefits from equity-based compensation. For stock options, the Company receives an excess income tax benefit calculated as the tax effect of the difference between the fair market value of the stock at the time of grant and exercise. For restricted share units, the Company receives an excess income tax benefit calculated as the tax effect of the difference between the fair market value of the stock at the time of grant and vesting. The Company had excess tax benefits from equity-based compensation of $1.6 million, $7.7 million and $6.4 million in 2015, 2014 and 2013, respectively, which were reflected as increases to capital surplus.

During 2015, 2014 and 2013, tax provision (benefit) of $4.6 million, $(61.1) million, and $36.2 million, respectively, related to changes in pension and post-retirement plan assets and benefit obligations, were recorded to accumulated other comprehensive income.

Deferred Taxes and Valuation Allowances

The components of deferred tax assets and liabilities included on the Company’s Consolidated Balance Sheets are as follows:



(in millions) December 31,	2015			2014
Deferred tax assets:
Asbestos-related liabilities	$	162.7		$	182.6
Tax loss and credit carryforwards	105.6			113.8
Pension and post-retirement benefits	69.1			78.7
Inventories	23.5			19.3
Accrued bonus and stock-based compensation	17.1			14.9
Environmental reserves	16.0			24.5
Other	55.3			50.4
Total	449.3			484.2
Less: valuation allowance	145.9			141.0
Total deferred tax assets, net of valuation allowance	303.4			343.2
Deferred tax liabilities:
Basis difference in intangible assets	(142.2		)	(134.8		)
Basis difference in fixed assets	(21.5		)	(25.8		)
Total deferred tax liabilities	(163.7		)	(160.6		)
Net deferred tax asset	$	139.7		$	182.6
Balance sheet classification:
Current deferred tax assets	27.5			$	33.0
Long-term deferred tax assets	162.4			196.2
Accrued liabilities	(0.2		)	(0.4		)
Long-term deferred tax liability	(50.0		)	(46.3		)
Net deferred tax asset	$	139.7		$	182.6

As of December 31, 2015, the Company had U.S. federal, U.S. state and non-U.S. tax loss and credit carryforwards that will expire, if unused, as follows:



(in millions) Year of expiration	U.S. Federal Tax Credits			U.S. Federal Tax Losses			U.S. State Tax Credits			U.S. State Tax Losses			Non- U.S. Tax Losses			Total
2016-2020	$	17.9		$	0.2		$	4.0		$	27.3		$	16.3
After 2020	3.5			1.8			2.4			795.9			3.0
Indefinite	—			—			19.6			—			98.6
Total tax carryforwards	$	21.4		$	2.0		$	26.0		$	823.2		$	117.9
Deferred tax asset on tax carryforwards	$	21.4		$	0.7		$	16.9		$	37.7		$	28.9		$	105.6
Valuation allowance on tax carryforwards	(21.4		)	(0.4		)	(16.3		)	(36.9		)	(23.7		)	(98.7		)
Net deferred tax asset on tax carryforwards	$	—		$	0.3		$	0.6		$	0.8		$	5.2		$	6.9

At December 31, 2015 and 2014, the Company determined that it was more likely than not that $98.7 million and $95.5 million, respectively, of its deferred tax assets related to tax loss and credit carryforwards will not be realized. As a result, the Company recorded a valuation allowance against these deferred tax assets. The Company also determined that it is more likely than not that a portion of the benefit related to U.S. state and non-U.S. deferred tax assets other than tax loss and credit carryforwards will be not realized. Accordingly, at December 31, 2015 and 2014, a valuation allowance of $47.2 million and $45.5 million, respectively, was established against these U.S. state and non-U.S. deferred tax assets. The Company’s total valuation allowance at December 31, 2015 and 2014 was $145.9 million and $141.0 million, respectively.

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of the Company’s gross unrecognized tax benefits, excluding interest and penalties, is as follows:



(in millions)	2015			2014			2013
Balance of liability as of January 1	$	40.7		$	31.4		$	19.2
Increase as a result of tax positions taken during a prior year	1.5			2.0			6.7
Decrease as a result of tax positions taken during a prior year	(2.1		)	(1.2		)	(0.3		)
Increase as a result of tax positions taken during the current year	9.2			11.2			5.9
Decrease as a result of settlements with taxing authorities	—			(1.1		)	—
Reduction as a result of a lapse of the statute of limitations	(4.1		)	(1.6		)	(0.1		)
Balance of liability as of December 31	$	45.2		$	40.7		$	31.4

As of December 31, 2015, 2014 and 2013, the amount of the Company’s unrecognized tax benefits that, if recognized, would affect its effective tax rate was $46.6 million, $42.2 million, and $27.7 million, respectively. The difference between these amounts and those reflected in the table above relates to (1) offsetting tax effects from other tax jurisdictions, and (2) interest expense, net of deferred taxes.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of its income tax expense. During the years ended December 31, 2015, 2014 and 2013, the Company recognized interest and penalty expense of $1.1 million, $0.7 million, and $0.9 million, respectively, in its Consolidated Statements of Operations. At December 31, 2015 and 2014, the Company had accrued $5.8 million and $4.7 million, respectively, of interest and penalties related to unrecognized tax benefits in its Consolidated Balance Sheets.

During the next twelve months, it is reasonably possible that the Company's unrecognized tax benefits could change by $2.2 million due to settlements of income tax examinations, the expiration of statutes of limitations or other resolution of uncertainties. However, if the ultimate resolution of income tax examinations results in amounts that differ from this estimate, the Company will record additional income tax expense or benefit in the period in which such matters are effectively settled.

Income Tax Examinations

The Company's income tax returns are subject to examination by U.S. federal, U.S. state and local, and non-U.S. tax authorities.

The Company’s federal income tax returns for the years 2010 through 2012 are currently under examination by the U.S Internal Revenue Service, and its federal income tax returns for 2013 and 2014 remain subject to examination. In addition, acquired subsidiaries’ federal income tax returns (2011 through 2013) and federal tax carry forwards (2006 through 2013) remain subject to examination.

With few exceptions, the Company is no longer subject to U.S. state and local or non-U.S. income tax examinations for years before 2009. As of December 31, 2015, the Company and its subsidiaries are under examination in various jurisdictions, including Germany (2008 through 2012) and California (2010 and 2011).