INCOME TAXES

The following table presents components of income (loss) from continuing operations before income taxes for the years ended December 31:



	2016			2015			2014
Domestic	$	(215.2	)	$	(56.6	)	$	(15.3	)
Foreign	(23.1		)	102.4			170.0
Total	$	(238.3	)	$	45.8		$	154.7

The following table presents the components of income tax (benefit) expense from continuing operations for the years ended December 31:



	2016			2015			2014
Current
U.S. federal	$	(67.2	)	$	(2.0	)	$	0.3
Foreign	54.0			38.2			61.5
State and local	(10.6		)	(0.6		)	—
Total current	(23.8		)	35.6			61.8
Deferred
U.S. federal	3.6			(38.3		)	(2.6		)
Foreign	(50.2		)	(11.1		)	(9.4		)
State and local	2.8			0.1			(2.4		)
Total deferred	(43.8		)	(49.3		)	(14.4		)
Income tax (benefit) expense	$	(67.6	)	$	(13.7	)	$	47.4

In addition to the income tax (benefit) expense listed above for the years ended December 31, 2016, 2015 and 2014, income tax (benefit) expense allocated directly to shareholders equity for the same periods was $(1.8), $5.4 and $(38.5), respectively. The income tax (benefit) expense allocated directly to shareholders equity for the years ended December 31, 2016, 2015 and 2014 also includes (benefit) expense of $7.7, $(20.4) and $(9.2), respectively, related to current year movement in valuation allowance. Income tax (benefit) expense allocated to discontinued operations for the years ended December 31, 2016, 2015 and 2014 was $93.9, $9.6 and $6.2, respectively.

Income tax (benefit) expense attributable to income (loss) from continuing operations differed from the amounts computed by applying the U.S. federal income tax rate of 35 percent to pretax income (loss) from continuing operations. The following table presents these differences for the years ended December 31:



	2016			2015			2014
Statutory tax (benefit) expense	$	(83.4	)	$	16.0		$	54.1
Brazil non-taxable incentive	(5.8		)	(4.2		)	(15.5		)
Valuation allowance	14.9			(0.7		)	9.5
Brazil tax goodwill amortization	—			—			(1.5		)
Foreign tax rate differential	(10.0		)	(19.4		)	(14.9		)
Foreign subsidiary earnings	13.7			(9.1		)	14.6
Accrual adjustments	1.1			1.5			2.2
Business tax credits	(0.7		)	(1.4		)	(2.4		)
Non-deductible (non-taxable) items	2.3			4.2			—
Other	0.3			(0.6		)	1.3
Income tax (benefit) expense	$	(67.6	)	$	(13.7	)	$	47.4

The effective tax rate for 2016 was 28.4 percent on the overall loss from continued operations. The benefit on the overall loss was negatively impacted by the Acquisition including a valuation allowance for certain post-acquisition losses and non-deductible acquisition related expenses. The overall effective tax rate was decreased further by the jurisdictional income (loss) mix and varying statutory rates within the acquired entities.

In 2015, the overall negative effective tax rate of (29.9) percent on the income from continued operations was primarily driven by the Company repatriation of high-taxed foreign earnings carrying a foreign tax credit benefit of $13.0. In addition, the passage of the Protecting Americans from Tax Hikes Act of 2015 R.R. 2029 (PATH Act), which extended the Controlled Foreign Corporation (CFC) look-through rules in Internal Revenue Code (IRC) section 954(c)(6) that exempted the foreign corporations' earnings from current taxation as well as the permanent extension of the research and experimentation credit benefited the overall effective tax rate by $5.6. The other major driver attributing to the overall negative effective tax rate was due to the combined income mix and varying statutory rates in the Company's foreign operations.

The Company recognizes the benefit of tax positions taken or expected to be taken in its tax returns in the consolidated financial statements when it is more likely than not that the position will be sustained upon examination by authorities. Recognized tax positions are measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon settlement.

Details of the unrecognized tax benefits are as follows:



	2016			2015
Balance at January 1	$	13.1		$	15.0
Increases (decreases) related to prior year tax positions	34.8			(0.4		)
Increases related to current year tax positions	2.5			0.9
Settlements	(3.4		)	(0.2		)
Reduction due to lapse of applicable statute of limitations	(3.8		)	(2.2		)
Balance at December 31	$	43.2		$	13.1

The entire amount of unrecognized tax benefits, if recognized, would affect the Company’s effective tax rate. The 2016 increase related to prior year tax positions was impacted by the Acquisition resulting in an increase of $28.5 that was included in the preliminary estimated fair value of the liabilities as of the August 15, 2016 acquisition date.

The Company classifies interest expense and penalties related to the underpayment of income taxes in the consolidated financial statements as income tax expense. Consistent with the treatment of interest expense, the Company accrues interest income on overpayments of income taxes where applicable and classifies interest income as a reduction of income tax expense in the consolidated financial statements. As of December 31, 2016 and 2015, accrued interest and penalties related to unrecognized tax benefits totaled approximately $7.6 and $7.2, respectively.

It is reasonably possible that the total amount of unrecognized tax benefits will change during the next 12 months. The Company does not expect those changes to have a significant impact on its consolidated financial statements. The expected timing of payments cannot be determined with any degree of certainty.

As of December 31, 2016, the Company is under audit by the Internal Revenue Service (IRS) for tax years ended December 31, 2011, 2012 and 2013. The IRS completed its examination of the Company’s U.S. federal income tax returns for the years 2008-2010 and issued a Revenue Agent’s Report (RAR) during 2014. The Company appealed the findings in the RAR and a final agreement was reached with the IRS during 2016. The final RAR was issued by the IRS and approved by the Joint Committee on Taxation, a Committee of the U.S. Congress. The net tax deficiency, excluding interest, associated with the RAR was $2.1 after net operating loss utilization. All amounts, including interest, had been previously accrued. All U.S. federal tax years prior to 2011 are closed by statute. The Company is subject to tax examination in various U.S. state jurisdictions for tax years 2009 to the present, as well as various foreign jurisdictions for tax years 2009 to the present.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at December 31 are as follows:



	2016			2015
Deferred tax assets
Accrued expenses	$	74.5		$	40.8
Warranty accrual	19.7			22.0
Deferred compensation	16.2			14.0
Allowance for doubtful accounts	10.3			11.9
Inventories	26.1			12.7
Deferred revenue	19.1			20.1
Pension and post-retirement benefits	92.3			70.4
Tax credits	52.1			62.5
Net operating loss carryforwards	88.4			58.5
Capital loss carryforwards	1.8			1.9
State deferred taxes	17.1			16.3
Other	0.5			12.1
	418.1			343.2
Valuation allowance	(87.8		)	(63.9		)
Net deferred tax assets	$	330.3		$	279.3

Deferred tax liabilities
Property, plant and equipment	$	39.7		$	20.5
Goodwill and intangible assets	271.5			17.6
Partnership interest	3.7			7.7
Undistributed earnings	6.5			7.3
Net deferred tax liabilities	321.4			53.1
Net deferred tax asset	$	8.9		$	226.2

Deferred income taxes reported in the consolidated balance sheets as of December 31 are as follows:



	2016			2015
Deferred income taxes - current assets	$	—		$	168.8
Deferred income taxes - long-term assets	309.5			65.3
Other current liabilities	—			(6.0		)
Deferred income taxes - long-term liabilities	(300.6		)	(1.9		)
Net deferred tax asset	$	8.9		$	226.2

The Company has elected to early adopt ASU 2015-17 for purposes of the 2016 annual period on a prospective basis. Accordingly, the 2015 prior period annual balances above have not been adjusted.

As of December 31, 2016, the Company had domestic and international net operating loss (NOL) carryforwards of $523.1, resulting in an NOL deferred tax asset of $88.4. Of these NOL carryforwards, $333.8 expire at various times between 2017 and 2037 and $189.3 does not expire. At December 31, 2016, the Company had a domestic foreign tax credit carryforward resulting in a deferred tax asset of $46.5 that will expire between 2020 and 2026 and a general business credit carryforward resulting in a deferred tax asset of $5.6 that will expire between 2034 and 2037.

The Company recorded a valuation allowance to reflect the estimated amount of certain foreign and state deferred tax assets that, more likely than not, will not be realized. The net change in total valuation allowance for the years ended December 31, 2016 and 2015 was an increase of $23.9 and a decrease of $24.1, respectively. The 2016 valuation allowance increase is currency driven relating mostly to the strengthening of the Brazil real compared to the previous year. In addition, $9.1 of the valuation allowance increase relates to the Acquisition.

For the years ended December 31, 2016 and 2015, provisions were made for foreign withholding taxes and estimated U.S. income taxes, less available tax credits, which may be incurred upon the remittance of certain undistributed earnings in foreign subsidiaries and foreign unconsolidated affiliates. Provisions have not been made for income taxes on $523.3 of undistributed earnings at December 31, 2016 in foreign subsidiaries and corporate joint ventures that are deemed permanently reinvested. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability, if any, depends on certain circumstances existing if and when remittance occurs. A deferred tax liability will be recognized if and when the Company no longer plans to permanently reinvest these undistributed earnings.