INCOME TAXES

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



	2017			2016			2015
Domestic	$	(208.5	)	$	(215.2	)	$	(56.6	)
Foreign	32.8			(23.1		)	102.4
Total	$	(175.7	)	$	(238.3	)	$	45.8

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



	2017			2016			2015
Current
U.S. federal	$	(4.4	)	$	(67.2	)	$	(2.0	)
Foreign	72.9			54.0			38.2
State and local	1.7			(10.6		)	(0.6		)
Total current	70.2			(23.8		)	35.6
Deferred
U.S. federal	7.6			3.6			(38.3		)
Foreign	(44.9		)	(50.2		)	(11.1		)
State and local	(3.1		)	2.8			0.1
Total deferred	(40.4		)	(43.8		)	(49.3		)
Income tax (benefit) expense	$	29.8		$	(67.6	)	$	(13.7	)

In addition to the income tax (benefit) expense listed above for the years ended December 31, 2017, 2016 and 2015, income tax (benefit) expense allocated directly to shareholders equity for the same periods was $7.2, $(1.8) and $5.4, respectively, in addition it also includes (benefit) expense of $9.9, $7.7 and $(20.4), respectively, related to current year movement in valuation allowance. Income tax (benefit) expense allocated to discontinued operations for the years ended December 31, 2016 and 2015 was $93.9 and $9.6, respectively.

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



	2017			2016			2015
Statutory tax (benefit) expense	$	(61.5	)	$	(83.4	)	$	16.0
Brazil non-taxable incentive	(3.9		)	(5.8		)	(4.2		)
Valuation allowance	10.5			14.9			(0.7		)
Foreign tax rate differential	(31.5		)	(10.0		)	(19.4		)
Foreign subsidiary earnings	14.4			13.7			(9.1		)
Accrual adjustments	4.1			1.1			1.5
U.S. tax reform - rate impact on deferred tax balance	45.1			—			—
U.S. tax reform - deemed repatriation tax	36.6			—			—
Business tax credits	(0.6		)	(0.7		)	(1.4		)
Non-deductible (non-taxable) items	17.9			2.3			4.2
Other	(1.3		)	0.3			(0.6		)
Income tax (benefit) expense	$	29.8		$	(67.6	)	$	(13.7	)

The effective tax rate for 2017 was (17.0) percent and is primarily driven by the Tax Act, which was enacted on December 22, 2017. The Tax Act, among other things, lowered the U.S. corporate income tax rate from 35 percent to 21 percent effective January 1, 2018, while also imposing a deemed repatriation tax on deferred foreign earnings. The resulting impact to the Company is an estimated $45.1 reduction to deferred income taxes for the income tax rate change and an estimated one-time non-cash charge of $36.6 related to deferred foreign earnings. The Company continues to make and refine its provisional calculations as additional analysis is completed, and consequently, these provisional estimates may be affected as additional regulatory guidance is issued. Adjustments to the provisional amounts will be recognized as a component of the income tax (benefit) expense in the period in which the adjustments are determined, but in any event, no later than the fourth quarter of 2018. In addition to the impact of the Tax Act, the overall effective tax rate is impacted by the jurisdictional income (loss) and varying respective statutory rates and is reflected in the foreign tax rate differential caption of the rate reconciliation.

The effective tax rate for 2016 of 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) and varying respective statutory rates within the acquired entities.

The Company recognizes the benefit of tax positions taken or expected to be taken in its tax returns in its 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:



	2017			2016
Balance at January 1	$	43.2		$	13.1
Acquired uncertain tax positions	—			28.5
Increases related to prior year tax positions, net	6.1			6.3
Increases related to current year tax positions	7.5			2.5
Settlements	(1.8		)	(3.4		)
Reductions due to lapse of applicable statute of limitations	(6.6		)	(3.8		)
Balance at December 31	$	48.4		$	43.2

The entire amount of unrecognized tax benefits, if recognized, would affect the Company’s effective tax rate.

The Company classifies interest expense and penalties related to the underpayment of income taxes as income tax (benefit) expense in the consolidated financial statements. The Company accrues interest income on overpayments of income taxes where applicable and classifies interest income as a reduction of income tax (benefit) expense in the consolidated financial statements. As of December 31, 2017 and 2016, accrued interest and penalties related to unrecognized tax benefits totaled $5.5 and $7.6, 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.

During 2017, the IRS completed its examination of the Company's U.S federal income tax return for years ended December 31, 2013, 2012 and 2011 and issued a Revenue Agent’s Report (RAR). The Company agreed to the findings in the RAR with no net tax deficiency for 2012 and 2011 tax years. The Company initially appealed the findings for the 2013 tax year, reaching an agreement and receiving a draft RAR with no net tax deficiency, effectively settling the findings and has accrued all amounts. There are no other outstanding audits by the IRS and all U.S. federal tax years prior to 2013 are closed by statute. The Company is subject to tax examinations in various U.S state jurisdictions for tax years 2012 to the present, as well as various foreign jurisdictions for tax years 2010 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:



	2017			2016
Deferred tax assets
Accrued expenses	$	43.0		$	74.5
Warranty accrual	13.5			19.7
Deferred compensation	10.6			16.2
Allowances for doubtful accounts	3.8			10.3
Inventories	14.4			26.1
Deferred revenue	38.1			19.1
Pensions, post-retirement and other benefits	82.6			92.3
Tax credits	81.9			52.1
Net operating loss carryforwards	125.9			88.4
Capital loss carryforwards	2.6			1.8
State deferred taxes	17.4			17.1
Other	0.8			0.5
	434.6			418.1
Valuation allowance	(105.6		)	(87.8		)
Net deferred tax assets	$	329.0		$	330.3

Deferred tax liabilities
Property, plant and equipment, net	$	1.2		$	39.7
Goodwill and intangible assets	302.8			271.5
Partnership interest	—			3.7
Undistributed earnings	16.0			6.5
Other	2.3			—
Net deferred tax liabilities	322.3			321.4
Net deferred tax asset	$	6.7		$	8.9

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



	2017			2016
Deferred income taxes - assets	$	293.8		$	309.5
Deferred income taxes - liabilities	(287.1		)	(300.6		)
Net deferred tax asset	$	6.7		$	8.9

As of December 31, 2017, the Company had domestic and international net operating loss (NOL) carryforwards of $730.9, resulting in an NOL deferred tax asset of $125.9. Of these NOL carryforwards, $484.5 expire at various times between 2018 and 2038 and $246.4 does not expire. At December 31, 2017, the Company had a domestic foreign tax credit carryforward resulting in a deferred tax asset of $77.3 that will expire between 2020 and 2028 and a general business credit carryforward resulting in a deferred tax asset of $4.6 that will expire between 2035 and 2038.

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, 2017 and 2016 was an increase of $17.8 and $23.9, 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, 2017 and 2016, provisions were made for foreign withholding taxes and estimated foreign taxes which may be incurred upon the remittance of certain undistributed earnings in foreign subsidiaries and foreign unconsolidated affiliates. Additionally, in 2016, provisions were made for estimated U.S. income taxes, less available tax credits. Provisions have not been made for income taxes on $604.1 of undistributed earnings at December 31, 2017 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.