Income Taxes

12 Months Ended

Dec. 31, 2019

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



	2019			2018			2017
Domestic	$	(249.6	)	$	(300.9	)	$	(212.6	)
Foreign	20.7			(177.4		)	20.7
Total	$	(228.9	)	$	(478.3	)	$	(191.9	)

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



	2019			2018			2017
Current
U.S. federal	$	0.7		$	0.8		$	(5.9	)
Foreign	36.1			49.0			72.9
State and local	1.5			1.9			1.7
Total current	38.3			51.7			68.7
Deferred
U.S. federal	78.1			4.6			7.6
Foreign	(11.7		)	(19.8		)	(44.9		)
State and local	12.0			0.7			(3.1		)
Total deferred	78.4			(14.5		)	(40.4		)
Income tax expense (benefit)	$	116.7		$	37.2		$	28.3

In addition to the income tax expense (benefit) listed above for the years ended December 31, 2019, 2018 and 2017, income tax (benefit) expense allocated directly to shareholders equity for the same periods was $(19.1), $8.5 and $7.2, respectively. The income tax (benefit) expense allocated directly to shareholders equity for the years ended December 31, 2019, 2018 and 2017 also includes expense of $(2.4), $(11.6) and $9.9, respectively, related to current year movement in valuation allowance.

Income tax expense (benefit) attributable to loss from operations before taxes differed from the amounts computed by applying the U.S. federal income tax rate of 21 percent to pre-tax loss from operations for years ended December 31, 2019 and 2018 as a result of the Tax Act. The applicable U.S. federal rate of 35 percent to pre-tax loss from operations was used for 2017. The following table presents these differences for the years ended December 31:



	2019			2018			2017
Statutory tax benefit	$	(48.1	)	$	(100.5	)	$	(67.2	)
State and local taxes (net of federal tax benefit)	(3.8		)	1.5			(1.1		)
Brazil non-taxable incentive	(5.8		)	(3.8		)	(3.9		)
Valuation allowances	46.2			80.6			10.5
Barbados loan restructuring	83.1			—			—
Netherlands liquidation deferred tax	5.9			—			—
Goodwill impairment	—			34.0			—
Foreign tax rate differential	(1.4		)	(33.7		)	(31.5		)
Tax on unremitted foreign earnings	8.9			4.9			14.4
Accrual adjustments	4.0			3.1			4.1
Tax Act - rate impact on deferred tax balance	—			(2.5		)	45.1
U.S. taxed foreign income	10.5			32.6			36.6
Business tax credits	—			(1.1		)	(0.6		)
Non-deductible (non-taxable) items	18.0			18.9			22.1
Return to provision and prior year true up	(3.8		)	1.6			(1.4		)
Withholding tax and other taxes	6.8			1.7			1.5
Other	(3.8		)	(0.1		)	(0.3		)
Income tax expense (benefit)	$	116.7		$	37.2		$	28.3

The effective tax rate for 2019 was (51.0) percent and is primarily due to the U.S. taxed foreign income, including global intangible low-taxed income (GILTI), valuation allowances recorded on certain foreign and state jurisdictions and U.S. foreign tax credits that management concluded did not meet the more likely than not criteria for realization and the tax effects related to the Barbados structure collapse. The Company’s collapse of its Barbados structure to meet the covenant requirements under its credit agreement resulted in a net tax expense of $46.3 inclusive of the offsetting valuation allowance release relating to the Company’s nondeductible interest expense that was carried forward from December 31, 2018. No taxes are currently payable related to the Barbados structure collapse.

The Tax Act was enacted on December 22, 2017. The Tax Act reduced the U.S. federal corporate income tax rate from 35 percent to 21 percent, required companies to pay a one-time transition tax on earnings for certain foreign subsidiaries and created new taxes on certain foreign sourced earnings. Due to the complexities involved in accounting for the enacted Tax Act, the Company applied the guidance in SAB 118 and a reasonable estimate of the impacts was included for the year ended December 31, 2017. At December 31, 2017, the Company recorded a non-cash charge to tax expense of $81.7 of which $45.1 represented the reduction to deferred income taxes for the income tax rate change and $36.6 related to the one-time transition tax on deferred foreign earnings. As of December 31, 2018, the Company completed the accounting as required under SAB 118 for items previously considered provisional. While the Company was able to make an estimate of the transition tax for 2017, it continued to gather additional information to more precisely compute the amount reported on its 2017 U.S. federal tax return which was filed in the fourth quarter of 2018. Additionally, the Company was affected by other analyses related to the Tax Act. Transition tax was $41.1 greater than the Company’s initial estimate and was included in tax expense for 2018. Likewise, while the Company was able to make an estimate of the impact of the reduction to the corporate tax rate, in 2018 the Company recorded additional tax benefits of $2.5 as a result of adjustments made to federal temporary differences including a pension contribution made in 2018 that was deductible for 2017 at the higher 35 percent federal tax rate. In 2018, the Company also recorded a tax benefit of $8.5 related to the one-time transition tax for a fiscal year foreign subsidiary.

The effective tax rate for 2018 was (7.8) percent on the overall loss from operations and was primarily due to a goodwill impairment charge, the Tax Act, valuation allowances on certain foreign and state credits and the higher interest expense burden resulting

from the debt restructuring. More specifically, the expense on loss reflects the reduction of the U.S. federal corporate income tax rate from 35 percent to 21 percent, refinement of the transition tax under SAB 118, goodwill impairment charge, which for tax purposes is primarily nondeductible and the business interest deduction limitation. As a result, the Company's debt restructuring activity during the year, a full valuation allowance was required on the current year nondeductible business interest expense. In addition, the overall effective tax rate is impacted by the jurisdictional income (loss) and varying respective statutory rates which is reflected in the foreign tax rate differential caption of the rate reconciliation.

The effective tax rate for 2017 was (14.7) percent on the overall loss from operations and was primarily driven by the provisional impacts of the Tax Act. 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 which is reflected in the foreign tax rate differential caption of the rate reconciliation.

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:



	2019			2018			2017
Balance at January 1	$	49.5		$	48.4		$	43.2
Increases (decreases) related to prior year tax positions, net	5.1			(1.5		)	6.1
Increases related to current year tax positions	4.4			4.8			7.5
Settlements	(5.5		)	(1.5		)	(1.8		)
Reductions due to lapse of applicable statute of limitations	(2.6		)	(0.7		)	(6.6		)
Balance at December 31	$	50.9		$	49.5		$	48.4

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 in the consolidated financial statements as income tax expense. As of December 31, 2019 and 2018, accrued interest and penalties related to unrecognized tax benefits totaled $8.5 and $6.3, respectively.

Within the next 12 months, it is reasonably possible that we could decrease our unrecognized tax benefits by an estimate of up to $7, primarily as a result of a foreign tax examination resolution.

At December 31, 2019, the Company is under audit by the Internal Revenue Service (IRS) for the tax year ended December 31, 2016. There are no other outstanding audits by the IRS and all U.S. federal tax years prior to 2014 are closed by statute. The Company is subject to tax examination in various U.S. state jurisdictions for tax years 2010 to the present. In addition, the Company is subject to a German tax audit for tax years 2014-2017, and other various foreign jurisdictions for tax years 2011 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:



	2019			2018
Deferred tax assets
Accrued expenses	$	12.4		$	64.0
Warranty accrual	8.7			6.7
Deferred compensation	9.8			9.6
Allowances for doubtful accounts	5.4			3.2
Inventories	12.7			23.9
Deferred revenue	18.3			28.6
Pensions, post-retirement and other benefits	69.1			76.9
Tax credits	65.1			74.1
Net operating loss carryforwards (NOL's)	197.1			160.0
Capital loss carryforwards	3.1			2.6
State deferred taxes	8.8			19.8
Lease liability	32.8			—
Other	17.3			24.2
	460.6			493.6
Valuation allowances	(217.7		)	(175.4		)
Net deferred tax assets	$	242.9		$	318.2

Deferred tax liabilities
Property, plant and equipment, net	$	26.9		$	30.2
Goodwill and intangible assets	154.1			177.0
Undistributed earnings	30.0			20.6
Right-of-use assets	32.5			—
Net deferred tax liabilities	243.5			227.8
Net deferred tax (liability) asset	$	(0.6	)	$	90.4

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



	2019			2018
Deferred income taxes - assets	$	120.8		$	243.9
Deferred income taxes - liabilities	(134.5		)	(153.5		)
Net deferred tax assets classified as held-for-sale⁽¹⁾	13.1			—
Net deferred tax (liabilities) assets	$	(0.6	)	$	90.4

⁽¹⁾As of December 31, 2018, the Company recorded an immaterial net deferred tax liability classified as assets held-for-sale, which is not included in the above table.

The Company corrected an immaterial error related to deferred tax liabilities included within long-term liabilities, and related corrections to goodwill and shareholders' equity in the comparable period, as presented. See Note 1 for additional detail.

As of December 31, 2019, the Company had domestic and international net operating loss (NOL) carryforwards of $1,085.3, resulting in an NOL deferred tax asset of $197.1. Of these NOL carryforwards, $619.7 expire at various times between 2020 and 2040 and $465.6 does not expire. At December 31, 2019, the Company had a domestic foreign tax credit carryforward resulting in a deferred tax asset of $61.6 that will expire between 2020 and 2029 and a general business credit carryforward resulting in a deferred tax asset of $3.5 that will expire between 2035 and 2039.

The Company recorded a valuation allowance to reflect the estimated amount of certain U.S., 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, 2019 and 2018 was an increase of $42.3 and $69.8, respectively. The 2019 valuation allowance increase was driven primarily by U.S.

foreign tax credits, state and foreign NOL carryforwards that are not expected on a more likely than not basis to be realized and was partially offset by the reversal of federal and state valuation allowances previously recorded in 2018 on the nondeductible business interest expense. Of the total 2019 net increase of $42.3, the Company recorded $46.2 to tax expense, ($1.3) was recorded to shareholder’s equity and ($2.6) was reversed against an expired U.S. tax attribute.

For the years ended December 31, 2019 and 2018, provisions were made for foreign withholding taxes and estimated foreign income taxes 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 $593.6 of undistributed earnings at December 31, 2019 in foreign subsidiaries and corporate joint ventures that were 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.

The Company’s undistributed earnings in foreign subsidiaries that are deemed permanently reinvested decreased compared to the prior year amount and was primarily impacted by the Barbados structure collapse, restructuring initiatives and a change in indefinite reinvestment assertion for a certain subsidiary that met the held-for-sale classification during the year.