17.

Income Taxes

We and our principal domestic subsidiaries are included in a consolidated U.S. Federal income tax return. Our international subsidiaries file various income tax returns in their jurisdictions. The foreign earnings (losses) before income taxes were $5.6 million in 2016, $(52.1) million in 2015 and $3.4 million in 2014. Earnings before income taxes include the impact of intercompany interest expense between domestic and foreign legal entities. Foreign intercompany interest expense was $110.7 million in 2016, $107.0 million in 2015 and $76.5 million in 2014. Domestic intercompany interest income was $110.7 million in 2016, $107.0 million in 2015 and $76.5 million in 2014. Significant components of earnings before income taxes and the provision for income taxes are as follows (in millions):


	Year Ended December 31,
	2016			2015			2014
Earnings (losses) before income taxes:
United States	$	351.3		$	345.6		$	288.1
Foreign, principally Australia, Canada, New Zealand and the U.K.		5.6			(52.1	)		3.4

Total earnings before income taxes	$	356.9		$	293.5		$	291.5

Provision (benefit) for income taxes:
Federal:
Current	$	45.9		$	43.9		$	38.8
Deferred		(146.7	)		(139.4	)		(96.6	)

		(100.8	)		(95.5	)		(57.8	)

State and local:
Current		8.4			18.9			19.5
Deferred		(0.3	)		(3.3	)		(1.1	)

		8.1			15.6			18.4

Foreign:
Current		22.4			22.9			30.5
Deferred		(17.8	)		(38.6	)		(27.1	)

		4.6			(15.7	)		3.4

Total benefit for income taxes	$	(88.1	)	$	(95.6	)	$	(36.0	)

A reconciliation of the provision for income taxes with the U.S. Federal statutory income tax rate is as follows (in millions, except percentages):


	Year Ended December 31,
	2016						2015						2014
	Amount			% of Pretax Earnings			Amount			% of Pretax Earnings			Amount			% of Pretax Earnings
Federal statutory rate	$	124.9			35.0		$	102.7			35.0		$	102.0			35.0
State income taxes - net of Federal benefit		5.3			1.5			10.2			3.5			12.0			4.1
Differences related to non U.S. operations		(34.1	)		(9.6	)		(22.6	)		(7.7	)		(11.2	)		(3.8	)
Alternative energy, foreign and other tax credits		(194.4	)		(54.5	)		(181.3	)		(61.8	)		(145.5	)		(49.9	)
Other permanent differences		(4.8	)		(1.3	)		(4.9	)		(1.7	)		(2.5	)		(0.9	)
Nondeductible employee compensation		—			—			—			—			5.4			1.9
Changes in unrecognized tax benefits		2.2			0.6			3.0			1.0			2.4			0.8
Change in valuation allowance		14.0			3.9			1.7			0.6			—			—
Change in U.K. tax rate		(1.5	)		(0.4	)		(4.2	)		(1.4	)		—			—
Other		0.3			0.1			(0.2	)		(0.1	)		1.4			0.5

Benefit for income taxes	$	(88.1	)		(24.7	)	$	(95.6	)		(32.6	)	$	(36.0	)		(12.3	)

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows (in millions):


	December 31,
	2016			2015
Gross unrecognized tax benefits at January 1	$	15.7		$	12.5
Increases in tax positions for current year		2.4			2.9
Settlements		(1.4	)		—
Lapse in statute of limitations		(1.8	)		(1.3	)
Increases in tax positions for prior years		1.8			2.1
Decreases in tax positions for prior years		(2.2	)		(0.5	)

Gross unrecognized tax benefits at December 31	$	14.5		$	15.7

The total amount of net unrecognized tax benefits that, if recognized, would affect the effective tax rate was $10.0 million and $10.8 million at December 31, 2016 and 2015, respectively. We accrue interest and penalties related to unrecognized tax benefits in our provision for income taxes. At December 31, 2016 and 2015, we had accrued interest and penalties related to unrecognized tax benefits of $2.8 million and $1.1 million, respectively.

We file income tax returns in the U.S. and in various state, local and foreign jurisdictions. We are routinely examined by tax authorities in these jurisdictions. At December 31, 2016, our corporate returns had been examined by the IRS through calendar year 2010. The IRS is currently conducting various examinations of calendar years 2011 and 2012. In addition, a number of foreign, state, local and partnership examinations are currently ongoing. It is reasonably possible that our gross unrecognized tax benefits may change within the next twelve months. However, we believe any changes in the recorded balance would not have a significant impact on our consolidated financial statements.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows (in millions):


	December 31,
	2016			2015
Deferred tax assets:
Alternative minimum tax and other credit carryforwards	$	477.9		$	341.6
Accrued and unfunded compensation and employee benefits		219.0			197.0
Amortizable intangible assets		38.8			39.4
Compensation expense related to stock options		16.9			12.6
Accrued liabilities		31.7			34.3
Accrued pension liability		22.9			23.4
Investments		7.7			9.5
Net operating loss carryforwards		20.4			19.2
Capital loss carryforwards		16.0			2.9
Deferred rent liability		8.1			8.7
Other		3.9			7.7

Total deferred tax assets		863.3			696.3
Valuation allowance for deferred tax assets		(66.8	)		(52.8	)

Deferred tax assets		796.5			643.5

Deferred tax liabilities:
Nondeductible amortizable intangible assets		310.2			307.1
Investment-related partnerships		34.5			28.7
Depreciable fixed assets		18.2			11.7
Hedging instruments		4.1			—
Other prepaid items		4.1			4.6

Total deferred tax liabilities		371.1			352.1

Net deferred tax assets	$	425.4		$	291.4

At December 31, 2016 and 2015, $371.1 million and $352.1 million, respectively, have been included in noncurrent liabilities in the accompanying consolidated balance sheet. Alternative minimum tax credits of $108.2 million have an indefinite life, general business tax credits of $368.8 million begin to expire, if not utilized, in 2033, and state credits of $0.9 million expire, if not used, in 2021. We expect the historically favorable trend in earnings before income taxes to continue in the foreseeable future. Accordingly, we expect to make full use of the net deferred tax assets. Valuation allowances have been established for certain foreign intangible assets and various state net operating loss carryforwards that may not be utilized in the future.

We do not provide for U.S. Federal income taxes on the undistributed earnings ($243.0 million and $231.9 million at December 31, 2016 and 2015, respectively) of foreign subsidiaries which are considered permanently invested outside of the U.S. The amount of unrecognized deferred tax liability on these undistributed earnings was $15.6 million and $10.4 million at December 31, 2016 and 2015, respectively.