Income Taxes

The following table sets forth selected data with respect to the Company’s income tax provisions for the years ended December 31, (in millions):



	2015			2014		2013
Income before income taxes:
United States	$	347.2		$	385.6	$	360.8
International	71.4			99.9		113.0
TOTAL INCOME BEFORE INCOME TAXES	$	418.6		$	485.5	$	473.8
Provision for income taxes — current:
Federal	$	110.4		$	90.1	$	94.6
State	13.7			15.4		15.1
International	17.6			22.5		21.0
Total provision-current	141.7			128.0		130.7
Provision for income taxes — deferred:
Federal	(1.7		)	24.4		14.4
State	0.4			2.7		0.1
International	(3.9		)	3.2		(1.2		)
Total provision — deferred	(5.2		)	30.3		13.3
TOTAL PROVISION FOR INCOME TAXES	$	136.5		$	158.3	$	144.0

Deferred tax assets and liabilities result from differences in the basis of assets and liabilities for tax and financial statement purposes. The components of the deferred tax assets/(liabilities) at December 31, were as follows (in millions):



	2015			2014
Deferred tax assets:
Inventories	$	6.8		$	4.6
Income tax credits	31.9			30.6
Accrued liabilities	25.0			23.3
Pension	58.2			43.6
Post retirement and post employment benefits	10.4			11.3
Stock-based compensation	12.6			11.4
Net operating loss carryforwards	31.0			46.3
Miscellaneous other	7.0			7.5
Gross deferred tax assets	182.9			178.6
Valuation allowance	(22.0		)	(34.3		)
Total deferred tax assets, net of valuation allowance	160.9			144.3
Deferred tax liabilities:
Acquisition basis difference	(149.2		)	(145.8		)
Property, plant, and equipment	(41.6		)	(41.9		)
Total deferred tax liabilities	(190.8		)	(187.7		)
TOTAL NET DEFERRED TAX LIABILITY	$	(29.9	)	$	(43.4	)
Deferred taxes are reflected in the Consolidated Balance Sheet as follows:
Current tax assets (included in Deferred taxes and other)	$	—		$	31.2
Non-current tax assets (included in Other long-term assets)	6.2			1.1
Current tax liabilities (included in Other accrued liabilities)	—			(1.2		)
Non-current tax liabilities (included in Other Non-current liabilities)	(36.1		)	(74.5		)
TOTAL NET DEFERRED TAX LIABILITY	$	(29.9	)	$	(43.4	)

As of December 31, 2015, the Company had a total of $31.9 million of Federal, State (net of Federal benefit) and foreign (fully valued) tax credit carryforwards, available to offset future income taxes. As of December 31, 2015, $10.5 million of the tax credits may be carried forward indefinitely while the remaining $21.4 million will begin to expire at various times in 2016 through 2031. As of December 31, 2015, the Company had recorded tax benefits totaling $31.0 million for Federal, State and foreign net operating loss carryforwards (“NOLs”). As of December 31, 2015, $8.6 million of NOLs may be carried forward indefinitely while the remaining $22.4 million will begin to expire at various times in 2023 through 2031. The tax benefit related to a portion of these NOLs has been adjusted to reflect an “ownership change” pursuant to Internal Revenue Code Section 382, which imposes an annual limitation on the utilization of pre-acquisition operating losses. The Company has recorded a net valuation allowance of $22.0 million for the portion of the foreign tax and state tax credit carryforwards and foreign NOLs that the Company anticipates will expire prior to utilization.

The Company has early adopted Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes which the FASB issued in November 2015. As a result of this adoption all current deferred tax assets and liabilities, along with any related valuation allowance have been prospectively classified as non-current on the December 31, 2015 balance sheet, no prior periods were adjusted. See also Note 1 -- Significant Accounting Policies.

At December 31, 2015, income and withholding taxes have not been provided on approximately $815 million of undistributed international earnings that are permanently reinvested in international operations. If such earnings were not indefinitely reinvested, a tax liability of approximately $180 million would be recognized.

Cash payments of income taxes were $139.1 million, $125.4 million and $127.2 million in 2015, 2014, and 2013, respectively.

The Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. The IRS and other tax authorities routinely audit the Company’s tax returns. These audits can involve complex issues which may require an extended period of time to resolve. During 2015 the IRS commenced an examination of the Company’s 2013 and 2014 Federal income tax returns. The Company does not expect this examination to be completed within the next 12 months. With few exceptions, the Company is no longer subject to state, local, or non-U.S. income tax examinations by tax authorities for years prior to 2008.

The following tax years, by major jurisdiction, are still subject to examination by taxing authorities:



Jurisdiction	Open Years
United States	2013-2015
UK	2014-2015
Puerto Rico	2011-2015
Canada	2011-2015

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):



	2015			2014			2013
Unrecognized tax benefits at beginning of year	$	21.6		$	14.8		$	13.5
Additions based on tax positions relating to the current year	2.9			2.9			2.2
Reductions based on expiration of statute of limitations	(2.8		)	(1.2		)	(1.5		)
Additions to tax positions relating to previous years	0.4			9.5			2.1
Settlements	(1.8		)	(4.4		)	(1.5		)
TOTAL UNRECOGNIZED TAX BENEFITS	$	20.3		$	21.6		$	14.8

Included in the balance at December 31, 2015 are $16.9 million of tax positions which, if in the future are determined to be recognizable, would affect the annual effective income tax rate. Additionally, there are $0.8 million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty as to the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the applicable taxing authority to an earlier period. It is reasonably possible that in the next twelve months, because of changes in facts and circumstances, the unrecognized tax benefits may increase or decrease.

The Company estimates a possible decrease of up to $5.2 million within the next twelve months due to the expiration of the statute of limitations on certain unrecognized tax positions.

The Company’s policy is to record interest and penalties associated with the underpayment of income taxes within Provision for income taxes in the Consolidated Statement of Income. The Company recognized expense (benefit), before federal tax impact, related to interest and penalties of approximately $1.2 million in 2015, $1.7 million in 2014 and $(0.2) million 2013. The Company had $4.1 million and $2.9 million accrued for the payment of interest and penalties as of December 31, 2015 and December 31, 2014, respectively.

The consolidated effective income tax rate varied from the United States federal statutory income tax rate for the years ended December 31, as follows:



	2015		2014		2013
Federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	2.3		2.0		2.1
Foreign income taxes	(3.9	)	(2.1	)	(3.6	)
Other, net	(0.8	)	(2.3	)	(3.1	)
CONSOLIDATED EFFECTIVE INCOME TAX RATE	32.6	%	32.6	%	30.4	%

The foreign income tax benefit shown is primarily due to lower statutory rates in foreign jurisdictions compared to the Federal statutory rate.