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):



	2017			2016			2015
Income before income taxes:
United States	$	354.7		$	349.5		$	347.2
International	88.4			80.9			71.4
TOTAL INCOME BEFORE INCOME TAXES	$	443.1		$	430.4		$	418.6
Provision for income taxes — current:
Federal	$	164.1		$	85.5		$	110.4
State	15.3			17.4			13.7
International	28.1			17.0			17.6
Total provision — current	207.5			119.9			141.7
Provision for income taxes — deferred:
Federal	(10.4		)	13.5			(1.7		)
State	(0.9		)	1.3			0.4
International	(3.0		)	(2.1		)	(3.9		)
Total provision — deferred	(14.3		)	12.7			(5.2		)
TOTAL PROVISION FOR INCOME TAXES	$	193.2		$	132.6		$	136.5

On December 22, 2017, the TCJA was enacted into law, reducing the Federal corporate income tax rate from 35% to 21%. The provisions of the TCJA have and will continue to impact our accounting treatment of certain items in our financial statements. As of December 31, 2017, we have not completed our assessment of the accounting impact of the tax effects of enactment of the TCJA and accordingly our accounting is provisional as of and for the year ended December 31, 2017. Where we have been able to make a reasonable estimate of the impact, we have accounted for such provisional impact in the accompanying 2017 financial statements. In other cases, we have not yet been able to determine a reasonable estimate and continue to account for those items based on our existing accounting under ASC 740, Income Taxes, and the provisions of the tax laws that were in effect immediately prior to enactment of the TCJA. For items related to the TCJA for which we were able to determine a reasonable estimate, we recognized a provisional tax amount of approximately $57 million, which is included as a component of income tax expense from continuing operations.

The TCJA is complex and includes significant changes to the Internal Revenue Code which impact the Company. To complete the accounting associated with the TCJA, the Company will continue to review the technical tax interpretations associated with the underlying law, monitor state legislative changes, and review U.S. federal and state guidance as it is issued. Further, the Company will continue to accumulate and refine the relevant data and computational elements needed to finalize its accounting during the measurement period.

While the provisions of the TCJA are generally effective January 1, 2018, several provisions impact the Company’s current period financial statements.

Our 2017 accompanying financial statements reflect provisional estimates for the one-time transition tax on the untaxed post-1986 earning and profits ("E&P") of our foreign subsidiaries. In addition, we revalued our deferred tax assets and liabilities based on rates at which they are expected to reverse in the future, which is generally 21%.

Prior to the enactment of the TCJA, the Company had not provided for taxes on the undistributed earnings of its foreign subsidiaries as the Company either reinvested or intended to reinvest those earnings outside of the United States. As of December 31, 2017, the Company had subsidiaries in 17 countries outside the U.S. However, as a result of the TCJA, the Company plans to repatriate a portion of its foreign earnings and has included a provisional tax amount in the accompanying financial statements related to certain of our outside basis differences. As of December 31, 2017, the remaining undistributed foreign earnings were approximately $720 million. We have not included a provisional amount for the income tax effects of a repatriation of this balance because we have not determined a reasonable estimate related to it.

The Company also evaluated the impact of the TCJA on its uncertain tax positions as well as its state and foreign tax liabilities and recorded provisional estimates of these impacts.

Deferred Taxes

With respect to our deferred taxes, we have made provisional estimates on amounts impacted by the TCJA but we are still analyzing certain aspects of the TCJA and refining our calculation, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. As the Company continues to monitor and evaluate the external regulatory guidance impacting our provisional amounts, the Company will also obtain, prepare and analyze additional information to further refine our provisional estimate for deferred taxes.

Transition Tax and Unremitted Foreign Earnings

Our provisional accounting for the transition tax is based on our estimate of both E&P and the portion of E&P which is held in cash and other specified assets measured as of specific dates. This transition tax charge will be updated throughout the measurement period as we finalize our calculations of E&P and the amounts held in cash or other specified assets, relative to the date such assets are required to be measured.

The provisional amount recorded with respect to a portion of our previously unremitted foreign earnings reflects our estimate of the taxes that would be payable taking into consideration the impact of the TCJA on certain of our outside basis differences. No additional income taxes have been provided for any remaining undistributed earnings not subject to the transition tax at this time. As the Company continues to monitor and evaluate the external regulatory guidance impacting our provisional amounts, the Company will also obtain, prepare and analyze additional information to further refine our provisional estimate for the transition tax and to determine whether an additional provisional amount is required with respect to the remaining unremitted foreign earnings of our foreign subsidiaries. This information includes, but is not limited to, U.S. Federal income attributes, U.S. State income/franchise tax analysis and developments, non-U.S. income and withholding tax obligations on any actual repatriation actions, non-U.S. legal and regulatory restrictions related to capital, availability and utilization of U.S. and non-U.S. tax attributes and impacts on current and deferred taxes due to the TCJA.

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):



	2017			2016
Deferred tax assets:
Inventories	$	5.2		$	8.8
Income tax credits	21.0			30.9
Accrued liabilities	17.2			20.8
Pension	55.8			77.6
Post retirement and post employment benefits	6.5			10.0
Stock-based compensation	13.4			17.5
Net operating loss carryforwards	19.0			27.2
Miscellaneous other	10.7			7.5
Gross deferred tax assets	148.8			200.3
Valuation allowance	(19.4		)	(22.6		)
Total deferred tax assets, net of valuation allowance	129.4			177.7
Deferred tax liabilities:
Acquisition basis difference	(116.5		)	(162.1		)
Property, plant, and equipment	(30.3		)	(46.3		)
Total deferred tax liabilities	(146.8		)	(208.4		)
TOTAL NET DEFERRED TAX LIABILITY	$	(17.4	)	$	(30.7	)
Deferred taxes are reflected in the Consolidated Balance Sheet as follows:
Non-current tax assets (included in Other long-term assets)	6.3			10.5
Non-current tax liabilities (included in Other Non-Current Liabilities)	(23.7		)	(41.2		)
TOTAL NET DEFERRED TAX LIABILITY	$	(17.4	)	$	(30.7	)

As of December 31, 2017, the Company had a total of $21.0 million of Federal, State (net of Federal benefit) and foreign tax credit carryforwards, available to offset future income taxes. As of December 31, 2017, $12.7 million of the tax credits may be carried forward indefinitely while the remaining $8.3 million will begin to expire at various times in 2018 through 2036. As of December 31, 2017, the Company had recorded tax benefits totaling $19.0 million for Federal, State and foreign net operating loss carryforwards (“NOLs”). As of December 31, 2017, $9.1 million of NOLs may be carried forward indefinitely while the remaining $9.9 million will begin to expire at various times in 2020 through 2029. 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 $19.4 million for the portion of the foreign tax and state tax credit carryforwards, capital loss carryforwards and foreign NOLs that the Company anticipates will expire prior to utilization. In addition, the provisional impacts of the TCJA have been recorded on certain credit carryforwards and related valuation allowances.

Cash payments of income taxes were $130.8 million, $117.4 million and $139.1 million in 2017, 2016, and 2015, 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 2017 the IRS completed an examination of the Company’s 2013 and 2014 Federal income tax returns. The Company is not currently under Federal examination for any open tax year. 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 2010.

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



Jurisdiction	Open Years
United States	2015-2017
UK	2016-2017
Puerto Rico	2013-2017
Canada	2013-2017

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



	2017			2016			2015
Unrecognized tax benefits at beginning of year	$	20.2		$	20.3		$	21.6
Additions based on tax positions relating to the current year	13.6			2.8			2.9
Reductions based on expiration of statute of limitations	(1.4		)	(5.7		)	(2.8		)
Additions to tax positions relating to previous years	1.0			2.9			0.4
Settlements	(3.9		)	(0.1		)	(1.8		)
TOTAL UNRECOGNIZED TAX BENEFITS	$	29.5		$	20.2		$	20.3

Included in the balance at December 31, 2017 are approximately $15.9 million to $26.1 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 $0.9 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 approximately $1.0 million to $11.8 million within the next twelve months due to the expiration of the statute of limitations, the completion of certain tax audits and technical clarifications associated with the TCJA on various 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, before federal tax impact, related to interest and penalties of approximately $0.5 million in 2017, $0.7 million in 2016 and $1.2 million 2015. The Company had $5.2 million and $4.8 million accrued for the payment of interest and penalties as of December 31, 2017 and December 31, 2016, 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:



	2017		2016		2015
Federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	1.2		2.4		2.3
Foreign income taxes	(3.1	)	(3.4	)	(3.9	)
TCJA and related	12.8		—		—
Other, net	(2.3	)	(3.2	)	(0.8	)
CONSOLIDATED EFFECTIVE INCOME TAX RATE	43.6	%	30.8	%	32.6	%

The foreign income tax benefit shown is primarily due to lower statutory rates in foreign jurisdictions compared to the Federal statutory rate. The TCJA and related tax costs include a provisional benefit related to the re-measurement of our net deferred tax liability, provisional tax costs related to the mandatory deemed repatriation and an actual planned repatriation and related tax reserves.