FOOTNOTE 16

Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act (“U.S. Tax Reform”) was enacted. Effective January 1, 2018, the legislation significantly changed U.S. tax law by lowering the federal corporate tax rate from 35.0% to 21.0%, modifying the foreign earnings deferral provisions, and imposing a one-time toll charge on deemed repatriated earnings of foreign subsidiaries as of December 31, 2017. Effective for 2018 and forward, there are additional changes including changes to bonus depreciation, the deduction for executive compensation and interest expense, a tax on global intangible low-taxed income provisions (“GILTI”), the base erosion anti-abuse tax (“BEAT”), and a deduction for foreign-derived intangible income (“FDII”). As of December 31, 2017, two provisions affecting the financial statements are the corporate tax rate reduction and the one-time toll charge. As the corporate tax rate reduction was enacted in 2017 and effective January 1, 2018, the Company appropriately accounted for the tax rate change in the valuation of our deferred taxes. As a result, the Company recorded a tax benefit of $1.5 billion in the current year statement of operations for 2017.

The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides the Company with up to one year to finalize accounting for the impacts of U.S. Tax Reform. When the initial accounting for U.S Tax Reform impacts is incomplete, the Company may include provisional amounts when reasonable estimates can be made or continue to apply the prior tax law if a reasonable estimate cannot be made. The Company has estimated the provisional tax impacts related to the toll charge and as result, the Company recognized a net tax expense of approximately $195 million. Additionally, the Company has estimated the provisional tax impacts related to our deferred income taxes, including the impacts of the change in Corporate tax rate, executive compensation, and our indefinite reinvestment assertion. The Company has elected to account for the tax on GILTI as a period cost and therefore has not recorded deferred taxes related to GILTI on its foreign subsidiaries. The final impact may differ from these provisional amounts due to gathering additional information to more precisely compute the amount of tax, additional regulatory guidance that may be issued, and changes in interpretations and assumptions. The Company expect to finalize accounting for the impacts of U.S. Tax Reform during 2018.

In connection with U.S. Tax Reform, the Company has reversed its previously recorded deferred tax liability related to historical Jarden earnings of approximately $87 million as of December 31, 2017, as those earnings were subject to the toll charge on deemed repatriated earnings. In addition, the Company no longer considers a significant portion of the historic earnings of our foreign subsidiaries as of December 31, 2017, to be indefinitely reinvested. Under the provision of SAB 118, the Company has estimated the state income taxes and local country withholding taxes that would be owed when our historic earnings, for which the Company is not permanently reinvested, are distributed. As a result, the Company has recorded deferred income taxes of approximately $12 million.

The provision for income taxes consists of the following for the years ended December 31, (in millions):


	2017			2016			2015
Current:
Federal	$	272.1		$	126.6		$	103.0
State		21.4			39.0			18.8
Foreign		168.5			86.8			19.4

Total current		462.0			252.4			141.2
Deferred		(1,781.8	)		33.4			(7.2	)

Total income tax provision (benefit)		(1,319.8	)		285.8			134.0
Total provision (benefit) — discontinued operations		—			(0.2	)		55.8

Total provision (benefit) — continuing operations	$	(1,319.8	)	$	286.0		$	78.2

The non-U.S. component of income before income taxes was $1.1 billion, $480 million and $186 million in 2017, 2016 and 2015, respectively.

A reconciliation of the U.S. statutory rate to the effective income tax rate on a continuing basis is as follows for the years ended December 31:


	2017			2016			2015
Statutory rate		35.0	%		35.0	%		35.0	%
Add (deduct) effect of:
State income taxes, net of federal income tax effect		2.0			4.2			3.0
Foreign tax credit		1.8			1.3			(17.5	)
Foreign rate differential		(13.0	)		(9.8	)		(10.5	)
Resolution of tax contingencies, net of increases		(1.9	)		(2.1	)		1.2
Valuation allowance reserve (decrease) increase		(3.0	)		(3.3	)		0.2
Manufacturing deduction		(0.9	)		(2.2	)		(2.0	)
Foreign statutory tax rate change		(1.1	)		(4.9	)		—
Sale of businesses		(5.2	)		—			—
Tools outside basis difference		—			20.2			—
Reversal of outside basis difference		(4.8	)		—			—
U.S. Tax Reform, impact of change in tax rate and other		(112.2	)		—			—
U.S. Tax Reform, federal income tax on mandatory deemed repatriation		12.4			—			—
Venezuela deconsolidation		—			—			15.7
Other		(1.5	)		(3.3	)		(1.9	)

Effective rate		(92.4	)%		35.1	%		23.2	%

The components of net deferred tax assets are as follows as of December 31, (in millions):


	2017			2016
Deferred tax assets:
Accruals not currently deductible for tax purposes	$	199.7		$	285.8
Inventory		44.3			83.9
Postretirement liabilities		29.0			44.0
Pension liabilities		71.7			149.8
Net operating losses		376.4			361.3
Foreign tax credits		7.5			34.0
Other		145.0			193.0

Total gross deferred tax assets		873.6			1,151.8
Less valuation allowance		(294.8	)		(325.3	)

Net deferred tax assets after valuation allowance		578.8			826.5

Deferred tax liabilities:
Accelerated depreciation		(108.3	)		(159.5	)
Amortizable intangibles		(3,572.2	)		(5,300.5	)
Outside basis differences		(18.3	)		(319.0	)
Other		(35.8	)		(35.0	)

Total gross deferred tax liabilities		(3,734.6	)		(5,814.0	)

Net deferred tax liabilities	$	(3,155.8	)	$	(4,987.5	)

At December 31, 2017, the Company has approximately $1.5 billion of U.S., state, and foreign net operating losses (“NOLs”), of which approximately $973 million do not expire and approximately $572 million expire between 2018 and 2037. Additionally, approximately $296 million U.S. federal NOLs are subject to varying limitations on their use under Section 382 of the Internal Revenue Code of 1986, as amended. Of these U.S. federal NOLs, approximately $289 million are not reflected in the consolidated financial statements and approximately $31 million were utilized in the current year. The foreign tax credit carryforwards begin to expire in 2020.

The Company routinely reviews valuation allowances recorded against deferred tax assets on a more likely than not basis as to whether the Company has the ability to realize the deferred tax assets. In making such a determination, the Company takes into consideration all available and appropriate positive and negative evidence, including projected future taxable income, future reversals of existing taxable temporary differences, the ability to carryback net operating losses, and available tax planning strategies. Although realization is not assured, based on this existing evidence, the Company believes it is more likely than not that the Company will realize the benefit of existing deferred tax assets, net of the valuation allowances.

As of December 31, 2017, the Company has a valuation allowance recorded against foreign NOLs and other deferred tax assets the Company believes are not more likely than not to be realized due to the uncertainty resulting from a lack of previous taxable income within the applicable tax jurisdictions. A valuation allowance of $295 million and $325 million was recorded against certain deferred tax asset balances as of December 31, 2017 and 2016, respectively. For the year ended December 31, 2017, the Company recorded a net valuation allowance decrease of $30.5 million, comprised of a valuation allowance decrease of $35.2 million relating to the Company’s German operations for which the Company concluded the deferred tax assets were realizable; and an increase in valuation allowance in the current year in certain jurisdictions that the Company previously determined were not more likely than not to be realized. For the year ended December 31, 2016, the Company recorded a net valuation allowance increase of $34.3 million, comprised of acquired valuation allowance from Jarden, a valuation allowance decrease of $17.9 million related to the Company’s UK operations for which the Company concluded the deferred tax assets were realizable; currency translation in foreign jurisdictions due to the strengthening of the U.S. dollar against the Euro, British Pound, and other currencies; and an increase in valuation allowance in the current year in certain jurisdictions that the Company previously determined were not more likely than not to be realized.

The following table summarizes the changes in gross unrecognized tax benefits for the years ended December 31, (in millions):


	2017			2016
Unrecognized tax benefits, January 1,	$	367.9		$	162.9
Increases (decreases):
Acquisitions-related		—			216.4
Increases in tax positions for prior years		23.7			4.8
Decreases in tax positions for prior years		(11.2	)		(4.4	)
Increase in tax positions for the current period		33.2			30.0
Settlements with taxing authorities		—			(0.1	)
Lapse of statute of limitations		(41.2	)		(41.7	)

Unrecognized tax benefits, December 31,	$	372.4		$	367.9

The Company recorded unrecognized tax benefit as a result of acquisitions of $216 million in 2016. If recognized, $365 million and $360 million of unrecognized tax benefits as of December 31, 2017, and 2016, respectively, would affect the effective tax rate. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. During 2017 and 2016, the Company recognized income tax expense on interest and penalties of $8.3 million and $3.4 million, respectively, due to the accrual of current year interest on existing positions offset by the resolution of certain tax contingencies offset.

The Company anticipates approximately $51.5 million of unrecognized tax benefits will reverse within the next 12 months. It is reasonably possible due to activities of various worldwide taxing authorities, including proposed assessments of additional tax and possible settlement of audit issues that additional changes to the Company’s unrecognized tax benefits could occur. In the normal course of business, the Company is subject to audits by worldwide taxing authorities regarding various tax liabilities. The Company’s U.S. federal income tax returns for 2011, 2012, 2013, 2014 and 2015 as well as certain state and non-US income tax returns for various years, are under routine examination.

The Company files numerous consolidated and separate income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The statute of limitations for the Company’s U.S. federal income tax returns has expired for years prior to 2011. The Company’s Canadian tax returns are subject to examination for years after 2010. With few exceptions, the Company is no longer subject to other income tax examinations for years before 2013.