Income Taxes

For financial reporting purposes, income before income taxes includes the following components (in millions):



	Year Ended
	Dec 31, 2016			Dec 31, 2015			Dec 31, 2014
United States	$	(72.4	)	$	(30.2	)	$	(5.1	)
Foreign	(25.7		)	(120.9		)	(631.0		)
Total	$	(98.1	)	$	(151.1	)	$	(636.1	)

The provision (benefit) for income taxes consisted of the following (in millions):



	Year Ended
	Dec 31, 2016			Dec 31, 2015			Dec 31, 2014
Current tax expense (benefit):
Federal	$	0.6		$	(0.2	)	$	(7.4	)
State	(0.2		)	(1.1		)	0.5
Foreign	18.6			10.9			29.6
Deferred tax expense (benefit):
Federal	(26.9		)	(20.1		)	15.1
State	(1.0		)	(0.5		)	0.7
Foreign	5.2			(3.8		)	(30.2		)
Total	$	(3.7	)	$	(14.8	)	$	8.3

The reconciliation of reported income tax expense (benefit) to the amount of income tax expense that would result from applying domestic federal statutory tax rates to pretax income is as follows (in millions):



	Year Ended
	Dec 31, 2016			Dec 31, 2015			Dec 31, 2014
Income tax expense (benefit) at Federal statutory tax rate	$	(34.3	)	$	(52.9	)	$	(222.6	)
Foreign tax rate differential	2.5			13.2			30.6
Nondeductible / nontaxable items⁽¹⁾	1.5			2.8			96.4
Impact of divestitures and liquidations (net of valuation allowances)	(9.0		)	(14.2		)	3.9
Change in uncertain tax positions	9.0			(8.8		)	(10.0		)
Withholding tax and surcharges	3.0			4.3			5.8
Change in valuation allowance	26.8			39.0			98.1
Other (net)	(3.2		)	1.8			6.1
Total	$	(3.7	)	$	(14.8	)	$	8.3

(1) For the year ended December 31, 2014, the major components consist of $40.5 million for goodwill impairments, $8.4 million for the FCPA accrual and $78.1 million for non-deductible Venezuela devaluation and functional currency adjustments, partially offset by $32.9 million for Venezuela inflation adjustments.

The components of deferred tax assets and liabilities were as follows (in millions):



	Dec 31, 2016			Dec 31, 2015
Deferred tax assets:
Net operating loss carryforwards	$	238.7		$	160.8
Pension and retiree benefits accruals	33.5			36.3
Inventory	9.4			8.2
Depreciation and fixed assets	11.7			12.9
Intangibles	3.3			2.8
Tax credit carryforwards	10.3			8.8
Equity compensation	16.2			21.5
Other	53.3			76.5
Valuation allowance	(177.1		)	(172.1		)
Total deferred tax assets	199.3			155.7
Deferred tax liabilities:
Convertible debt discount	247.0			209.2
Inventory	2.4			1.0
Depreciation and fixed assets	25.7			28.3
Intangibles	4.9			7.4
Other	25.6			24.4
Total deferred tax liabilities	305.6			270.3
Net deferred tax assets (liabilities)	$	(106.3	)	$	(114.6	)

The valuation of deferred tax assets is dependent on, among other things, the ability of the Company to generate a sufficient level of future taxable income in relevant taxing jurisdictions. In estimating future taxable income, the Company has considered both positive and negative evidence and has considered the implementation of prudent and feasible tax planning strategies. The Company has and will continue to review on a quarterly basis its assumptions and tax planning strategies and, if the amount of the estimated realizable net deferred tax asset is less than the amount currently on the balance sheet, the Company will reduce its deferred tax asset, recognizing a non-cash charge against reported earnings.

As of December 31, 2016, the Company has recorded approximately $177.1 million of valuation allowance to adjust deferred tax assets to the amount judged more likely than not to be realized. The valuation allowance is primarily attributable to certain foreign temporary differences and tax loss and tax credit carryforwards due to uncertainties regarding the ability to obtain future tax benefits for these tax attributes.

As of December 31, 2016, the Company has recognized deferred tax assets of approximately $93.5 million for gross tax loss carryforwards in various taxing jurisdictions as follows (in millions):



	Tax Loss
Jurisdiction	Carryforward		Expiration
United States	$	229.7	2033-2036
France	11.6		Indefinite
New Zealand	7.5		Indefinite
Angola	3.4		2018-2019
Others	0.9		Various
Total	$	253.1

The Company also has various foreign subsidiaries with approximately $542 million of tax loss carryforwards in various jurisdictions that are subject to a valuation allowance due to statutory limitations on utilization, uncertainty of future profitability, and other relevant factors.

During 2016, after weighing all positive and negative evidence, including three year cumulative loss positions, forecasted future profitability, impairments and restructuring charges, difficult market and industry conditions, and factoring in prudent and feasible tax planning strategies, a valuation allowance was recorded against $6.7 million of beginning of year net deferred tax assets associated with the business unit in China. The business unit did not have a deferred tax valuation allowance prior to 2016. Various other business units maintained full deferred tax asset valuation allowances that had been established in prior years. $20.1 million of tax expense was recorded during 2016 associated with the net increase in valuation allowances against newly created deferred tax assets resulting from operating losses and impairment charges within these units.

In general, it is the practice and intention of the Company to permanently reinvest the earnings of its non-U.S. subsidiaries in those operations. As such, historically, the Company has not provided for deferred income taxes on the excess of financial reporting over tax basis in investments in foreign subsidiaries. These basis differences would become taxable upon the repatriation of assets from the foreign subsidiaries or upon a sale or liquidation of the foreign subsidiaries.

On October 23, 2014, the Company’s Board of Directors authorized a plan to exit all of the Company’s Asia Pacific and African operations. As a result of this plan, the Company can no longer assert that the financial reporting over tax basis in investments in these foreign subsidiaries will never reverse.

As of December 31, 2016, $0.7 million of deferred income tax liabilities were recorded for the excess of financial reporting over tax basis in investments in foreign subsidiaries and equity investees in Asia Pacific and Africa. The $0.7 million of deferred income tax liabilities recorded as of December 31, 2016 relate solely to U.S. and foreign income taxes and foreign withholding taxes that would result from the future divestiture transactions. With respect to certain Asia Pacific and Africa subsidiaries and equity investees with an excess of tax over financial reporting basis, the Company has not recorded deferred tax assets since it is not apparent that these basis differences will reverse in the foreseeable future or yield a future tax benefit even if the basis differences would reverse in the foreseeable future.

During 2016, the Company recorded $0.1 million of income tax expense associated with changes in the outside basis differences of the Asia Pacific and Africa subsidiaries. Deferred taxes have not been recorded for the tax implications of repatriating cash to the U.S. from the sales proceeds of Asia Pacific and African subsidiaries that are not directly owned by the U.S., as it is the Company’s intention to redeploy these cash proceeds in its non-U.S. operations indefinitely rather than repatriating the cash proceeds to the U.S. The additional U.S. income tax and foreign withholding tax that would be incurred upon cash repatriation of the expected sales and/or liquidation proceeds from the entities that are not owned directly by the U.S. would not be material.

In the second quarter of 2016, the Company conducted a review of the cash position and forecasted cash needs of certain Central American distributor entities. The Company had historically asserted that the earnings of these entities would be indefinitely reinvested. As a result of this review and after taking into account financial and geopolitical risks, the Company reassessed the situation and decided to repatriate the earnings of these Central American distributor entities in the near future. As a result of this change in assertion, the Company has recorded a $2.4 million deferred tax expense and associated deferred tax liability to account for the expected tax that would result from repatriation back to the U.S.

The temporary difference associated with the excess of financial reporting over tax basis in investments in all foreign subsidiaries outside of the Asia Pacific and African regions and the above mentioned Central American units is estimated at approximately $370 million as of December 31, 2016. This amount was estimated based on book retained earnings as reduced for retained earnings amounts that have been previously taxed in the U.S. The Company remains committed to permanently reinvesting these earnings and does not see a need to repatriate cash to fund operations, including investing and financing activities, in the foreseeable future. Accordingly, no deferred income taxes have been recorded on the outside basis difference of foreign subsidiaries outside of the Asia Pacific and Africa regions and certain Central American distributor entities. The determination of the additional income taxes that would be incurred upon repatriation of assets or disposition of such foreign subsidiaries is not practical due to the complexities, variables, and assumptions inherent in the hypothetical calculation.

The Company applies ASC 740 in determining unrecognized tax benefits. ASC 740 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods and disclosures.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the year:



(in millions)	Dec 31, 2016			Dec 31, 2015			Dec 31, 2014
Unrecognized Tax Benefit — Beginning balance	$	25.1		$	31.9		$	57.7
Gross Increases — Tax Positions in Prior Period	1.6			2.1			1.6
Gross Decreases — Tax Positions in Prior Period	(0.4		)	(0.6		)	(0.7		)
Gross Increases — Tax Positions in Current Period	11.1			2.6			7.3
Dispositions	—			(2.2		)	(0.9		)
Settlements	(0.4		)	—			(0.4		)
Lapse of Statute of Limitations	(3.3		)	(5.3		)	(12.9		)
Foreign Currency Translation	(0.3		)	(3.4		)	(19.8		)
Unrecognized Tax Benefit — Ending Balance	$	33.4		$	25.1		$	31.9

Included in the balance of unrecognized tax benefits at December 31, 2016, 2015 and 2014 are $31.0 million, $22.7 million and $29.4 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate.

The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense. Related to the unrecognized tax benefits noted above, the Company accrued penalties of $0.3 million and interest of $0.3 million during 2016 and in total, as of December 31, 2016, has recognized a liability for penalties of $1.8 million and interest of $2.9 million. During 2015 and 2014, the Company accrued penalties of $(1.4) million and $(1.1) million, respectively, and interest of $(3.0) million and $(0.2) million, respectively, and in total, as of December 31, 2015 and 2014, had recognized liabilities for penalties of $1.8 million and $3.8 million, respectively and interest of $3.5 million and $7.5 million, respectively.

The Company files income tax returns in numerous tax jurisdictions around the world. Due to uncertainties regarding the timing and outcome of various tax audits, appeals and settlements, it is difficult to reliably estimate the amount of unrecognized tax benefits that could change within the next twelve months. The Company believes it is reasonably possible that approximately $3 million of unrecognized tax benefits could change within the next twelve months due to the resolution of tax audits and statute of limitations expirations.

The Internal Revenue Service (“IRS”) proposed cumulative taxable income adjustments of approximately $50 million for the 2012-2013 tax years in February 2016. The proposed adjustments related to the Original Issue Discount (“OID”) yield claimed on the Company’s $429.5 million Subordinated Convertible Notes (“Notes”). The Company believes that the amount of the OID deductions claimed on its federal income tax returns since the 2009 issuance of the Notes is proper and appealed the IRS audit adjustment. The IRS Appeals hearing was held in October 2016 and the Company is awaiting an official response from the IRS Appeals Office. If the IRS were to sustain the proposed adjustment in full, the Company’s OID deductions claimed on the 2014 - 2016 tax returns would also be reduced. The estimated impact on income tax expense and cash taxes would not be material due to the Company’s tax loss and tax credit carry forward positions.

In February 2017, the Company received notification from the IRS that the 2015 federal income tax return will be examined. With limited exceptions, tax years prior to 2011 are no longer open for examination in major foreign, state, or local tax jurisdictions.