Income Taxes

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



	Year Ended
	Dec 31, 2017			Dec 31, 2016			Dec 31, 2015
United States	$	(32.0	)	$	(72.4	)	$	(30.2	)
Foreign	(6.9		)	(25.7		)	(120.9		)
Total	$	(38.9	)	$	(98.1	)	$	(151.1	)

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



	Year Ended
	Dec 31, 2017			Dec 31, 2016			Dec 31, 2015
Current tax expense (benefit):
Federal	$	0.7		$	0.6		$	(0.2	)
State	(0.9		)	(0.2		)	(1.1		)
Foreign	28.1			18.6			10.9
Deferred tax expense (benefit):
Federal	(13.5		)	(26.9		)	(20.1		)
State	3.8			(1.0		)	(0.5		)
Foreign	(2.4		)	5.2			(3.8		)
Total	$	15.8		$	(3.7	)	$	(14.8	)

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, 2017			Dec 31, 2016			Dec 31, 2015
Income tax expense (benefit) at Federal statutory tax rate	$	(13.6	)	$	(34.3	)	$	(52.9	)
Foreign tax rate differential	6.2			2.5			13.2
U.S. tax reform	(16.2		)	—			—
Permanent difference	5.6			1.5			2.8
Impact of divestitures and liquidations (net of valuation allowances)	16.4			(9.0		)	(14.2		)
Change in uncertain tax positions	3.7			9.0			(8.8		)
Withholding tax and surcharges	3.5			3.0			4.3
Change in valuation allowance	6.6			26.8			39.0
Other (net)	3.6			(3.2		)	1.8
Total	$	15.8		$	(3.7	)	$	(14.8	)

On December 22, 2017, the Tax Reform Act was signed into law. The Tax Reform Act makes comprehensive and complex changes to the U.S. tax law, including but not limited to the following provisions that may have a significant current or future impact on the Company’s tax position: 1) one-time deemed taxable repatriation of the accumulated earnings and profits of foreign subsidiaries as of December 31, 2017; 2) reduction of the federal corporate income tax rate from 35% to 21%; 3) bonus depreciation that will allow for full expensing of qualified fixed assets in the year of acquisition; 4) a new provision designed to effectively impose a minimum tax on certain foreign earnings (commonly referred to as “GILTI”); 5) a new percentage of taxable income limitation on the deductibility of interest expense; 6) adoption of a territorial-type tax system that would generally eliminate U.S. federal income tax on dividends from foreign subsidiaries; 7) repeal of the alternative minimum tax (“AMT”) and related provision enabling the refund of existing AMT credits; 8) creation of a new base erosion tax (“BEAT”) for certain payments made to non-U.S. affiliates; and 9) limitation on the use of net operating losses generated after December 31, 2017 to 80% of taxable income and allowance of an indefinite carry forward period for such net operating losses.

The SEC issued Staff Accounting Bulletin ("SAB") 118, which provides guidance on accounting for the tax effects of the Tax Reform Act. In recognition of the inherent complexities associated with the ASC 740 tax accounting for the Tax Reform Act, SAB 118 provides a measurement period of up to one year from enactment for companies to complete the ASC 740 tax accounting. Although the accounting for the tax effects of the Tax Reform Act are not yet complete, the Company was able to make reasonable estimates of the significant tax effects. Therefore, in accordance with SAB 118, the Company’s consolidated financial statements for the year ended December 31, 2017 reflect provisional estimates of the tax effects of the deemed repatriation of accumulated earnings and profits of foreign subsidiaries as well as the federal tax rate reduction. Although other provisions of the Tax Reform Act could potentially have a significant impact on the future tax position of the Company, they did not have a material impact on the consolidated financial statements for the year ended December 31, 2017. The Company has elected to account for the GILTI tax in the period in which any tax is incurred and, therefore, has not recorded any deferred tax impacts in the consolidated financial statements for the year ended December 31, 2017.

The Company’s provisional estimate of the tax effect of the Tax Reform Act for the year ended December 31, 2017 is a net deferred tax benefit of approximately $16 million, which consists of approximately $46 million of deferred tax expense attributable to the deemed repatriation of off-shore accumulated earnings and profits, and approximately $62 million of deferred tax benefit attributable to the U.S. tax rate reduction. In order to finalize the ASC 740 tax accounting for the deemed repatriation of foreign earnings and profits, the Company will need to gather additional information and complete a detailed analysis of the following: 1) its pro rata share of post-1986 earnings and profits of relevant foreign subsidiaries; 2) the amount of non-U.S. income taxes paid with respect to such post-1986 earnings and profits; 3) its cash and liquid asset position at relevant dates; and 4) complex foreign tax credit computations to determine whether it may be beneficial to elect to claim foreign tax credits in lieu of offsetting the deemed repatriation income with net operating losses. In order to finalize the ASC 740 tax accounting for the tax rate reduction, the Company will need to complete the analysis of the tax effect of the deemed repatriation of foreign earnings and profits. In addition, the provisional estimate of the tax effects of the Tax Reform Act could be modified by changes in assumptions or interpretations, additional guidance that may be issued by the Internal Revenue Service, Treasury Department or state tax authorities, or actions we may take. The ASC 740 tax accounting will be completed within the one year period allowed under SAB 118.

As a result of the Tax Reform Act, the Company’s provisional estimate is that approximately $296 million of accumulated foreign earnings and profits were deemed to be distributed to the U.S. This deemed repatriation did not alter the Company’s intent or ability to reinvest or redeploy off-shore earnings indefinitely.

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



	Dec 31, 2017			Dec 31, 2016
Deferred tax assets:
Net operating loss carryforwards	$	202.3		$	238.7
Pension and retiree benefits accruals	25.0			33.5
Inventory	7.5			9.4
Depreciation and fixed assets	4.4			11.7
Intangibles	1.6			3.3
Tax credit carryforwards	10.9			10.3
Equity compensation	6.8			16.2
Other	27.3			53.3
Valuation allowance	(157.4		)	(177.1		)
Total deferred tax assets	128.4			199.3
Deferred tax liabilities:
Convertible debt discount	178.1			247.0
Inventory	1.2			2.4
Depreciation and fixed assets	21.8			25.7
Intangibles	3.9			4.9
Other	24.1			25.6
Total deferred tax liabilities	229.1			305.6
Net deferred tax assets (liabilities)	$	(100.7	)	$	(106.3	)

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, 2017, the Company has recorded approximately $157.4 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, 2017, the Company has recognized deferred tax assets of approximately $62.8 million for gross tax loss carryforwards in various taxing jurisdictions as follows (in millions):



	Tax Loss
Jurisdiction	Carryforward		Expiration
United States	$	229.2	2033-2036
France	7.3		Indefinite
Others	1.7		Various
Total	$	238.2

The Company also has various foreign subsidiaries with approximately $535 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 2017, after weighing all positive and negative evidence but primarily based on the wind down and substantially complete liquidation of the New Zealand business units, a valuation allowance was recorded against $5.7 million of beginning of year net deferred tax assets in New Zealand. Various other business units maintained full deferred tax asset valuation allowances that had been established in prior years. Also during 2017, after weighing all positive and negative evidence including a three-year cumulative income position and expectations of future profitability, the valuation allowance against the Colombian entity's deferred tax assets was released, resulting in a $1.6 million tax benefit. During 2017, many of these valuation allowances significantly increased or decreased in various jurisdictions as a result of deferred tax asset increases or decreases due to earnings, losses, cumulative translation adjustment, and divestitures.

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 could become taxable upon the repatriation of assets from the foreign subsidiaries or upon a sale or liquidation of the foreign subsidiaries.

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. In 2017, the Company recorded a $1.2 million tax benefit associated with changes in financial reporting basis and the impact of the deemed repatriation of foreign earnings and profits under the Tax Reform Act, and as of December 31, 2017 has recorded a deferred tax liability of $1.1 million related to foreign taxes that would result from repatriation back to the U.S.

No deferred taxes have been recorded on the temporary difference associated with the excess of financial reporting over tax basis in investments in foreign subsidiaries outside of the above mentioned Central American distributor entities. 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. 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, 2017			Dec 31, 2016			Dec 31, 2015
Unrecognized Tax Benefit — Beginning balance	$	33.4		$	25.1		$	31.9
Gross Increases — Tax Positions in Prior Period	10.7			1.6			2.1
Gross Decreases — Tax Positions in Prior Period	(3.8		)	(0.4		)	(0.6		)
Gross Increases — Tax Positions in Current Period	1.0			11.1			2.6
Dispositions	—			—			(2.2		)
Settlements	—			(0.4		)	—
Lapse of Statute of Limitations	(2.7		)	(3.3		)	(5.3		)
Impact of U.S. Tax Reform Tax Rate Reduction	(10.1		)	—			—
Foreign Currency Translation	0.1			(0.3		)	(3.4		)
Unrecognized Tax Benefit — Ending Balance	$	28.6		$	33.4		$	25.1

Included in the balance of unrecognized tax benefits at December 31, 2017, 2016 and 2015 are $25.9 million, $31.0 million and $22.7 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 $(0.7) million during 2017 and in total, as of December 31, 2017, has recognized a liability for penalties of $1.5 million and interest of $2.2 million. During 2016 and 2015, the Company accrued penalties of $0.3 million and $(1.4) million, respectively, and interest of $0.3 million and $(3.0) million, respectively, and in total, as of December 31, 2016 and 2015, had recognized liabilities for penalties of $1.8 million and interest of $2.9 million and $3.5 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 $2 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 believed that the amount of the OID deductions claimed on its federal income tax returns since the 2009 issuance of the Notes was proper and appealed the IRS audit adjustment. In March 2017, the IRS Appeals Office ruled in favor of the Company and the audit was closed with no adjustment to reported income or tax. The IRS is currently in the process of auditing the Company’s 2015 federal income tax return. With limited exceptions, tax years prior to 2013 are no longer open in major foreign, state, or local tax jurisdictions.