INCOME TAXES

12 Months Ended

Dec. 31, 2019

The Company's income before income taxes and the applicable provision for income taxes are as follows:


	Year Ended December 31,
	2019		2018
Loss from continuing operations before income taxes:
United States	$	(293.0)	$	(298.5)
Foreign	128.0		6.6
	$	(165.0)	$	(291.9)
Provision for income taxes:
United States federal	$	(23.2)	$	(27.2)
State and local	7.0		(3.6)
Foreign	16.4		33.0
	$	0.2	$	2.2
Current:
United States federal	$	5.8	$	(8.9)
State and local	(1.8)		(0.8)
Foreign	26.0		10.2
	$	30.0	$	0.5
Deferred:
United States federal	$	(29.0)	$	(18.3)
State and local	8.8		(2.8)
Foreign	(9.6)		22.8
	$	(29.8)	$	1.7





Total provision for income taxes	$	0.2	$	2.2

The Company's provision for income taxes represents federal, foreign, state and local income taxes. The Company’s tax provision changes quarterly based on various factors including, but not limited to, the geographical level and mix of earnings; enacted tax legislation; foreign, state and local income taxes; tax audit settlements; and the interaction of various global tax strategies.

The Company recorded a provision for income taxes of $0.2 million (Products Corporation - provision for income taxes of $1.6 million) for 2019 and a provision for income taxes of $2.2 million (Products Corporation - provision for income taxes of $3.4 million) for 2018, respectively. The $2.0 million decrease (Products Corporation - $1.8 million) in the provision for income taxes for 2019 compared to 2018, was primarily due to a decrease in foreign valuation allowances recorded in 2019, offset by additional tax expense resulting from changes in mix and level of foreign earnings.

The Company's effective tax rate for 2019 was lower than the federal statutory rate of 21% primarily due to additional U.S. tax expense on foreign earnings and valuation allowances recorded in 2019, which includes a valuation allowance on interest deductions.

As of December 31, 2019, the Company is indefinitely reinvested in the accumulated undistributed earnings of all of its foreign subsidiaries. If earnings are repatriated, any excess of financial reporting over tax basis could be subject to federal, state and foreign withholding taxes. At this time, the determination of deferred tax liabilities on the amount of financial reporting over tax basis is not practicable.

The actual tax on income before income taxes is reconciled to the applicable statutory federal income tax rate in the following table:


	Year Ended December 31,
	2019		2018
Computed income tax benefit	$	(34.6)	$	(61.3)
State and local taxes, net of U.S. federal income tax benefit	(3.3)		(2.9)
Foreign rate differential and other foreign adjustments	(5.4)		(9.3)
Net establishment of valuation allowance	19.1		75.0
Net release of uncertain tax positions	0.7		(4.3)
Foreign dividends and earnings taxable in the U.S.	23.2		12.8
Impairment for which there is no tax benefit	—		4.3

Impact of the Tax Act	—		(7.7)
Other	0.5		(4.4)
Total provision for income taxes	$	0.2	$	2.2

Deferred taxes are the result of temporary differences between the bases of assets and liabilities for financial reporting and income tax purposes. The Company's deferred tax assets and liabilities at December 31, 2019 and 2018 were comprised of the following:


	December 31,
	2019		2018
Deferred tax assets:
Inventories	$	19.8	$	23.6
Net operating loss carryforwards - U.S.^(a)	165.5		160.8
Net operating loss carryforwards - foreign	55.0		69.7
Disallowed Interest Carryover - U.S.	63.1		42.8
Employee benefits	64.3		53.6

Sales-related reserves	20.4		21.1
Lease liability	20.3		—
Foreign currency translation adjustment	—		1.1
Other	55.5		50.4
Total gross deferred tax assets	463.9		423.1
Less valuation allowance ^(b)	(163.3)		(165.7)
Total deferred tax assets, net of valuation allowance	$	300.6	$	257.4
Deferred tax liabilities:
Plant, equipment and other assets	$	(43.9)	$	(32.6)
Intangibles	(73.3)		(81.5)
Other	(8.1)		(12.1)
Total gross deferred tax liabilities	(125.3)		(126.2)
Net deferred tax assets	$	175.3	$	131.2

^(a) Net operating loss carryforwards - U.S. for Products Corporation as of December 31, 2019 and December 31, 2018 were $146.1 million and $143.8 million, respectively.

^(b)The change in the valuation allowance for 2019 from 2018 includes activity of $19.1 million primarily related to valuation allowances for the limitation on the deductibility of interest, offset by write-offs of prior year valuation allowances.

In assessing the recoverability of its deferred tax assets, the Company continually evaluates the available positive and negative evidence to assess the amount of deferred tax assets for which it is more likely than not to realize a benefit. For any deferred tax asset in excess of the amount for which it is more likely than not that the Company will realize a benefit, the Company establishes a valuation allowance. A valuation allowance is a non-cash charge, and it in no way limits the Company's ability to utilize its deferred tax assets, including its ability to utilize tax loss and credit carryforward amounts. As of 2019, the Company concluded that, based on the weight of the available positive and negative evidence, it does not require a valuation allowance on its federal deferred tax assets, other than those associated with the limitation on the deductibility of interest. The Company does have a valuation allowance on deferred tax assets associated with its activity in certain U.S. states and foreign jurisdictions. These conclusions regarding the establishment of valuation allowances on the Company's deferred tax assets as of the end of 2019 are consistent with the Company's conclusions on such matters as of the end of 2018. However, if the Company does not generate sufficient taxable income in future periods, its deferred tax assets may not be realizable on a more-likely-than-not basis. In such event, the Company may be required to establish an additional valuation allowance against its deferred tax assets in future periods, which would materially increase the Company's tax expense in the period in which the allowance is recognized and would adversely impact the Company's results of operations and statement of financial condition in such period. The Company will continue to monitor the circumstances that would require it to establish an additional valuation allowance on its deferred tax assets. Accordingly, depending on future evidence that may become available, the Company's assessments regarding its valuation allowance position may change.

A valuation allowance has been provided for those deferred tax assets for which, in the opinion of the Company's management, it was more likely than not that a benefit will not be realized. At December 31, 2019, the deferred tax valuation allowance primarily represented amounts for foreign jurisdictions where, as of the end of 2019, the Company had a three-year cumulative loss, and for certain U.S. state jurisdictions where the Company had tax loss carryforwards and other tax attributes which may expire prior to being utilized. The deferred tax valuation allowance decreased by $2.4 million and increased by $75.0 million during 2019 and 2018, respectively. The decrease in the deferred tax valuation allowance during 2019 was primarily associated with the write-off of valuation allowances on deferred tax assets no longer available and a release in foreign valuation allowance no longer required, offset by valuation allowances required on interest deduction limitations and foreign and state tax loss carryforwards for which the Company has determined it is more likely than not that it will not receive a benefit. The increase in the deferred tax valuation allowance during 2018 was primarily associated with the interest deduction limitation and foreign and state tax loss carryforwards for which the Company has determined it is more likely than not that it will not receive a benefit.

As of December 31, 2019, the Company had domestic (federal) and foreign net operating loss carryforwards of $939.7 million, of which $310.6 million are foreign and $629.1 million are domestic (federal). These losses expire in future years as follows: 2020- $4.5 million; 2021- $2.8 million; 2022 and beyond- $615.4 million; and unlimited- $317.0 million. The Company also has certain state net operating loss carryforwards that expire between 2020 and 2038. The Company could receive the benefit of such tax loss carryforwards only to the extent it has taxable income during the carryforward periods in the applicable tax jurisdictions. As of December 31, 2019, there were no consolidated federal net operating losses available from the MacAndrews & Forbes Group (as hereinafter defined) from periods prior to the March 25, 2004 deconsolidation (as described below). The Company has acquired entities that had carryforward balances for tax losses, tax credits and other tax attributes at the time of the acquisition. U.S. federal and certain state and foreign jurisdictions impose limitations on the amount of these tax losses, tax credits and other carryforward balances that may be utilized after an acquisition. The Company has evaluated the impact of these limitations and has established a valuation allowance to reduce the deferred tax assets to the amount that the Company expects will be realized.

The Company remains subject to examination of its income tax returns in various jurisdictions, including: Spain for the tax years ended December 31, 2009 and forward; the U.S. (federal) for the tax years ended June 30, 2016 and forward; Canada for the tax years ended December 31, 2012 and forward; Australia for the tax years ended December 31, 2015 and forward; Switzerland for the tax years ended June 30, 2014 and forward; Japan for the tax years ended December 31, 2013 and forward; and the U.K. for the tax years ended December 31, 2016 and forward.

At December 31, 2019 and 2018, the Company had unrecognized tax benefits of $78.0 million and $74.7 million, respectively, including $11.7 million and $9.8 million, respectively, of accrued interest and penalties. Of the $78.0 million of unrecognized tax benefits as of December 31, 2019, $46.1 million would affect the Company's effective tax rate, if recognized, and the remaining $31.9 million would affect the Company's deferred tax accounts. The Company classifies interest and penalties as a component of the provision for income taxes. The Company recognized in the Consolidated Statements of Operations and Comprehensive (Loss) Income an expense of $1.9 million and $0.8 million in 2019 and 2018, respectively.

A reconciliation of the beginning and ending amounts of the unrecognized tax benefits is provided in the following table:


	Tax		Interest and Penalties		Total
Balance at January 1, 2018	$	75.9	$	9.0	$	84.9
Increase based on tax positions taken in a prior year	2.8		5.4		8.2
Decrease based on tax positions taken in a prior year	(15.5)		(3.8)		(19.3)
Increase based on tax positions taken in the current year	6.5		0.2		6.7
Decrease resulting from the lapse of statutes of limitations	(4.8)		(1.0)		(5.8)
Balance at December 31, 2018	$	64.9	$	9.8	$	74.7
Increase based on tax positions taken in a prior year	0.3		3.4		3.7
Decrease based on tax positions taken in a prior year	(2.2)		(0.3)		(2.5)
Increase based on tax positions taken in the current year	7.1		—		7.1
Decrease resulting from the lapse of statutes of limitations	(3.8)		(1.2)		(5.0)
Balance at December 31, 2019	$	66.3	$	11.7	$	78.0

In addition, the Company believes that it is reasonably possible that its unrecognized tax benefits will decrease in 2020 by approximately $4.1 million due to the expiration of statutes of limitation.

As a result of the closing of the 2004 Revlon Exchange Transactions (as hereinafter defined in Note 20, "Related Party Transactions - Tax Sharing Agreements"), as of March 25, 2004, Revlon, Products Corporation and their U.S. subsidiaries were no longer included in the affiliated group of which MacAndrews & Forbes was the common parent (the "MacAndrews & Forbes Group") for federal income tax purposes. Revlon Holdings (as hereinafter defined in Note 20, "Related Party Transactions - Transfer Agreements"), Revlon, Products Corporation and certain of its subsidiaries, and MacAndrews & Forbes Incorporated entered into a tax sharing agreement (as subsequently amended and restated, the "MacAndrews & Forbes Tax Sharing Agreement"), for taxable periods beginning on or after January 1, 1992 through and including March 25, 2004, during which Revlon and Products Corporation or a subsidiary of Products Corporation was a member of the MacAndrews & Forbes Group. In these taxable periods, Revlon's and Products Corporation's federal taxable income and loss were included in such group's consolidated tax return filed by MacAndrews & Forbes Incorporated. During such period, Revlon and Products Corporation were also included in certain state and local tax returns of MacAndrews & Forbes Incorporated or its subsidiaries. Revlon and Products Corporation remain liable under the MacAndrews & Forbes Tax Sharing Agreement for all such taxable periods through and including March 25, 2004 for amounts determined to be due as a result of a redetermination arising from an audit or otherwise, equal to the taxes that Revlon or Products Corporation would otherwise have had to pay if it were to have filed separate federal, state or local income tax returns for such periods.

MacAndrews & Forbes’ current ownership does not require the Company to file a U.S. federal consolidated tax return with them. However, in certain U.S. states and in certain local and foreign jurisdictions the Company is required to file consolidated, combined, unitary or similar returns. The liability for these state, local and foreign liabilities is also governed by the MacAndrews & Forbes Tax Sharing Agreement. The Company accounts for its tax liabilities in these jurisdictions as if it were a separate filer, and the Company's tax accounts are presented as if it were a separate filer. During 2019, the Company's cash tax payments included $2.3 million of payments made to MacAndrews & Forbes in connection with these filings, and the Company's ending tax asset, which is a component of prepaid and other current assets, includes an insignificant amount related to future payments to be received from MacAndrews & Forbes in connection with these filings.

Following the closing of the 2004 Revlon Exchange Transactions, Revlon became the parent of a new consolidated group for federal income tax purposes and Products Corporation's federal taxable income and loss are included in such group's consolidated tax returns. Accordingly, Revlon and Products Corporation entered into a tax sharing agreement (the "Revlon Tax Sharing Agreement") pursuant to which Products Corporation is required to pay to Revlon amounts equal to the taxes that Products Corporation would otherwise have had to pay if Products Corporation were to file separate federal, state or local income tax returns, limited to the amount, and payable only at such times, as Revlon will be required to make payments to the applicable taxing authorities.

There were no U.S. federal tax payments or payments in lieu of taxes from Revlon pursuant to the MacAndrews & Forbes Tax Sharing Agreement in 2019 or 2018 with respect to periods covered by the MacAndrews & Forbes Tax Sharing Agreement, and the Company expects that there will not be any such payments in 2020. During 2019, there were no federal tax payments from Products Corporation to Revlon pursuant to the Revlon Tax Sharing Agreement with respect to 2019 or 2018. During 2018, there were no federal tax payments from Products Corporation to Revlon pursuant to the Revlon Tax Sharing Agreement with respect to 2018 or 2017. The Company expects that there will be no U.S. federal tax payments from Products Corporation to Revlon pursuant to the Revlon Tax Sharing Agreement during 2020 with respect to 2019. Pursuant to the asset transfer agreement referred to in Note 20, "Related Party Transactions - Transfer Agreements," Products Corporation assumed all tax liabilities of Revlon Holdings other than (i) certain income tax liabilities arising prior to January 1, 1992 to the extent such liabilities exceeded the reserves on Revlon Holdings' books as of January 1, 1992 or were not of the nature reserved for and (ii) other tax liabilities to the extent such liabilities are related to the business and assets retained by Revlon Holdings.