The following table presents information related to the consolidated income statements:
|
| | | | | | | | | | | |
| Year ended December 31, |
(in millions) | 2016 | | 2015 | | 2014 |
Income before income taxes: | | | | | |
United States | $ | 146.3 |
| | $ | 123.3 |
| | $ | 121.4 |
|
Foreign | 88.0 |
| | 106.8 |
| | 116.0 |
|
Total | $ | 234.3 |
| | $ | 230.1 |
| | $ | 237.4 |
|
Income tax provision: | | | | | |
Current income tax provision: | | | | | |
Federal | $ | 37.9 |
| | $ | 5.1 |
| | $ | 3.8 |
|
State | 9.1 |
| | 0.8 |
| | 0.6 |
|
Foreign | 35.7 |
| | 42.6 |
| | 46.5 |
|
Total | 82.7 |
| | 48.5 |
| | 50.9 |
|
Deferred income tax provision (benefit): | | | | | |
Federal | 11.2 |
| | 38.3 |
| | 40.1 |
|
State | (1.1 | ) | | 0.9 |
| | 4.3 |
|
Foreign | (6.7 | ) | | (11.9 | ) | | (10.5 | ) |
Total | 3.4 |
| | 27.3 |
| | 33.9 |
|
Total income tax provision | $ | 86.1 |
| | $ | 75.8 |
| | $ | 84.8 |
|
The following table presents the reconciliation of the income tax provision calculated at the United States statutory federal income tax rate of 35% to the amounts presented in the consolidated income statements:
|
| | | | | | | | | | | |
| Year ended December 31, |
(in millions) | 2016 | | 2015 | | 2014 |
Income tax provision at United States federal statutory rate | $ | 82.0 |
| | $ | 80.5 |
| | $ | 83.1 |
|
State income taxes, net of federal benefit | 5.2 |
| | 1.4 |
| | 3.3 |
|
Change in foreign tax rates | — |
| | (4.5 | ) | | — |
|
Foreign rate differential | (7.4 | ) | | (11.0 | ) | | (10.4 | ) |
Changes to valuation allowance not included above | 5.4 |
| | 5.1 |
| | 5.6 |
|
Other, net | 0.9 |
| | 4.3 |
| | 3.2 |
|
Income tax provision | $ | 86.1 |
| | $ | 75.8 |
| | $ | 84.8 |
|
The following table presents information about deferred tax assets and liabilities:
|
| | | | | | | |
| December 31, |
(in millions) | 2016 | | 2015 |
Deferred tax assets: | | | |
Net operating loss carryforwards | $ | 104.1 |
| | $ | 136.2 |
|
Other | 40.7 |
| | 40.3 |
|
Deferred tax assets, gross | 144.8 |
| | 176.5 |
|
Valuation allowances | (105.1 | ) | | (102.5 | ) |
Deferred tax assets, net | 39.7 |
| | 74.0 |
|
Deferred tax liabilities: | | | |
Intangible assets | (442.0 | ) | | (467.2 | ) |
Goodwill | (39.7 | ) | | (38.2 | ) |
Other | (21.4 | ) | | (16.2 | ) |
Total deferred tax liabilities | (503.1 | ) | | (521.6 | ) |
Net deferred tax liability | $ | (463.4 | ) | | $ | (447.6 | ) |
Classification on consolidated balance sheets: | | | |
Other assets | $ | 13.8 |
| | $ | 11.9 |
|
Deferred income tax liabilities | (477.2 | ) | | (459.5 | ) |
Net deferred tax liability | $ | (463.4 | ) | | $ | (447.6 | ) |
The increase (decrease) to the valuation allowance for the years ended December 31, 2016, 2015 and 2014 was $2.6 million, $(7.5) million and $(9.3) million, respectively.
At December 31, 2016, most of the valuation allowances presented above relate to foreign net operating loss carryforwards that are not expected to be realized. We evaluate the realization of deferred tax assets by considering such factors as the reversal of existing taxable temporary differences, expected profitability by tax jurisdiction and available carryforward periods. The extent and timing of any such reversals will influence the extent of tax benefits recognized in a particular year. Should applicable losses, credits and deductions ultimately be realized, the resulting reduction in the valuation allowance would generally be recognized as a component of our income tax provision or benefit.
Uncertain Tax Positions
We conduct business globally, causing us to file income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities, including jurisdictions in which we have significant operations such as Germany, France, the UK, Belgium, Sweden, Canada, Switzerland and the United States. We have concluded substantially all income tax matters (i) in the United States through 2005 and (ii) in the foreign jurisdictions noted above through 2010.
The development of reserves for uncertain tax positions requires judgments about tax issues, potential outcomes and timing of settlement discussions with tax authorities. If we were to prevail on all uncertain tax positions, we would recognize a benefit to our income tax provision.
The following table reflects changes to the reserve for uncertain tax positions:
|
| | | | | | | | | | | |
| Year ended December 31, |
(in millions) | 2016 | | 2015 | | 2014 |
Beginning balance | $ | 62.2 |
| | $ | 61.7 |
| | $ | 57.9 |
|
Additions: | | | | | |
Tax positions related to the current year | 1.7 |
| | 1.7 |
| | 5.1 |
|
Tax positions related to prior years | 0.1 |
| | 0.3 |
| | 0.3 |
|
Reductions: | | | | | |
Tax positions related to prior years | — |
| | (0.2 | ) | | (0.1 | ) |
Settlements with taxing authorities | (1.2 | ) | | (0.1 | ) | | (0.3 | ) |
Lapse of statutes of limitations | (0.6 | ) | | (0.6 | ) | | (0.4 | ) |
Currency translation | (0.4 | ) | | (0.6 | ) | | (0.8 | ) |
Ending balance | $ | 61.8 |
| | $ | 62.2 |
| | $ | 61.7 |
|
The amounts above exclude accrued interest and penalties of $1.2 million and $1.0 million at December 31, 2016 and 2015, respectively. We expect a reduction in the liability for uncertain tax positions of up to $0.9 million over the next twelve months as a result of settlements with taxing authorities and the lapse of statutes of limitations.
Other Matters
Neither income taxes nor foreign withholding taxes have been provided on $842.8 million of cumulative undistributed earnings of foreign subsidiaries as of December 31, 2016. These earnings are considered permanently invested in the business. We make an evaluation at the end of each reporting period as to whether or not some or all of the undistributed earnings are permanently reinvested. Future changes in facts and circumstances could require us to recognize income tax liabilities on the assumption that our foreign undistributed earnings will be distributed to the United States in a manner that attracts a net tax cost. At this time, a determination of the amount of unrecognized deferred tax liabilities is not practicable because of the complexities associated with its hypothetical calculation.
At December 31, 2016, we had federal net operating loss carryforwards of $133.5 million that begin to expire in 2027 and state net operating loss carryforwards of $332.8 million, with a corresponding state tax benefit of $12.7 million, that expire at various times through 2034. In addition, we had foreign net operating loss carryforwards of $308.2 million, which predominantly have indefinite expirations.
We have entered into an agreement that provides for the payment to Varietal of the majority of cash savings in U.S. federal, state and local income tax as a result of the utilization of net operating losses generated in periods prior to the IPO. See Note 20.
We file a consolidated federal and certain state combined income tax returns with our domestic subsidiaries.