Income Taxes

A summary of income (loss) before taxes related to U.S. and non U.S. operations are as follows:



	Year Ended December 31,
(Dollars in millions)	2015			2014			2013
Operations
U.S. domestic	$	(305.7	)	$	(87.2	)	$	(69.2	)
Foreign	23.2			(2.5		)	(1.8		)
Total pre-tax loss	$	(282.5	)	$	(89.7	)	$	(71.0	)

The components of the income tax benefit consist of the following:



	Year Ended December 31,
(Dollars in millions)	2015			2014			2013
Current
Federal	$	(34.2	)	$	—		$	—
State and local	8.8			3.4			0.3
Foreign	26.4			0.5			(0.1		)
	1.0			3.9			0.2
Deferred
Federal	(58.1		)	(27.8		)	(22.1		)
State and local	(18.2		)	(2.7		)	(0.6		)
Foreign	(15.6		)	0.5			—
	(91.9		)	(30.0		)	(22.7		)
Total income tax benefit	$	(90.9	)	$	(26.1	)	$	(22.5	)

The provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The items causing this difference are as follows:



	Year Ended December 31,
	2015		2014		2013
U.S. Federal statutory tax rate	35.0	%	35.0	%	34.0	%
State and local taxes, net	2.2	%	0.7	%	0.6	%
Transaction expense	(3.7	)%	(1.7	)%	(1.1	)%
Loss on convertible debt	(0.6	)%	(2.1	)%	(1.1	)%
Change in valuation allowance	(3.2	)%	(1.4	)%	(0.6	)%
Nontaxable purchase price adjustment	2.2	%	—	%	—	%
Fuel and employment tax credits	2.0	%	—	%	—	%
Change in uncertain tax position provision	0.5	%	0.4	%	0.3	%
U.S. taxation of foreign earnings	(2.4	)%	—	%	—	%
Loss on remeasurement of foreign activities	2.6	%	—	%	—	%
Foreign tax rate differences	—	%	(0.5	)%	(0.2	)%
All other non-deductible items	(2.4	)%	(1.3	)%	(0.2	)%
Net effective tax rate	32.2	%	29.1	%	31.7	%

The tax effects of temporary differences that give rise to significant portions of the noncurrent deferred tax asset and deferred tax liability are as follows:



	Year Ended December 31,
(Dollars in millions)	2015			2014
Deferred tax assets
Net operating loss and other tax attribute carryforwards	$	242.0		$	74.3
Accrued expenses	125.4			13.2
Pension and other retirement obligations	70.3			—
Other	65.2			13.4
Total deferred tax asset	502.9			100.9
Valuation allowance	(67.6		)	(7.1		)
Total deferred tax asset, net	435.3			93.8
Deferred tax liabilities
Intangible assets	(655.0		)	(110.5		)
Property & equipment	(541.7		)	(41.9		)
Other	(58.3		)	(6.7		)
Total deferred tax liability	(1,255.0		)	(159.1		)
Net deferred tax liability	$	(819.7	)	$	(65.3	)

At December 31, 2015 and 2014, the Company had federal net operating losses for all U.S. operations (including those of minority owned subsidiaries) of $409.7 million and $195.4 million, respectively, expiring at various times between 2028 and 2035. At December 31, 2015 and 2014, the tax effect (before federal benefit) of the Company’s state net operating losses was $26.5 million and $13.4 million, respectively, expiring at various times between 2016 and 2035. Included in the federal and state net operating losses to be carried forward are $22.1 million of gross windfall tax benefits for stock compensation that has not been recognized as a deferred tax asset and will be recorded as an adjustment to additional paid-in-capital when recognized.

At December 31, 2015 and 2014, the Company had federal tax credit carryforwards of $7.4 million and $1.8 million expiring at various times starting in 2018 with certain credits having an unlimited carryforward period. At December 31, 2015, the Company had state tax credit carryforwards of $4.6 million expiring at various times between 2016 and 2028. At December 31, 2014, the Company had state tax credit carryforwards of $1.5 million expiring at various times between 2015 and 2027.

At December 31, 2015 and 2014, the Company’s foreign net operating losses that are available to offset future taxable income were $267.0 million and $6.6 million, respectively. These foreign loss carryforwards will expire at various times between 2016 and 2026 with some losses having an unlimited carryforward period.

As a result of the acquisition of New Breed in 2014, the Company recognized tax benefits related to New Breed’s final pre-acquisition period net operating losses of $56.0 million and filed in early 2015 a U.S. Federal net operating loss carryback refund claim for $14.7 million. This refund was received in the first quarter of 2015.

The Company believes it is more likely than not that future earnings and reversal of existing deferred tax liabilities will be sufficient to fully utilize the net operating loss deferred tax assets within the carryforward period. Although currently not anticipated, the Company’s ability to use its federal and state net operating loss carryforwards may become subject to restrictions attributable to equity transactions in the future resulting from changes in ownership as defined under Internal Revenue Code Section 382.

In general, it is the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations. As of December 31, 2015, the Company has not made a provision for U.S. or additional foreign withholding taxes for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration, if any exists. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. We estimate the amount of unremitted earnings and profits as of December 31, 2015 to be approximately $48.7 million. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.

During the year ended December 31, 2015, the Company reassessed its U.S. and foreign valuation allowance requirements. The Company evaluated all available evidence in its analysis, including future settlement of the deferred tax liabilities, carrybacks available and historical and projected pre-tax profits generated by the Company’s U.S. operations. The Company also considered tax planning strategies that are prudent and can be reasonably implemented. The future settlement of deferred tax liabilities, which will enable the Company to realize its existing deferred tax assets when they reverse, was the most significant factor in the Company’s determination of the valuation allowance under the “more likely than not” criteria. The Company’s valuation allowance as of December 31, 2015 was $16.1 million for domestic deferred tax assets and $51.5 million for foreign jurisdictions where it is not “more likely than not” that the deferred tax assets will be utilized. At December 31, 2014, the Company had a valuation allowance of $4.8 million on its domestic deferred tax assets and $2.3 million on its foreign deferred tax assets. The change in the Company’s valuation allowance of $60.5 million is a result of the assessment of deferred tax assets as established at the acquisition of ND and Con-way and through the Company’s determination that certain state and foreign deferred tax assets do not meet the “more likely than not” criteria during the period.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:



	Year Ended December 31,
(Dollars in millions)	2015			2014
Uncertain tax positions, beginning of the year	$	6.2		$	0.8
Additions for tax positions of prior years	0.2			—
Additions for tax positions from acquisitions	6.1			5.8
Additions for tax positions taken during the current period	0.5			—
Reductions due to the statute of limitations	(1.5		)	(0.4		)
Uncertain tax positions, end of the year	$	11.5		$	6.2

The Company recognizes interest and penalties accrued related to uncertain tax positions in the provision for income taxes. For the years ended December 31, 2015 and 2014, $8.1 million and $2.0 million of the unrecognized tax benefits of $11.5 million and $6.2 million, respectively, if resolved favorably, would impact our effective tax rates. The release of the remaining $3.4 million of unrecognized tax benefits would not affect the tax rate upon favorable resolution as the liability would be settled through a holdback provision of an acquisition agreement.

The Company and its wholly owned U.S. subsidiaries file a consolidated Federal income tax return. In addition, its minority owned U.S. subsidiaries file consolidated Federal income tax returns in accordance with U.S. filing requirements. The Company also files unitary or separate returns in various state, local and non-U.S. jurisdictions based on state, local and non-U.S. filing requirements. As a matter of course, various taxing authorities, including the IRS, regularly audit the Company. These audits may result in proposed assessments where the ultimate resolution may result in the Company owing additional taxes. Currently, the Company has no tax years under examination by the IRS. The Company has various non-U.S examinations in process, but at this time, we do not expect any of these routine examinations to yield a material assessment. While there are no other Federal, state or local examinations currently in progress, generally, the Federal returns after 2010, state and local returns after 2008 and non-U.S. returns after 2010 are open under relevant statute of limitations and therefore subject to potential adjustment. The Company believes that its tax positions comply with applicable tax law. The former Con-way companies are subject to examination for federal income taxes for tax year 2015. In 2013, Con-way entered the Compliance Assurance Program (“CAP”). CAP is designed to make audits more effective, efficient and current such that when the federal tax return is filed for the current year it has been approved by the Internal Revenue Service (“IRS”). The IRS has approved both the 2013 and 2014 federal tax return. All federal, state and local income tax returns for the former Con-way are filed through 2014.