XML 49 R35.htm IDEA: XBRL DOCUMENT v3.6.0.2
INCOME TAXES (Tables)
 12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
Schedule of components of earnings before income taxes
The components of earnings before income taxes were:
  
 
Years Ended December 31,
(Dollars in millions) 
 
2016
 
2015
 
2014
U.S.
 
$
204.4

 
$
183.6

 
$
92.6

Non-U.S.
 
508.9

 
687.6

 
835.4

Total
 
$
713.3

 
$
871.2

 
$
928.0

The above amounts are categorized based on the applicable taxing authorities.
Summary of components of provision (benefit) for income taxes attributable to operations
The provision/(benefit) for income taxes consisted of:
  
 
Years Ended December 31,
(Dollars in millions) 
 
2016
 
2015
 
2014
Current:
 
 
 
 
 
 
U.S. federal
 
$
77.4

 
$
39.8

 
$
53.7

U.S. states
 
7.7

 
2.7

 
4.2

Non-U.S.
 
132.2

 
130.1

 
156.3

Total current income tax expense
 
217.3

 
172.6

 
214.2

 
 
 
 
 
 
 
Deferred:
 
 
 
 
 
 
U.S. federal
 
(34.2
)
 
44.2

 
(6.9
)
U.S. states
 
(1.6
)
 
3.3

 
(1.3
)
Non-U.S.
 
(17.5
)
 
(4.2
)
 
(6.8
)
Total deferred income tax expense/(benefit)
 
(53.3
)
 
43.3

 
(15.0
)
 
 
 
 
 
 
 
Total
 
$
164.0

 
$
215.9

 
$
199.2
Schedule of effective income tax rate reconciliation
Effective Tax Rate—MJN’s provision for income taxes in the years ended December 31, 2016, 2015 and 2014 was different from the amount computed by applying the statutory U.S. federal income tax rate to earnings before income taxes as a result of the following:
(Dollars in millions) 
 
2016
 
2015
 
2014
U.S. statutory rate
 
$
249.7

 
35.0
 %
 
$
304.9

 
35.0
 %
 
$
324.8

 
35.0
 %
U.S. state and local taxes (net of federal benefit)
 
2.9

 
0.4

 
4.5

 
0.5

 
0.6

 
0.1

Foreign income taxed at different rates
 
(22.3
)
 
(3.1
)
 
(36.6
)
 
(4.2
)
 
(32.0
)
 
(3.4
)
Repatriation of foreign income
 
(34.6
)
 
(4.9
)
 
2.2

 
0.3

 
—

 
—

Tax rulings and agreements
 
(93.7
)
 
(13.1
)
 
(92.8
)
 
(10.6
)
 
(133.7
)
 
(14.4
)
Changes in valuation allowances
 
31.1

 
4.4

 
2.2

 
0.3

 
0.4

 
—

Unrecognized tax benefits and related interest/penalties
 
35.0

 
4.9

 
21.7

 
2.5

 
22.9

 
2.5

Other
 
(4.1
)
 
(0.6
)
 
9.8

 
1.0

 
16.2

 
1.7

Total provision/effective tax rate
 
$
164.0

 
23.0
 %
 
$
215.9

 
24.8
 %
 
$
199.2

 
21.5
 %


The Company negotiated a tax ruling effective from January 1, 2010, under which certain profits in the Netherlands are exempt from taxation through the year ending December 31, 2019. This ruling was superseded by a subsequent tax agreement effective July 26, 2012, whereby the Company and the Dutch tax authorities agreed to the appropriate remuneration attributable to Dutch manufacturing activities through the year ending December 31, 2019.

In addition, the Company negotiated a tax ruling effective from January 1, 2013, under which certain profits in Singapore are eligible for favorable taxation through the year ending December 31, 2027.
Summary of components of current and noncurrent deferred income tax assets (liabilities)
Deferred Taxes and Valuation Allowance—The components of deferred income tax assets/(liabilities) were:
  
 
December 31,
(Dollars in millions)
 
2016
 
2015
Deferred tax assets:
 
 
 
 
Accrued expenses
 
30.9

 
25.2

Accrued rebates and returns
 
45.2

 
43.2

Pension and other post-employment liabilities
 
35.0

 
47.6

Stock-based compensation
 
22.1

 
18.2

Obsolescence reserves and other inventory items
 
20.9

 
11.6

Net operating loss carryforwards
 
15.7

 
16.3

Settlement loss on interest rate forward swaps
 
15.1

 
15.6

Statutory loss on investment in subsidiaries
 
10.5

 
6.6

State tax credit carryforwards
 
9.4

 
8.8

Intercompany payable write-off
 
12.5

 
—

Cumulative foreign currency translation adjustments
 
4.5

 
—

Other—net
 
9.7

 
4.9

Valuation allowance
 
(37.6
)
 
(14.8
)
Total deferred tax assets
 
193.9

 
183.2

Deferred tax liabilities:
 
 
 
 
Depreciation and amortization
 
(57.0
)
 
(68.0
)
Unremitted earnings and cumulative foreign currency translation adjustments
 
—

 
(5.4
)
Total deferred tax liabilities
 
(57.0
)
 
(73.4
)
Deferred tax assets—net
 
136.9

 
109.8

Recognized as:
 
 
 
 
Net deferred income tax assets—noncurrent
 
143.1

 
118.5

Net deferred income tax liabilities—noncurrent
 
(6.2
)
 
(8.7
)
Total
 
136.9

 
109.8


During the year ended December 31, 2016 the Company wrote-off a $52.0 million intercompany payable from its Venezuelan subsidiary to its subsidiaries in Mexico and the U.S. (see “—Note 20. Venezuela Currency Matters” for additional information). As a result of this write-off, Mexico and the U.S. realized losses that are either currently tax deductible or tax deductible in the future. A deferred tax asset of $12.5 million has been recorded to reflect the portion of the losses that are deductible in the future.
As of December 31, 2016, the Company had definite-lived and indefinite-lived gross foreign net operating loss (“NOL”) carryforwards of $50.8 million. Indefinite-lived NOL carryforwards totaled $44.2 million with the remainder being definite-lived. An immaterial amount of these definite-lived NOL carryforwards will begin to expire in 2017, with the remainder of the definite-lived NOL carryforwards to expire no later than 2020. The valuation allowance recorded for NOL carryforwards is $14.8 million as of December 31, 2016.

As of December 31, 2016, the Company had various definite-lived U.S. state tax credit carryforwards of $9.4 million, net of the federal tax benefit. An immaterial amount of these state tax credit carryforwards will begin to expire in 2017, with the remainder of the state tax credit carryforwards to expire no later than 2026. The valuation allowance recorded for state tax credit carryforwards is $6.0 million, net of the federal tax benefit, as of December 31, 2016.
As of December 31, 2016, the Company incurred a statutory loss on the investment in its Russian business of $42.1 million. This loss will be tax deductible in the Netherlands when the Russian entity is fully liquidated on a tax basis, and a deferred tax asset of $10.5 million has been recorded as of December 31, 2016. The Company expects to utilize $1.6 million of this deferred tax asset, and a valuation allowance of $8.9 million has been recorded for the remainder.    
As of December 31, 2016, the Company incurred charges in the amount of $48.9 million related to long-lived asset impairments and other asset write-offs in its Venezuelan business (see “—Note 20. Venezuela Currency Matters” for additional information) for which the Company held a deferred tax asset of $7.9 million. The Company does not expect to utilize any amount of this deferred tax asset, and a full valuation allowance has been recorded.
Income taxes paid net of refunds were $219.3 million, $134.2 million, and $183.7 million in the years ended December 31, 2016, 2015 and 2014, respectively. The income taxes were paid to or received from federal, state and foreign taxing authorities and Bristol-Myers Squibb Company (“BMS”) pursuant to the terms of the Amended and Restated Tax Matters Agreement, described below.
As of December 31, 2016, U.S. taxes have not been provided on approximately $2,500 million of foreign earnings as these undistributed earnings have been indefinitely invested offshore. If, in the future, these earnings were to be repatriated to the U.S. additional tax provisions would be required. It is impracticable to determine a precise estimate of the additional provision required. However, the maximum potential estimated U.S. tax liability would be $868.0 million if these earnings were to be repatriated to the United States in such a manner that the entire amount of foreign earnings would be subject to the U.S. statutory tax rate with no U.S. tax relief for foreign taxes already paid. However, the Company has no plans to repatriate these foreign earnings.
The Company’s tax returns are routinely audited by federal, state and foreign tax authorities and these tax audits are at various stages of completion at any given time. The Internal Revenue Service (“IRS”) has completed examinations of the Company’s U.S. income tax filings through December 31, 2007. At December 31, 2016, the Company’s 2011 and 2012 U.S. income tax returns were under IRS examination, and the 2009 through 2014 period is under income tax audit in Hong Kong.  The Company was notified in early 2016 that the China tax authorities will commence an audit of tax years 2008 through 2014; however, that audit is now expected to commence in early 2017.  The Company was also recently notified that the IRS will commence an audit of the 2013 and 2014 U.S. income tax returns in early 2017. At December 31, 2016, tax years remaining open to examination outside the U.S. include 2006 and forward.
Schedule of reconciliation of changes in uncertain tax positions
A reconciliation of the Company’s changes in gross uncertain tax positions is as follows:
 
 
 
Years Ended December 31,
(Dollars in millions) 
 
2016
 
2015
 
2014
Balance at January 1:
 
$
141.2

 
$
127.3

 
$
102.6

Increases based on current year tax positions
 
27.6

 
19.9

 
26.6

Decreases based on current year tax positions
 
—

 
—

 
—

Increases based on prior year tax positions
 
5.9

 
6.5

 
10.4

Decreases based on prior year tax positions
 
(3.2
)
 
(5.2
)
 
(1.6
)
Settlements
 
—

 
(2.0
)
 
—

Lapse of statute of limitations
 
(7.0
)
 
(3.7
)
 
(9.9
)
Cumulative translation adjustment
 
(0.3
)
 
(1.6
)
 
(0.8
)
Balance at December 31:
 
$
164.2

 
$
141.2

 
$
127.3