Income Taxes (Tables)

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

Source of pre-tax income and components of income tax expense

The source of pre-tax income and the components of income tax expense are as follows:

	Year Ended December 31,
(in millions)	2016			2015			2014
Income components:
Domestic	$	80		$	116		$	118
Foreign	260			287			303
Total pre-tax income	$	340		$	403		$	421
Income tax expense components:
Current:
Domestic – federal	$	19		$	32		$	44
Domestic – state and local	5			6			7
Foreign	42			34			62
Total Current	66			72			113
Deferred:
Domestic – federal	$	19		$	1		$	(14	)
Domestic – state and local	1			1			—
Foreign	(6		)	(11		)	(15		)
Total Deferred	14			(9		)	(29		)
Total income tax provision	$	80		$	63		$	84
Effective income tax rate	23.5		%	15.6		%	19.8		%

Schedule of effective income tax rate reconciliation

Reconciliations between taxes at the U.S. federal income tax rate and taxes at our effective income tax rate on earnings before income taxes are as follows:

	Year Ended December 31,
	2016		2015		2014
Tax provision at U.S. statutory rate	35.0	%	35.0	%	35.0	%
Increase (decrease) in tax rate resulting from:
State income taxes	0.8		1.0		1.0
Settlements of tax examinations	(6.4	)	0.5		0.4
Valuation allowance	18.5		8.6		22.9
Tax exempt interest	(14.3	)	(13.1	)	(26.3	)
Foreign tax rate differential	(7.9	)	(7.2	)	(4.2	)
Repatriation of foreign earnings, net of foreign tax credits	5.9		0.2		(1.7	)
Tax incentives	(8.9	)	(7.8	)	(6.2	)
Other – net	0.8		(1.6	)	(1.1	)
Effective income tax rate	23.5	%	15.6	%	19.8	%

Components of net deferred tax assets and liabilities

The following is a summary of the components of the net deferred tax assets and liabilities recognized in the Consolidated Balance Sheets:

	December 31,
(in millions)	2016			2015
Deferred tax assets:
Employee benefits	$	126		$	106
Accrued expenses	53			24
Loss and other tax credit carryforwards	387			285
Inventory	6			7
Other	—			3
	572			425
Valuation allowance	(311		)	(248		)
Net deferred tax asset	$	261		$	177
Deferred tax liabilities:
Intangibles	$	434		$	168
Investment in foreign subsidiaries	4			4
Property, plant, and equipment	61			17
Other	48			35
Total deferred tax liabilities	$	547		$	224

Reconciliation of Deferred Tax Asset Valuation Allowance

A reconciliation of our valuation allowance on deferred tax assets is as follows:

(in millions)	2016			2015			2014
Valuation allowance — January 1	$	248		$	427		$	349
Change in assessment (a)	17			(5		)	(4		)
Current year operations	38			39			100
Foreign currency and other (b)	(32		)	(213		)	(18		)
Acquisitions	40			—			—
Valuation allowance — December 31	$	311		$	248		$	427

(a) Increase in assessment in 2016 is primarily attributable to Foreign Tax Credits resulting from additional indebtedness from the Sensus acquisition.

(b) Included in foreign currency and other in 2015 is the reduction of a net operating loss that was subject to a valuation allowance of $176 million.

Deferred taxes classification

Deferred taxes are classified net of unrecognized tax benefits in the Consolidated Balance Sheets as follows:

	December 31,
(in millions)	2016			2015
Non-current assets	$	66		$	71
Non-current liabilities	(352		)	(118		)
Total net deferred tax liabilities	$	(286	)	$	(47	)

Tax attributes available to reduce future taxable income

Tax attributes available to reduce future taxable income begin to expire as follows:

(in millions)	December 31, 2016		First Year of Expiration
U.S. net operating loss	$	54	December 31, 2024
State net operating loss	175		December 31, 2017
U.S. tax credits	52		December 31, 2020
State tax credits	1		Indefinitely
Foreign net operating loss	1,270		December 31, 2018

Reconciliation of the beginning and ending amount of unrecognized tax benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

(in millions)	2016			2015			2014
Unrecognized tax benefits — January 1	$	47		$	44		$	30
Current year tax positions	12			4			9
Prior year tax positions	(22		)	1			7
Acquisitions	30			—			—
Settlements	—			(2		)	(2		)
Unrecognized tax benefits — December 31	$	67		$	47		$	44

Earliest open tax years by major jurisdiction

The following table summarizes our earliest open tax years by major jurisdiction:

Jurisdiction	Earliest Open Year
Italy	2011
Luxembourg	2013
Sweden	2011
Germany	2010
United Kingdom	2009
United States	2014
Switzerland	2011