Income Taxes

12 Months Ended

Dec. 31, 2019

Income from continuing operations before income taxes consisted of the following for the years ended December 31 (in millions):



	2019		2018		2017
Domestic	$	237.8	$	113.8	$	103.9
Foreign	20.2		21.4		38.1
Total	$	258.0	$	135.2	$	142.0

The components of income tax expense from continuing operations for the years ended December 31 are as follows (in millions):



	2019			2018			2017
Current:
Federal	$	(20.0	)	$	3.3		$	30.0
State	9.0			19.9			5.9
Foreign	3.5			11.0			3.6
Total current expense (benefit)	(7.5		)	34.2			39.5
Deferred:
Federal	24.4			(24.7		)	102.7
State	(0.4		)	(4.7		)	(9.3		)
Foreign	1.5			0.2			(0.1		)
Total deferred expense (benefit)	25.5			(29.2		)	93.3
Total tax expense (benefit)	$	18.0		$	5.0		$	132.8

The Company has recognized income tax expense (benefit) related to derivative securities within other comprehensive income of $0.6 million, $0.4 million and $0.8 million in the years ended December 31, 2019, 2018 and 2017, respectively.

Included in gain (loss) on disposal of discontinued operations is income tax expense (benefit) of $0.0 million, $0.0 million and $(0.1) million in the years ended December 31, 2019, 2018 and 2017, respectively.

The provision for income taxes in 2019, 2018 and 2017 included benefits of $0.4 million, $0.4 million and $1.2 million, respectively, related to the utilization of net operating loss carryforwards.

The reconciliation of the difference between the Company’s U.S. Federal statutory income tax rate and the effective income tax rate for continuing operations for the years ended December 31 is as follows:



	2019		2018		2017
Tax at U.S. federal statutory income tax rate	21.0	%	21.0	%	35.0	%
State income taxes, net of federal benefit	5.5	%	8.1	%	1.7	%
Non-deductible expenses	0.5	%	0.3	%	0.2	%
DTA Deed liability revaluation adjustment	—	%	1.2	%	(12.8	)%
Interest expense	—	%	—	%	(10.2	)%
Adjustment to liabilities for uncertain tax positions	(15.8	)%	(32.5	)%	(1.2	)%
Change in valuation allowance	—	%	(6.3	)%	1.1	%
Write-off of state net operating loss carryforwards	—	%	6.3	%	—	%
Effect of foreign operations	0.3	%	2.7	%	(4.0	)%
Effect of changes in tax law	(0.4	)%	(1.4	)%	86.4	%
Effect of disposal of affiliate	—	%	2.9	%	—	%
Effect of income from non-controlling interest	(1.3	)%	0.9	%	(1.3	)%
Impact of increased state tax obligations to deferred tax assets	(1.4	)%	—	%	—	%
Impact of Redomestication to deferred tax assets	(0.9	)%	—	%	—	%
Other	(0.4	)%	0.5	%	(1.4	)%
Effective income tax rate for continuing operations	7.1	%	3.7	%	93.5	%

In connection with the Redomestication in 2019, the Company revalued certain deferred tax assets that were transferred to the U.S. parent from the former U.K. parent. These deferred tax assets are now measured using applicable U.S. and state income tax rates. The Company’s state tax filing obligations have increased in the normal course of business and in connection with states tax law changes regarding apportionment of income. These changes have resulted in an increase to the state income tax rate and accordingly to the state deferred tax assets.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted and became effective January 1, 2018. The Tax Act enacted various measures of domestic and international corporate tax reform that were impactful to the Company including reduction of the federal statutory corporate tax rate from 35% to 21%, new limitations on executive compensation and the deductibility of interest expense, a one-time tax on mandatory deemed repatriation of non-U.S. earnings, and new taxes assessed on foreign earnings. In accordance with SEC issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), the Company was permitted to provide provisional amounts for recording the tax effects of the enacted tax law during a specified measurement period, ending one year after the enactment date. The Company recorded a $1.0 million income tax benefit during the year ended December 31, 2018 related to refinement of the Section 965 toll charge tax liability on the mandatory deemed repatriation of foreign earnings.

Additionally, the Company analyzed the impact of the international corporate tax reform measures which became effective January 1, 2018, including the new taxes on foreign earnings known as the global intangible low-taxed income (“GILTI”). The Company has elected to treat GILTI taxes as period costs in the accounting and tax periods

in which they are incurred. The Company has recognized tax expense of $0.5 million and $0.7 million during the year ended December 31, 2019 and 2018, respectively, related to the GILTI tax.

In 2018, the Deferred Tax Asset Deed was terminated resulting in a tax net impact of $1.6 million. In 2017 the deed was revalued due to the enactment of the Tax Act resulting in a tax impact of $18.1 million.

On November 16, 2017, the U.K. Finance (No.2) Bill 2017 (the “Finance Bill”) received Royal Assent and enacted amendments to the hybrid mismatch rules which are effective from July 13, 2017. Accordingly, the Company’s benefits from its intercompany financing arrangements were reduced as of the effective date.

The Company reduced its liability for uncertain tax positions by $40.8 million and $47.9 million during the years ended December 31, 2019 and 2018, respectively, as a result of a lapse of statute of limitations.

During 2018, the Company wrote-off its $8.6 million deferred tax asset for state net operating loss carryforwards and released the corresponding $8.6 million valuation allowance, as management has concluded that the tax benefits associated with the state net operating loss carryforwards will not be recognized.

Due to Pennsylvania legislation enacted during 2017 which limits the Company’s annual usage of net operating losses within the state, the Company recorded an additional $3.1 million valuation allowance in 2017 against its state net operating loss carryforwards as management concluded it is unlikely the tax benefits will be realized.

In general, it is the practice and intention of the Company to reinvest earnings of its non-U.S. subsidiaries in those operations. Management has no intention of repatriating earnings of its non-U.S. subsidiaries in the foreseeable future. At December 31, 2019, the Company has not recorded any deferred tax liabilities relating to additional taxes such as foreign withholding and state taxes which could arise on the repatriation of unremitted earnings of its non-U.S. subsidiaries. It is not practical for the Company to determine the potential unrecognized deferred tax liability related to unremitted earnings due to numerous assumptions associated with the determination.

Deferred tax assets and liabilities reflect the expected future tax consequences of temporary differences between the book carrying amounts and tax bases of the Company’s assets and liabilities.

The significant components of deferred tax assets and deferred tax liabilities for the years ended December 31 are as follows (in millions):



	2019		2018
Deferred tax assets:
Interest expense	$	70.7	$	73.6
Federal net operating loss	0.9		1.4
State net operating loss carry forwards	0.2		—
Investment in partnerships	164.1		182.0
Intangible assets	0.3		0.5
Employee compensation	4.4		6.2
Other	1.8		2.0
Cash flow hedge	6.2		4.7
Total deferred tax assets	248.6		270.4
Deferred tax liabilities:
Investments	5.0		0.3
Net deferred tax assets	$	243.6	$	270.1

At December 31, 2019, the Company has tax attributes that carry forward for varying periods. The Company’s federal net operating loss carryforward of $4.4 million originated during 2004 and 2006 and will expire over a five to seven-year period. The Company’s state net operating loss carryforward of $0.2 million originated in 2018 and will expire over a five to twenty-year period. In evaluating the Company’s ability to recover its deferred tax assets, the Company considers all available positive and negative evidence including the existence of cumulative income in the most recent fiscal years, changes in the business in which the Company operates, and the Company’s ability to forecast future taxable income. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, the more positive evidence that is necessary and the more difficult it is to support a conclusion that a valuation allowance is not needed. The Company has three years of cumulative earnings as of December 31, 2019, 2018 and 2017. As of December 31, 2019, management believes it is more likely than not that the balance of the deferred tax asset will be realized based on forecasted taxable income.

A reconciliation of the change in gross unrecognized tax benefits for the years ended December 31 is as follows (in millions):



	2019			2018			2017
Balance as of January 1	$	46.9		$	88.7		$	91.3
Additions based on current year tax positions	0.1			0.1			0.9
Reductions for tax provisions of prior years	—			(0.9		)	—
Reductions related to lapses of statutes of limitations	(35.7		)	(41.0		)	(3.5		)
Balance as of December 31	$	11.3		$	46.9		$	88.7

The Company’s liability for uncertain tax positions includes unrecognized benefits of $11.2 million and $46.7 million at December 31, 2019 and 2018, respectively, that if recognized would affect the effective tax rate on income from continuing operations.

The Company recognized $(5.3) million, $(1.9) million, and $2.5 million in interest and penalties in its income tax provision for the years ended December 31, 2019, 2018, and 2017, respectively. The Company recognizes accrued interest and penalties relating to unrecognized tax benefits as income tax expense. The Company’s liability for uncertain tax positions at December 31, 2019, 2018, and 2017 includes accrued interest and penalties of $1.4 million, $6.7 million and $8.6 million, respectively.

The Company believes that it is reasonably possible that a decrease of up to $8.8 million in unrecognized tax benefits may be necessary within the next twelve months, as the result of a lapse of statute of limitations.

The Company is periodically under examination by various taxing authorities. Examinations are inherently uncertain, may result in payment of additional taxes or the recognition of tax benefits and may be in process for extended periods of time. At December 31, 2019, there were two examinations underway and each are in the initial stages of the process.

The Company and its subsidiaries file tax returns in the U.K., U.S. federal, state, local and other foreign jurisdictions. As of December 31, 2019, the Company is generally no longer subject to income tax examinations by U.K., U.S. federal, state, local, or foreign tax authorities for calendar years prior to 2008.