Income Taxes

The following table sets forth selected data with respect to the Company’s income tax provisions for the years ended December 31, (in millions):



	2016			2015			2014
Income before income taxes:
United States	$	349.5		$	347.2		$	385.6
International	80.9			71.4			99.9
TOTAL INCOME BEFORE INCOME TAXES	$	430.4		$	418.6		$	485.5
Provision for income taxes — current:
Federal	$	85.5		$	110.4		$	90.1
State	17.4			13.7			15.4
International	17.0			17.6			22.5
Total provision-current	119.9			141.7			128.0
Provision for income taxes — deferred:
Federal	13.5			(1.7		)	24.4
State	1.3			0.4			2.7
International	(2.1		)	(3.9		)	3.2
Total provision — deferred	12.7			(5.2		)	30.3
TOTAL PROVISION FOR INCOME TAXES	$	132.6		$	136.5		$	158.3

Deferred tax assets and liabilities result from differences in the basis of assets and liabilities for tax and financial statement purposes. The components of the deferred tax assets/(liabilities) at December 31, were as follows (in millions):



	2016			2015
Deferred tax assets:
Inventories	$	8.8		$	6.8
Income tax credits	30.9			31.9
Accrued liabilities	20.8			25.0
Pension	77.6			58.2
Post retirement and post employment benefits	10.0			10.4
Stock-based compensation	17.5			12.6
Net operating loss carryforwards	27.2			31.0
Miscellaneous other	7.5			7.0
Gross deferred tax assets	200.3			182.9
Valuation allowance	(22.6		)	(22.0		)
Total deferred tax assets, net of valuation allowance	177.7			160.9
Deferred tax liabilities:
Acquisition basis difference	(162.1		)	(149.2		)
Property, plant, and equipment	(46.3		)	(41.6		)
Total deferred tax liabilities	(208.4		)	(190.8		)
TOTAL NET DEFERRED TAX LIABILITY	$	(30.7	)	$	(29.9	)
Deferred taxes are reflected in the Consolidated Balance Sheet as follows:
Non-current tax assets (included in Other long-term assets)	10.5			6.2
Non-current tax liabilities (included in Other Non-Current Liabilities)	(41.2		)	(36.1		)
TOTAL NET DEFERRED TAX LIABILITY	$	(30.7	)	$	(29.9	)

As of December 31, 2016, the Company had a total of $30.9 million of Federal, State (net of Federal benefit) and foreign tax credit carryforwards, available to offset future income taxes. As of December 31, 2016, $11.7 million of the tax credits may be carried forward indefinitely while the remaining $19.2 million will begin to expire at various times in 2017 through 2037. As of December 31, 2016, the Company had recorded tax benefits totaling $27.2 million for Federal, State and foreign net operating loss carryforwards (“NOLs”). As of December 31, 2016, $8.6 million of NOLs may be carried forward indefinitely while the remaining $18.6 million will begin to expire at various times in 2021 through 2030. The tax benefit related to a portion of these NOLs has been adjusted to reflect an “ownership change” pursuant to Internal Revenue Code Section 382, which imposes an annual limitation on the utilization of pre-acquisition operating losses. The Company has recorded a net valuation allowance of $22.6 million for the portion of the foreign tax and state tax credit carryforwards and foreign NOLs that the Company anticipates will expire prior to utilization.

At December 31, 2016, income and withholding taxes have not been provided on approximately $890 million of undistributed international earnings that are permanently reinvested in international operations. If such earnings were not indefinitely reinvested, a tax liability of approximately $200 million would be recognized.

Cash payments of income taxes were $117.4 million, $139.1 million and $125.4 million in 2016, 2015, and 2014, respectively.

The Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. The IRS and other tax authorities routinely audit the Company’s tax returns. These audits can involve complex issues which may require an extended period of time to resolve. During 2015 the IRS commenced an examination of the Company’s 2013 and 2014 Federal income tax returns. The Company expects this examination to be completed within the next 12 months. With few exceptions, the Company is no longer subject to state, local, or non-U.S. income tax examinations by tax authorities for years prior to 2009.

The following tax years, by major jurisdiction, are still subject to examination by taxing authorities:



Jurisdiction	Open Years
United States	2013-2016
UK	2015-2016
Puerto Rico	2012-2016
Canada	2012-2016

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):



	2016			2015			2014
Unrecognized tax benefits at beginning of year	$	20.3		$	21.6		$	14.8
Additions based on tax positions relating to the current year	2.8			2.9			2.9
Reductions based on expiration of statute of limitations	(5.7		)	(2.8		)	(1.2		)
Additions to tax positions relating to previous years	2.9			0.4			9.5
Settlements	(0.1		)	(1.8		)	(4.4		)
TOTAL UNRECOGNIZED TAX BENEFITS	$	20.2		$	20.3		$	21.6

Included in the balance at December 31, 2016 are $16.0 million of tax positions which, if in the future are determined to be recognizable, would affect the annual effective income tax rate. Additionally, there are $1.2 million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty as to the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the applicable taxing authority to an earlier period. It is reasonably possible that in the next twelve months, because of changes in facts and circumstances, the unrecognized tax benefits may increase or decrease.

The Company estimates a possible decrease of $3.0 to $5.0 million within the next twelve months due to the expiration of the statute of limitations and the completion of certain tax audits on various unrecognized tax positions.

The Company’s policy is to record interest and penalties associated with the underpayment of income taxes within Provision for income taxes in the Consolidated Statement of Income. The Company recognized expense, before federal tax impact, related to interest and penalties of approximately $0.7 million in 2016, $1.2 million in 2015 and $1.7 million 2014. The Company had $4.8 million and $4.1 million accrued for the payment of interest and penalties as of December 31, 2016 and December 31, 2015, respectively.

The consolidated effective income tax rate varied from the United States federal statutory income tax rate for the years ended December 31, as follows:



	2016		2015		2014
Federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	2.4		2.3		2.0
Foreign income taxes	(3.4	)	(3.9	)	(2.1	)
Other, net	(3.2	)	(0.8	)	(2.3	)
CONSOLIDATED EFFECTIVE INCOME TAX RATE	30.8	%	32.6	%	32.6	%

The foreign income tax benefit shown is primarily due to lower statutory rates in foreign jurisdictions compared to the Federal statutory rate.