Income Taxes

9 Months Ended

Sep. 30, 2017

U.S. and foreign income (loss) before income taxes consist of the following (in millions):



	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
United States	$	(28.2	)	$	(13.0	)	$	(46.7	)	$	(38.6	)
Foreign	72.8			61.4			162.2			178.6
	$	44.6		$	48.4		$	115.6		$	140.1

Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and income tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in income tax rates is recorded as a component of the income tax provision in the period that includes the enactment date.

We have recorded deferred tax assets for gross temporary differences where our tax basis exceeds our book basis, including net operating loss deferred tax assets primarily in the United States. We have also recorded deferred tax liabilities for gross temporary differences where our book basis exceeds our tax basis.

Regular assessments are made on the likelihood that our deferred tax assets will be recovered from our future taxable income. Our evaluation is based on estimates, assumptions, and includes an analysis of available positive and negative evidence, giving weight based on the evidence’s relative objectivity. Sources of positive evidence include estimates of future taxable income, future reversal of existing taxable temporary differences, taxable income in carryback years, and available tax planning strategies. Sources of negative evidence include current and cumulative losses in recent years, losses expected in early future years, any history of operating losses or tax credit carryforwards expiring unused, and unsettled circumstances that, if unfavorably resolved, would adversely affect future profit levels.

The remaining carrying value of the Company’s deferred tax assets, after recording the valuation allowance on our U.S. deferred tax assets, is based on our present belief that it is more likely than not that we will be able to generate sufficient future taxable income in certain tax jurisdictions to utilize such deferred tax assets. The amount of the remaining deferred tax assets considered recoverable could be adjusted if our estimates of future taxable income during the carryforward period change favorably or unfavorably. To the extent we believe that it is more likely than not that some or all of the remaining deferred tax assets will not be realized, we must establish a valuation allowance against those deferred tax assets, resulting in additional income tax expense in the period such determination is made. To the extent a valuation allowance currently exists, we will continue to monitor all positive and negative evidence until we believe it is more likely than not that it is no longer necessary, resulting in an income tax benefit in the period such determination is made.

Our income tax provision for the periods presented and the respective effective income tax rates for such periods are as follows (in millions, except for income tax rates):



	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Income tax provision	$	82.6		$	5.4		$	92.2		$	15.7

Effective income tax rate	185.0		%	11.1		%	79.8		%	11.2		%

Our provision for income taxes for the three months ended September 30, 2017 was $82.6 million and includes a valuation allowance on our U.S. deferred tax assets of $76.9 million, due to the Company's U.S. operations generating a three-year cumulative loss during the quarter. The valuation allowance is comprised of $24.0 million of deferred tax assets generated during 2017 and $52.9 million related to deferred tax assets generated in previous years. In addition, the provision also includes other net discrete items totaling $1.7 million, primarily related to changes in estimates in uncertain tax positions and an adjustment for stock based compensation. Without the $76.9 million valuation adjustment and other discrete items, the effective income tax rate would have been 12.5% for the three months ended September 30, 2017.

Our provision for income taxes for the nine months ended September 30, 2017 was $92.2 million, and includes the U.S. valuation allowance of $76.9 million and other discrete amounts of $5.6 million related to changes in estimates in uncertain tax positions and an adjustment for stock based compensation. Without the valuation allowance of $76.9 million and other discrete items, the nine months ended September 30, 2017 effective income tax rate would have been 8.3%.

Our provision for income taxes for each of the nine months ended September 30, 2017 and 2016 was calculated based on the estimated annual effective income tax rate for 2017 and 2016 fiscal years. The actual effective income tax rate for the 2017 fiscal year may be materially different as a result of differences between estimated versus actual results and the geographic tax jurisdictions in which the results are earned.

We operate under a special income tax concession in Singapore which began January 1, 2008. Our current 5 year special income tax concession was effective January 1, 2013. The special income tax concession is conditional upon our meeting of certain employment and investment thresholds which, if not met in accordance with our agreement, may eliminate the benefit beginning with the first year in which the conditions are not satisfied. The income tax concession reduces the income tax rate on qualified sales and the impact of this income tax concession decreased foreign income taxes by $0.2 million and $0.6 million for the three months ended September 30, 2017 and 2016, respectively, and by $1.4 million and $2.3 million for the nine months ended September 30, 2017 and 2016, respectively. The impact of the income tax concession on basic earnings per common share was $0.01 for the three months ended September 30, 2016, and $0.02 and $0.03 for the nine months ended September 30, 2017 and 2016, respectively.

The impact of the income tax concession on diluted earnings per common share was $0.01 for the three months ended September 30, 2016 and $0.02 and $0.03 for the nine months ended September 30, 2017 and 2016, respectively. The income tax concession did not have an impact on basic and diluted earnings per common share for the three months ended September 30, 2017.

The South Korea branch of one of our subsidiaries has received an income tax assessment notice for the years 2011 - 2014 totaling $8.2 million (KRW 9.2 billion). We disagree with the South Korea tax authorities' assessment and are in the process of appealing.