INCOME TAXES

The Company's income before income taxes and the applicable provision for income taxes are as follows:



	Year Ended December 31,
	2016			2015			2014
Income (loss) from continuing operations before income taxes:
United States	$	4.2		$	114.4		$	137.1
Foreign	4.3			(3.7		)	(19.7		)
	$	8.5		$	110.7		$	117.4
Provision for income taxes:
United States federal	$	7.6		$	37.7		$	54.6
State and local	2.3			16.9			18.1
Foreign	15.6			(3.2		)	5.1
	$	25.5		$	51.4		$	77.8
Current:
United States federal	$	9.0		$	(2.7	)	$	2.6
State and local	2.5			4.1			3.7
Foreign	20.2			21.7			7.2
	31.7			23.1			13.5
Deferred:
United States federal	(1.4		)	40.4			52.0
State and local	(0.2		)	12.8			14.4
Foreign	(4.6		)	(24.9		)	(2.1		)
	(6.2		)	28.3			64.3
Total provision for income taxes	$	25.5		$	51.4		$	77.8

The Company classifies interest and penalties as a component of the provision for income taxes. The Company recognized in the Consolidated Statements of Operations and Comprehensive (Loss) Income an expense of $0.3 million in 2016 and a benefit of $1.0 million and $0.9 million during 2015 and 2014, respectively, in accrued interest and penalties.

The Company has not provided for U.S. federal income taxes and foreign withholding taxes on $321.9 million of foreign subsidiaries' cumulative undistributed earnings as of December 31, 2016 because such earnings are intended to be indefinitely reinvested overseas. If these foreign earnings are repatriated to the U.S., or if the Company determines that such earnings will be remitted in a future period, additional tax provisions may be required. Due to the complexities in the tax laws and the assumptions that would have to be made, it is not practicable to estimate the amounts of income tax provisions that may be required on account of these foreign undistributed earnings.

The actual tax on income before income taxes is reconciled to the applicable statutory federal income tax rate in the following table:



	Year Ended December 31,
	2016		2015			2014
Computed income tax expense	$	3.0	$	38.8		$	41.1
State and local taxes, net of U.S. federal income tax benefit	1.8		11.1			19.9
Foreign and U.S. tax effects attributable to operations outside the U.S.	3.1		13.6			5.8
Net establishment (release) of valuation allowance	2.0		(15.5		)	6.4
Foreign dividends and earnings taxable in the U.S.	1.7		3.2			5.4
Impairment for which there is no tax benefit	8.9		—			—
Acquisition costs for which there is no tax benefit	0.7		—			—
Other	4.3		0.2			(0.8		)
Total provision for income taxes	$	25.5	$	51.4		$	77.8

Deferred taxes are the result of temporary differences between the bases of assets and liabilities for financial reporting and income tax purposes. Deferred tax assets and liabilities at December 31, 2016 and 2015 were comprised of the following:



	December 31,
	2016			2015
Deferred tax assets:
Inventories	$	30.9		$	7.3
Net operating loss carryforwards - U.S.	140.4			47.2
Net operating loss carryforwards - foreign	50.5			51.4
Employee benefits	91.7			96.7
Sales related reserves	23.9			25.8
Foreign currency translation adjustment	9.9			11.0
Other	89.4			52.7
Total gross deferred tax assets	436.7			292.1
Less valuation allowance	(81.4		)	(47.1		)
Total deferred tax assets, net of valuation allowance	355.3			245.0
Deferred tax liabilities:
Plant, equipment and other assets	(26.0		)	(29.9		)
Intangibles	(132.4		)	(82.4		)
Other	(57.6		)	(63.2		)
Total gross deferred tax liabilities	(216.0		)	(175.5		)
Net deferred tax assets	$	139.3		$	69.5

In assessing the recoverability of its deferred tax assets, management regularly considers whether for some portion or all of the deferred tax assets it is more likely than not that a benefit will not be realized for these assets. The ultimate realization of deferred tax assets is generally dependent upon the generation of future taxable income during the periods in which those temporary differences may become deductible. In assessing the need for a valuation allowance, management evaluates the available pertinent positive and negative evidence, such as the Company's history of earnings, the scheduled reversal of deferred tax assets and liabilities, projected earnings, and income and available tax planning strategies.

A valuation allowance has been provided for those deferred tax assets for which, in the opinion of the Company's management, it is more likely than not that a benefit will not be realized. At December 31, 2016, the deferred tax valuation allowance primarily represented amounts for foreign jurisdictions where, as of the end of 2016, the Company had a three-year cumulative loss, and for certain U.S. jurisdictions where the Company had tax loss carryforwards and other tax attributes which may expire prior to being utilized. The deferred tax valuation allowance increased by $34.3 million and decreased by $10.0 million during 2016 and 2015, respectively. The increase in the deferred tax valuation allowance during 2016 was primarily associated with deferred taxes added as a result of the Elizabeth Arden Acquisition, the majority of which were established through purchase accounting. The decrease in the deferred tax valuation allowance during 2015 was primarily due to an $18.4 million reduction of the Company's valuation allowance against certain deferred tax assets in the U.K., partially offset by additional valuation allowances on current period net operating losses incurred in certain jurisdictions. The UK valuation allowance reduction in 2015 was a result of the Company determining that it was more likely than not that a benefit would be received for U.K. deferred tax assets. This conclusion was reached after consideration of the available positive and negative evidence, with the most significant positive evidence being the recent history of earnings, improved earnings trends, expected taxable income in future periods, and no history of losses expiring unused. There was no significant negative evidence.

As of December 31, 2016, the Company has tax loss carryforwards of approximately $512.7 million, of which $215.6 million are foreign and $297.1 million are domestic (federal). The losses expire in future years as follows: 2017- $0.2 million; 2018- $4.8 million; 2019- $16.6 million; 2020 and beyond- $323.4 million; and unlimited- $167.7 million. The Company could receive the benefit of such tax loss carryforwards only to the extent it has taxable income during the carryforward periods in the applicable tax jurisdictions. As of December 31, 2016, there were no consolidated federal net operating losses available from the MacAndrews & Forbes Group (as hereinafter defined) from periods prior to the March 25, 2004 deconsolidation (as described below). The Company has acquired entities which had carryforward balances for tax losses, tax credits and other tax attributes at the time of the acquisition. U.S. Federal and certain state and foreign jurisdictions impose limitations on the amount of these tax losses, tax credits and other carryforward balances that may be utilized after an acquisition. The Company has evaluated the impact of these limitations, and has established a valuation allowance to reduce the deferred tax assets to the amount that the Company expects will be realized.

The Company remains subject to examination of its income tax returns in various jurisdictions, including, without limitation: Australia, Canada, South Africa, Spain and the U.S. (federal) for tax years ended December 31, 2012 and forward; and the U.K. for tax years ended December 31, 2013 and forward.

Elizabeth Arden remains subject to examination of its income tax returns in various jurisdictions, including, without limitation: the U.S. (federal) for the tax years ended June 30, 2010 and forward; and Switzerland for tax years ended June 30, 2014 and forward.

At December 31, 2016 and 2015, the Company had unrecognized tax benefits of $93.3 million and $65.0 million, respectively, including $10.6 million and $10.3 million, respectively, of accrued interest and penalties. Of the $93.3 million unrecognized tax benefits, $57.0 million would affect the Company's effective tax rate, if recognized, and the remaining $36.3 million would affect the Company's deferred tax accounts. A reconciliation of the beginning and ending amount of the unrecognized tax benefits is provided in the following table:



Balance at January 1, 2015	$	62.0
Increase based on tax positions taken in a prior year	5.6
Decrease based on tax positions taken in a prior year	(5.8		)
Increase based on tax positions taken in the current year	8.5
Decrease resulting from the lapse of statutes of limitations	(5.3		)
Balance at December 31, 2015	65.0
Increase based on tax positions taken in a prior year	25.9
Decrease based on tax positions taken in a prior year	(1.3		)
Increase based on tax positions taken in the current year	9.3
Decrease resulting from the lapse of statutes of limitations	(5.6		)
Balance at December 31, 2016	$	93.3

In addition, the Company believes that it is reasonably possible that its unrecognized tax benefits during 2017 will decrease by approximately $9.6 million due to the resolution of audits and the expiration of statutes of limitation.

As a result of the closing of the 2004 Revlon Exchange Transactions (as hereinafter defined in Note 22, “Related Party Transactions - Tax Sharing Agreements”), as of March 25, 2004, Revlon, Products Corporation and their U.S. subsidiaries were no longer included in the affiliated group of which MacAndrews & Forbes was the common parent (the “MacAndrews & Forbes Group”) for federal income tax purposes. Revlon Holdings (as hereinafter defined in Note 22, “Related Party Transactions - Transfer Agreements”), Revlon, Products Corporation and certain of its subsidiaries, and MacAndrews & Forbes Incorporated entered into a tax sharing agreement (as subsequently amended and restated, the "MacAndrews & Forbes Tax Sharing Agreement"), for taxable periods beginning on or after January 1, 1992 through and including March 25, 2004, during which Revlon and Products Corporation or a subsidiary of Products Corporation was a member of the MacAndrews & Forbes Group. In these taxable periods, Revlon's and Products Corporation's federal taxable income and loss were included in such group's consolidated tax return filed by MacAndrews & Forbes Incorporated. During such period, Revlon and Products Corporation were also included in certain state and local tax returns of MacAndrews & Forbes Incorporated or its subsidiaries. Revlon and Products Corporation remain liable under the MacAndrews & Forbes Tax Sharing Agreement for all such taxable periods through and including March 25, 2004 for amounts determined to be due as a result of a redetermination arising from an audit or otherwise, equal to the taxes that Revlon or Products Corporation would otherwise have had to pay if it were to have filed separate federal, state or local income tax returns for such periods.

Following the closing of the 2004 Revlon Exchange Transactions, Revlon became the parent of a new consolidated group for federal income tax purposes and Products Corporation's federal taxable income and loss are included in such group's consolidated tax returns. Accordingly, Revlon and Products Corporation entered into a tax sharing agreement (the "Revlon Tax Sharing Agreement") pursuant to which Products Corporation is required to pay to Revlon amounts equal to the taxes that Products Corporation would otherwise have had to pay if Products Corporation were to file separate federal, state or local income tax returns, limited to the amount, and payable only at such times, as Revlon will be required to make payments to the applicable taxing authorities.

There were no federal tax payments or payments in lieu of taxes from Revlon to Revlon Holdings pursuant to the MacAndrews & Forbes Tax Sharing Agreement in 2016 or 2015 with respect to periods covered by the MacAndrews & Forbes Tax Sharing Agreement, and the Company expects that there will not be any such payments in 2017. During 2016, there were no federal tax payments from Products Corporation to Revlon pursuant to the Revlon Tax Sharing Agreement with respect to 2016 or 2015. During 2015, there were no federal tax payments from Products Corporation to Revlon pursuant to the Revlon Tax Sharing Agreement with respect to 2015. The Company expects that there will be no federal tax payments from Products Corporation to Revlon pursuant to the Revlon Tax Sharing Agreement during 2017 with respect to 2016.

Pursuant to the asset transfer agreement referred to in Note 22, “Related Party Transactions - Transfer Agreements,” Products Corporation assumed all tax liabilities of Revlon Holdings other than (i) certain income tax liabilities arising prior to January 1, 1992 to the extent such liabilities exceeded the reserves on Revlon Holdings' books as of January 1, 1992 or were not of the nature reserved for and (ii) other tax liabilities to the extent such liabilities are related to the business and assets retained by Revlon Holdings.