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Income Taxes | 12 Months Ended
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Dec. 31, 2016
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Income taxes are determined using the liability method of accounting for income taxes, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. If, based upon all available evidence, both positive and negative, it is more likely than not such deferred tax assets will not be realized, a valuation allowance is recorded. Management assessed the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2016. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. On the basis of this evaluation, as of December 31, 2016, a valuation allowance of $119.0 million has been recorded to recognize only the portion of the deferred tax assets that are more likely than not to be realized. The amount of the deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for future growth. We apply a recognition threshold and measurement attribute related to uncertain tax positions taken or expected to be taken on our tax returns. We recognize a tax benefit for financial reporting of an uncertain income tax position when it has a greater than 50% likelihood of being sustained upon examination by the taxing authorities. We measure the tax benefit of an uncertain tax position based on the largest benefit that has a greater than 50% likelihood of being ultimately realized including evaluation of settlements. The components of net loss before income taxes are presented below:
|  | Year Ended December 31,
|  | 2016 |  | 2015 |  | 2014
United States |  | $ | (563.7 | ) |  | $ | (1,662.5 | ) |  | $ | (595.1 | )
Foreign |  | 85.0 |  |  | (31.7 | ) |  | 100.2 |
Net loss before income tax benefit |  | $ | (478.7 | ) |  | $ | (1,694.2 | ) |  | $ | (494.9 | )
The components of income tax benefit are presented below:
|  | Year Ended December 31,
|  | 2016 |  | 2015 |  | 2014
Current |  |  |  |  |  |
U.S. Federal |  | $ | 10.2 |  |  | $ | (24.6 | ) |  | $ | (14.4 | )
U.S. State |  | (0.3 | ) |  | (0.8 | ) |  | 0.3 |
Foreign |  | 32.0 |  |  | 36.4 |  |  | 17.8 |
Total |  | 41.9 |  |  | 11.0 |  |  | 3.7 |
Deferred |  |  |  |  |  |
U.S. Federal |  | (129.5 | ) |  | (287.4 | ) |  | (234.6 | )
U.S. State |  | (8.5 | ) |  | (22.0 | ) |  | (21.2 | )
Foreign |  | (28.9 | ) |  | (1.5 | ) |  | (8.5 | )
Total |  | (166.9 | ) |  | (310.9 | ) |  | (264.3 | )
Total income tax benefit |  | $ | (125.0 | ) |  | $ | (299.9 | ) |  | $ | (260.6 | )
The reconciliation of the U.S. federal statutory tax rate to the actual tax rate is presented below:
|  | Year Ended December 31,
|  | 2016 |  | 2015 |  | 2014
Statutory U.S. federal income tax rate |  | 35.0 | % |  | 35.0 | % |  | 35.0 | %
U.S. state income taxes, net of federal benefit |  | (0.4 | )% |  | 1.4 | % |  | 4.3 | %
Foreign earnings at lower rates than U.S. federal rate |  | (1.5 | )% |  | 0.2 | % |  | (0.5 | )%
Impact of goodwill impairments |  | (0.1 | )% |  | (19.4 | )% |  | — | %
Valuation allowance adjustments |  | (6.5 | )% |  | 0.7 | % |  | 13.2 | %
Other |  | (0.4 | )% |  | (0.2 | )% |  | 0.6 | %
Effective income tax rate |  | 26.1 | % |  | 17.7 | % |  | 52.6 | %
The Company’s 2016 effective tax rate was impacted by the recording of valuation allowances totaling $37.1 million against domestic (federal and state) net deferred tax assets. The Company’s 2015 effective tax rate was impacted by the SG Gaming reporting unit goodwill impairment of $935.0 million for which there was no associated tax benefit. Deferred income taxes reflect the net tax effects of temporary differences between the carrying values of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The deferred income tax balances are established using the enacted statutory tax rates and are adjusted for changes in such rates in the period of change.
|  | As of December 31,
|  | 2016 |  | 2015
Deferred tax assets: |  |  |  |
Inventory valuation |  | $ | 23.4 |  |  | $ | 17.6 |
Reserves and other accrued expenses |  | 59.8 |  |  | 61.4 |
Net operating loss carry forwards |  | 530.4 |  |  | 494.6 |
Tax credit carry forwards |  | 44.5 |  |  | 45.0 |
Valuation allowance |  | (119.0 | ) |  | (95.6 | )
Other |  | 36.6 |  |  | 19.4 |
Realizable deferred tax assets |  | 575.7 |  |  | 542.4 |
Deferred tax liabilities: |  |  |  |
Deferred costs and prepaid expenses |  | (29.8 | ) |  | (31.9 | )
Differences in financial reporting and tax basis for: |  |  |  |
Property and equipment |  | 5.6 |  |  | (8.2 | )
Identifiable intangible assets |  | (597.1 | ) |  | (709.8 | )
Total deferred tax liabilities |  | (621.3 | ) |  | (749.9 | )
Net deferred tax liabilities on balance sheet |  | (45.6 | ) |  | (207.5 | )
Reported As: |  |  |  |
Non-current deferred tax assets |  | 24.6 |  |  | 20.7 |
Non-current deferred tax liabilities |  | (70.2 | ) |  | (228.2 | )
Net deferred tax liabilities on the balance sheet |  | $ | (45.6 | ) |  | $ | (207.5 | )
At December 31, 2016, we had the following NOL carry forwards (tax-effected) and foreign tax credit carry forwards:
| December 31, 2016
| Federal |  | State |  | Foreign
NOL carry forwards | $ | 428.8 |  |  | $ | 62.1 |  |  | $ | 46.6 |
FTC, R&D, AMT carry forwards | 43.6 |  |  | 2.3 |  |  | — |
The Federal and state tax loss carryforwards will expire through 2037. The foreign NOL carryforwards can be carried forward for periods that vary from ten years to indefinitely. Foreign tax credit carryforwards will expire through 2025, R&D tax credit carryforwards will expire through 2036, alternative minimum tax credit carryforwards can be carried forward indefinitely and state tax credits expire through 2023. At December 31, 2016 and 2015, we had the following valuation allowances:
|  | December 31,
|  | 2016 |  | 2015
Federal |  | $ | 27.3 |  |  | $ | — |
State |  | 41.3 |  |  | 34.1 |
FTC |  | 12.7 |  |  | 12.7 |
Foreign |  | 37.7 |  |  | 48.8 |
Our financial statements reflect the tax liability associated with the repatriation of foreign earnings of certain foreign subsidiaries in which the Company does not intend to be indefinitely reinvested outside the U.S. The estimated cumulative amount of earnings from foreign subsidiaries that have been indefinitely reinvested outside of the U.S. was $606.9 million as of December 31, 2016. The determination of the potential net tax liability on repatriations of such amount is not practicable due to the complexities of the hypothetical calculation. Substantially all of our current year foreign cash flows are not intended to be indefinitely reinvested offshore, and therefore the tax effects of repatriation of such cash flows are provided for in our financial reporting. As of December 31, 2016, and 2015, $75.0 million and $80.8 million, respectively, of our cash and cash equivalents were held by foreign subsidiaries. Amounts held by foreign subsidiaries are generally subject to US taxation on repatriation. Unrecognized Tax Benefits We apply a recognition threshold and measurement attribute related to uncertain tax positions taken or expected to be taken on our tax returns. We recognize a tax benefit for financial reporting of an uncertain income tax position when it has a greater than 50% likelihood of being sustained upon examination by the taxing authorities. We measure the tax benefit of an uncertain tax position based on the largest benefit that has a greater than 50% likelihood of being ultimately realized including evaluation of settlements. The total amount of unrecognized tax benefits as of December 31, 2016 was $27.4 million. Of this amount, $27.4 million, if recognized, would be included in our Consolidated Statements of Operations and Comprehensive Loss and have an impact on our effective tax rate. SGC does not anticipate a material change of its liability for unrecognized tax benefits before December 31, 2017. We recognize interest and penalties for unrecognized tax benefits in income tax expense. The amount recognized for interest and penalties during the years ended December 31, 2016, 2015 and 2014 was not material. We had $1.0 million and $0.8 million for the payment of interest and penalties accrued at December 31, 2016 and 2015, respectively. We file income tax returns in the U.S. federal and various states, local, and foreign jurisdictions. We are currently under examination by the IRS for years 2013 and 2014. There are no material state, local, or non-U.S. income tax examinations for years prior to 2013. SGC had the following activity for unrecognized tax benefits:
|  | Year Ended December 31,
|  | 2016 |  | 2015 |  | 2014
Balance at beginning of period |  | $ | 10.8 |  |  | $ | 13.9 |  |  | $ | 8.1 |
Tax positions related to current year additions |  | 8.4 |  |  | 2.0 |  |  | 0.5 |
Additions for tax positions of prior years |  | 9.7 |  |  | 2.4 |  |  | — |
Tax positions related to prior years reductions |  | (0.3 | ) |  | (3.0 | ) |  | (3.5 | )
Reductions due to lapse of statute of limitations on tax positions |  | (0.4 | ) |  | (0.1 | ) |  | — |
Current year business combinations |  | — |  |  | — |  |  | 9.8 |
Settlements |  | (0.8 | ) |  | (4.4 | ) |  | (1.0 | )
Balance at end of period |  | $ | 27.4 |  |  | $ | 10.8 |  |  | $ | 13.9 |

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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