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Income Taxes | 12 Months Ended
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Dec. 31, 2015
Income Taxes | 15. Income Taxes The components of income from continuing operations before income taxes and noncontrolling interests were as follows:
(In millions) |  | 2015 |  |  | 2014 |  |  | 2013 |
Domestic operations |  | $ | 387.7 |  |  | $ | 301.4 |  |  | $ | 243.8 |
Foreign operations |  |  | 72.2 |  |  |  | 90.5 |  |  |  | 66.7 |
Income before income taxes and noncontrolling interests |  | $ | 459.9 |  |  | $ | 391.9 |  |  | $ | 310.5 |
A reconciliation of income taxes at the 35% federal statutory income tax rate to the income tax provision reported was as follows:
(In millions) |  | 2015 |  |  | 2014 |  |  | 2013 |
Income tax expense computed at federal statutory income tax rate |  | $ | 161.0 |  |  | $ | 137.2 |  |  | $ | 108.7 |
Other income taxes, net of federal tax benefit |  |  | 9.4 |  |  |  | 7.2 |  |  |  | 7.0 |
Foreign taxes at a different rate than U.S. federal statutory income tax rate |  |  | (8.7 | ) |  |  | (13.4 | ) |  |  | (10.1 | )
Tax benefit on income attributable to domestic production activities |  |  | (12.5 | ) |  |  | (7.6 | ) |  |  | (5.2 | )
Net adjustments for uncertain tax positions |  |  | 4.7 |  |  |  | 4.7 |  |  |  | 3.0 |
Net effect of rate changes on deferred taxes |  |  | 0.2 |  |  |  | (0.7 | ) |  |  | (1.6 | )
Valuation allowance increase (decrease) |  |  | 0.8 |  |  |  | (4.1 | ) |  |  | 2.1 |
Miscellaneous other, net |  |  | (1.5 | ) |  |  | (5.0 | ) |  |  | (2.4 | )
Income tax expense as reported |  | $ | 153.4 |  |  | $ | 118.3 |  |  | $ | 101.5 |
Effective income tax rate |  |  | 33.4 | % |  |  | 30.2 | % |  |  | 32.7 | %
The effective income tax rates for 2015, 2014 and 2013 were favorably impacted by the tax benefit attributable to the Domestic Production Activity (Internal Revenue Code Section 199) Deduction, favorable tax rates in foreign jurisdictions, and a benefit associated with the various extensions of the U.S. research and development credit, offset by state and local taxes and increases to uncertain tax positions. The benefit associated with the favorable tax rates in foreign jurisdictions is affected by overall allocation of income, rate changes and impact of foreign exchange rates. In 2015, the effective income tax rate benefit from foreign tax rates was reduced, as compared to prior years, due to the overall allocation of income within foreign jurisdictions and an expiration of a favorable tax incentive that in total increased the effective foreign tax rate by 6%. The 2015 effective income tax rate was unfavorably impacted by $2.4 million related to nondeductible acquisition costs. The effective tax rate in 2014 was favorably impacted by the release of valuation allowances related to state net operating loss carryforwards of $4.1 million. A reconciliation of the beginning and ending amount of unrecognized tax benefits (UTBs) was as follows:
(In millions) |  | 2015 |  |  | 2014 |  |  | 2013 |
Unrecognized tax benefits — beginning of year |  | $ | 31.0 |  |  | $ | 23.7 |  |  | $ | 20.8 |
Gross additions — current year tax positions |  |  | 4.6 |  |  |  | 8.7 |  |  |  | 4.4 |
Gross additions — prior year tax positions |  |  | 8.3 |  |  |  | 2.2 |  |  |  | 0.7 |
Gross additions (reductions) — purchase accounting adjustments |  |  | 0.1 |  |  |  | (1.1 | ) |  |  | 1.6 |
Gross reductions — prior year tax positions |  |  | (2.1 | ) |  |  | (2.5 | ) |  |  | (3.2 | )
Gross reductions — settlements with taxing authorities |  |  | (3.6 | ) |  |  | — |  |  |  | (0.6 | )
Impact of change in foreign exchange rates |  |  | (0.1 | ) |  |  | — |  |  |  | — |
Unrecognized tax benefits — end of year |  | $ | 38.2 |  |  | $ | 31.0 |  |  | $ | 23.7 |
The amount of UTBs that, if recognized as of December 31, 2015, would affect the Company’s effective tax rate was $27.8 million. It is reasonably possible that, within the next twelve months, total UTBs may decrease in the range of $7.5 million to $12.5 million primarily as a result of the conclusion of U.S. federal, state and foreign income tax proceedings. We classify interest and penalty accruals related to UTBs as income tax expense. In 2015, we recognized an interest and penalty expense of approximately $1.0 million. In 2014, we recognized an interest and penalty expense of approximately $0.5 million. In 2013, we recognized an interest and penalty benefit of approximately $0.2 million. At December 31, 2015 and 2014, we had accruals for the payment of interest and penalties of $10.2 million and $10.7 million, respectively. We file income tax returns in the U.S., various state and foreign jurisdictions. The Company is currently under examination by the U.S. Internal Revenue Service (“IRS”) for the periods related to 2011 through 2012. We have tax years that remain open and subject to examination by tax authorities in the following major taxing jurisdictions: Canada for years after 2010, Mexico for years after 2006 and China for years after 2011. Income taxes in 2015, 2014 and 2013 were as follows:
(In millions) |  | 2015 |  |  | 2014 |  |  | 2013 |
Current |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 130.6 |  |  | $ | 86.9 |  |  | $ | 96.3 |
Foreign |  |  | 19.7 |  |  |  | 12.3 |  |  |  | 12.5 |
State and other |  |  | 16.1 |  |  |  | 12.0 |  |  |  | 11.1 |
Deferred |  |  |  |  |  |  |  |  |  |  |  |
Federal, state and other |  |  | (11.3 | ) |  |  | 2.7 |  |  |  | (20.2 | )
Foreign |  |  | (1.7 | ) |  |  | 4.4 |  |  |  | 1.8 |
Total income tax expense |  | $ | 153.4 |  |  | $ | 118.3 |  |  | $ | 101.5 |
The components of net deferred tax assets (liabilities) as of December 31, 2015 and 2014 were as follows:
(In millions) |  | 2015 |  |  | 2014 |
Deferred tax assets: |  |  |  |  |  |  |  |
Compensation and benefits |  | $ | 32.8 |  |  | $ | 32.5 |
Defined benefit plans |  |  | 84.4 |  |  |  | 83.9 |
Capitalized inventories |  |  | 12.1 |  |  |  | 10.9 |
Accounts receivable |  |  | 7.7 |  |  |  | 7.5 |
Other accrued expenses |  |  | 23.7 |  |  |  | 17.2 |
Net operating loss and other tax carryforwards |  |  | 39.9 |  |  |  | 15.8 |
Valuation allowance |  |  | (19.7 | ) |  |  | (12.0 | )
Miscellaneous |  |  | 6.1 |  |  |  | 3.7 |
Total deferred tax assets |  |  | 187.0 |  |  |  | 159.5 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
LIFO inventories |  |  | (8.2 | ) |  |  | (9.3 | )
Fixed assets |  |  | (48.5 | ) |  |  | (60.6 | )
Identifiable intangible assets |  |  | (194.6 | ) |  |  | (205.0 | )
Investment in partnership |  |  | (129.8 | ) |  |  | — |
Miscellaneous |  |  | (0.2 | ) |  |  | (1.7 | )
Total deferred tax liabilities |  |  | (381.3 | ) |  |  | (276.6 | )
Net deferred tax liability |  | $ | (194.3 | ) |  | $ | (117.1 | )
In accordance with ASC requirements for Income Taxes, deferred taxes were classified in the consolidated balance sheets as of December 31, 2015 and 2014 as follows:
(In millions) |  | 2015 |  |  | 2014 |
Other current assets |  | $ | — |  |  | $ | 33.8 |
Other current liabilities |  |  | — |  |  |  | (2.4 | )
Other assets |  |  | 7.4 |  |  |  | 2.1 |
Deferred income taxes |  |  | (201.7 | ) |  |  | (150.6 | )
Net deferred tax liability |  | $ | (194.3 | ) |  | $ | (117.1 | )
In accordance with the ASU 2015-17, Balance Sheet Classification of Deferred Taxes, issued by the FASB on November 20, 2015, the Company has elected to adopt the provisions of the ASU, beginning with its year ended December 31, 2015. The Company has applied the provisions of this ASU on a prospective basis, and therefore, has not retrospectively adjusted its prior periods’ classification of deferred taxes. See ‘Recently Issued Accounting Standards’ section in Note 2 “Significant Accounting Policies” for more discussion on this early adoption of the standard. Included in the Company’s 2015 components of net deferred tax liabilities is an investment in partnership resulting from the purchase of Norcraft, whose primary operating company is structured as a partnership. As of December 31, 2015 and 2014, the Company had deferred tax assets relating to net operating losses, capital losses, and other tax carryforwards of $39.9 million and $15.8 million, respectively, of which approximately $10.1 million will expire between 2016 and 2020, and the remainder which will expire in 2021 and thereafter. Included in the tax loss carryforwards are net operating loss carryforwards acquired in the purchase of Norcraft. The Company has provided a valuation allowance to reduce the carrying value of certain of these deferred tax assets, as management has concluded that, based on the available evidence, it is more likely than not that the deferred tax assets will not be fully realized. The undistributed earnings of foreign subsidiaries that are considered indefinitely reinvested were $270.1 million at December 31, 2015. A quantification of the associated deferred tax liability on these undistributed earnings has not been made, as the determination of such liability is not practicable. In October, 2011, we separated from our Former Parent. During 2012, we analyzed the subsidiary legal and capital structures inherited from our Former Parent to assess their compatibility with our strategies as a new independent company. Based on this analysis, in the fourth quarter of 2012, we committed to a plan to reorganize certain foreign subsidiaries and adjust their capital structures to better align with our business strategy as a new independent company. As part of this plan, we committed to a non-recurring remittance of certain foreign earnings and recorded an associated tax liability of $12.4 million. The remaining portion of this liability as of December 31, 2015 is $1.4 million. We have not provided deferred income taxes on the remaining undistributed earnings of foreign subsidiaries. In general, under the Tax Allocation Agreement that we entered into with our Former Parent, Fortune Brands is responsible for all taxes to the extent such taxes are attributable to the Home & Security business, and we agreed to indemnify our Former Parent for these taxes. Our Former Parent will be responsible for all taxes to the extent such taxes are not attributable to the Fortune Brands business and our Former Parent has agreed to indemnify us for these taxes. Though valid as between the parties, the Tax Allocation Agreement will not be binding on the IRS or other taxing authorities.

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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=6907707&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=6907707&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=6907707&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=6907707&loc=d3e32537-109319 + Details
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