Income Taxes

6 Months Ended

Jun. 30, 2017

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



	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
United States	$	(4.8	)	$	(20.8	)	$	(18.5	)	$	(25.5	)
Foreign	39.6			57.6			89.4			117.2
	$	34.9		$	36.9		$	70.9		$	91.6

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, and we also have net operating loss deferred tax assets, primarily in the Unites 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 carrying value of the Company’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 deferred tax asset 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 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.

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 Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Income tax provision	$	4.6		$	7.1		$	9.6		$	10.3

Effective income tax rate	13.2		%	19.4		%	13.5		%	11.2		%

Our provision for income taxes for the three months ended June 30, 2017 was adjusted for an income tax expense of $2.7 million, net, for discrete items related to changes in estimates in uncertain tax positions. Without the $2.7 million adjustment, the three month period ended June 30, 2017 effective income tax rate would have been 5.4%. The actual effective income tax rate for the full 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. Our provision for income taxes for each of the six-month periods ended June 30, 2017 and 2016 was calculated based on the estimated annual effective income tax rate for the full 2017 and 2016 fiscal years. Our provision for income taxes for the six months ended June 30, 2017 was adjusted for an income tax expense of $3.9 million, net, for discrete items related to changes in estimates in uncertain tax positions and an adjustment for stock based compensation in accordance with ASU 2016-09. Without the $3.9 million expense, the six month period ended June 30, 2017 effective income tax rate would have been 8.1%.

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 $0.5 million and $1.2 million for the three months ended June 30, 2017 and 2016, respectively, and by $1.3 million and $1.8 million for the six months ended June 30, 2017 and 2016, respectively. The impact of the income tax concession on basic earnings per common share was $0.01 and $0.02 for the three months ended June 30, 2017 and 2016, respectively, and $0.02 and $0.03 for the six months ended June 30, 2017 and 2016, respectively. On a diluted earnings per common share basis, the impact was $0.01 and $0.02 for the three months ended June 30, 2017 and 2016, respectively, and $0.02 and $0.03 for the six months ended June 30, 2017 and 2016, respectively.

During the second quarter of 2017, we signed an agreement with the Internal Revenue Service (IRS) which effectively closed the income tax audit for the tax years 2011 and 2012. The matter had already been provided for within our reserve estimates.

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.