Income Taxes

Earnings from continuing operations are summarized below:



(in millions)	2014		2013		2012
Earnings (loss) from continuing operations before income taxes:
Domestic	$	32.6	$	90.1	$	94.1
Foreign	136.8		135.1		52.8
Total	$	169.4	$	225.2	$	146.9

Income tax expense (benefit) from continuing operations is summarized as follows:



(in millions)	2014			2013			2012
Current:
Federal and state	$	(12.0	)	$	24.1		$	29.2
Foreign	26.8			25.4			17.3
Total current	$	14.8		$	49.5		$	46.5
Deferred:
Federal and state	$	4.5		$	(15.2	)	$	(5.2	)
Foreign	(10.7		)	1.8			(3.3		)
Total deferred	$	(6.2	)	$	(13.4	)	$	(8.5	)
Provision for taxes on earnings	$	8.6		$	36.1		$	38.0

The federal statutory income tax rate is reconciled to the company’s effective income tax rate for continuing operations for the years ended December 31, 2014, 2013 and 2012 as follows, which excludes the impact of discontinued operations which had an effective tax rate of 6.9% for 2014:



	2014		2013		2012
Federal income tax at statutory rate	35.0	%	35.0	%	35.0	%
State income provision (benefit)	(0.4	)	(0.5	)	0.3
Manufacturing & research incentives	(2.7	)	(3.3	)	(3.5	)
Taxes on foreign income which differ from the U.S. statutory rate	(14.4	)	(9.3	)	(7.7	)
Adjustments for unrecognized tax benefits	(1.4	)	(5.4	)	(6.7	)
Adjustments for valuation allowances	26.8		(1.0	)	9.2
Capital loss generation	(45.7	)	—		—
Change in assertion over permanently reinvested foreign earnings	3.2		—		—
Other items	4.7		0.5		(0.7	)
Effective tax rate	5.1	%	16.0	%	25.9	%

The 2014, 2013, and 2012 effective tax rates were favorably impacted by income earned in jurisdictions where the statutory rate was less than 35%.

In the third quarter of 2014, the company made an election with the Internal Revenue Service to treat Enodis Holdings Ltd, the company’s UK Holding Company, as a partnership for U.S. federal income tax purposes. As a result of this status change, the company realized a $25.6 million capital loss tax benefit. This transaction resulted in an effective tax rate benefit of 15.1%.

As of each reporting date, the company's management considers new evidence, both positive and negative, that could impact management's view with regard to future realization of deferred tax assets. In the second quarter of 2014, management determined that it was more likely than not that deferred taxes of $9.0 million related to its China crane operations were realizable, and reduced the related valuation allowance. In the third quarter of 2014, management determined that it was more likely than not that deferred taxes of $3.6 million related to its Spanish foodservice operations were realizable, and reduced the related valuation allowance. In the fourth quarter of 2014, due to a Spanish legislative change, management determined that it was more likely than not that additional deferred taxes of $0.6 million related to its Spanish foodservice operations were realizable, and reduced the valuation allowance accordingly. In the fourth quarter of 2014, the company recorded a valuation allowance of $1.1 million on the Wisconsin net operating loss carryforwards as management determined that it was more likely than not that a portion of the losses would not be realized. The company continues to record valuation allowances on the deferred tax assets in France, Italy, Slovakia, and the UK, as it remains more likely than not that they will not be utilized.

The company will continue to periodically evaluate its valuation allowance requirements in light of changing facts and circumstances, and may adjust its deferred tax asset valuation allowances accordingly. It is reasonably possible that the company will either add to, or reverse a portion of its existing deferred tax asset valuation allowances in the future. Such changes in the deferred tax asset valuation allowances will be reflected in the current operations through the company’s income tax provision, and could have a material effect on operating results.

No items included in Other items are individually, or when appropriately aggregated, significant.

Temporary differences and carryforwards that give rise to deferred tax assets and liabilities include the following items:



(in millions)	2014			2013
Current deferred tax assets (liabilities):
Inventories	$	29.5		$	32.3
Accounts receivable	(5.6		)	(2.1		)
Product warranty reserves	19.0			20.0
Product liability reserves	8.3			7.9
Deferred revenue, current portion	7.7			0.6
Deferred employee benefits	13.3			16.6
Other reserves and allowances	5.7			16.1
Less valuation allowance	(12.2		)	(3.6		)
Net deferred tax assets, current	$	65.7		$	87.8
Non-current deferred tax assets (liabilities):
Property, plant and equipment	$	(28.2	)	$	(32.6	)
Intangible assets	(281.8		)	(296.3		)
Deferred employee benefits	87.7			67.1
Product warranty reserves	5.2			4.2
Tax credits	1.0			2.3
Loss carryforwards	199.0			192.7
Deferred revenue	4.0			5.9
Other	(0.7		)	(2.4		)
Total non-current deferred tax liabilities	(13.8		)	(59.1		)
Less valuation allowance	(156.0		)	(146.2		)
Net deferred tax liabilities, non-current	$	(169.8	)	$	(205.3	)

The net deferred tax assets (liabilities) are reflected in the Consolidated Balance Sheets for the years ended December 31, 2014 and December 31, 2013 as follows:



(in millions)	2014			2013
Current income tax asset	$	71.3		$	89.9
Long-term income tax assets, included in other non-current assets	16.4			9.0
Current deferred income tax liability, included in accounts payable and accrued expenses	(5.6		)	(2.1		)
Long-term deferred income tax liability	(186.2		)	(214.3		)
Net deferred income tax liability	$	(104.1	)	$	(117.5	)

The company has not provided for additional U.S. income taxes on approximately $652.8 million of undistributed earnings of consolidated non-U.S. subsidiaries included in stockholders’ equity. Such earnings could become taxable upon sale or liquidation of these non-U.S. subsidiaries or upon dividend repatriation of cash balances. It is not practicable to estimate the amount of the unrecognized tax liability on such earnings. At December 31, 2014, approximately $37.2 million of the company’s total cash and cash equivalents were held by its foreign subsidiaries. This cash is associated with earnings that the company has asserted are permanently reinvested. The company has no current plans to repatriate cash or cash equivalents held by its foreign subsidiaries because it plans to reinvest such cash and cash equivalents to support its operations and continued growth plans outside the United States through the funding of capital expenditures, acquisitions, research, operating expenses or other similar cash needs of these operations. Further, the company does not currently forecast a need for these funds in the United States because its U.S. operations and debt service are supported by the cash generated by its U.S. operations. During 2014, the company could no longer assert permanent reinvestment on one subsidiary and as a result, a liability was recorded in the amount of $5.4 million.

The company has approximately $520.9 million of state net operating loss carryforwards, which are available to reduce future state tax liabilities. These state net operating loss carryforwards expire at various times through 2031. The company has recognized a deferred tax asset of $19.2 million for net operating loss carryforwards generated in the state of Wisconsin.

The company has approximately $551.5 million of foreign loss carryforwards, which are available to reduce future foreign tax liabilities. Substantially all of the foreign loss carryforwards are not subject to any time restrictions on their future use, and $495.7 million are offset by a valuation allowance. The company also has approximately $139.1 million of U.S. capital loss carryforwards which expire in 2019 and are offset by a valuation allowance.

The company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. The following table provides the open tax years for which the company could be subject to income tax examination by the tax authorities in its major jurisdictions:



Jurisdiction		Open Years
U.S. Federal		2012 — 2014
Wisconsin		2009 — 2014
China		2007 — 2014
France		2013 — 2014
Germany		2006 — 2014

The company was under examination by the Internal Revenue Service for the calendar years 2007 through 2011. The examination of the company’s 2007 through 2009 U.S. tax returns was closed during the third quarter of 2014 as the Joint Committee on Taxation concurred with the previously reached tentative resolution of the Appeals division, which was in the company’s favor. The 2010 and 2011 U.S. tax return examination was closed in the fourth quarter of 2014. The adjustments did not have a material impact on the financial statements. There have been no significant developments with respect to the company’s ongoing tax audits in other jurisdictions.

The company regularly assesses the likelihood of an adverse outcome resulting from examinations to determine the adequacy of its tax reserves. As of December 31, 2014, the company believes that it is more likely than not that the tax positions it has taken will be sustained upon the resolution of its audits resulting in no material impact on its consolidated financial position and the results of operations and cash flows. However, the final determination with respect to any tax audits, and any related litigation, could be materially different from the company’s estimates and/or from its historical income tax provisions and accruals and could have a material effect on operating results and/or cash flows in the periods for which that determination is made. In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties, and/or interest assessments.

During the years ended December 31, 2014, 2013 and 2012, the company recorded a change to gross unrecognized tax benefits including interest and penalties of $(9.8) million, $(20.7) million, and $(10.4) million, respectively. The effective tax rate in 2014, 2013, and 2012 was favorably impacted by the release of reserves of $8.3 million, $9.4 million and $11.6 million, respectively, resulting from favorable audit outcomes, and other settlements.

During the years ended December 31, 2014, 2013 and 2012, the company recognized in the consolidated statements of operations $(5.2) million, $(9.3) million, and $(1.4) million, respectively, for interest and penalties related to uncertain tax liabilities, which the company recognizes as a part of income tax expense. As of December 31, 2014 and 2013, the company has accrued interest and penalties of $5.6 million and $12.8 million, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2014, 2013 and 2012 is as follows:



(in millions)	2014			2013			2012
Balance at beginning of year	$	35.9		$	47.3		$	56.3
Additions based on tax positions related to the current year	15.5			2.0			1.8
Additions for tax positions of prior years	0.1			3.7			3.6
Reductions for tax positions of prior years	(2.7		)	(8.1		)	(11.9		)
Reductions based on settlements with taxing authorities	(7.3		)	(3.6		)	(1.1		)
Reductions for lapse of statute	(8.2		)	(5.4		)	(1.4		)
Balance at end of year	$	33.3		$	35.9		$	47.3

Substantially all of the company’s unrecognized tax benefits as of December 31, 2014, 2013 and 2012, if recognized, would affect the effective tax rate.

During the next twelve months, it is reasonably possible that federal, state and foreign tax audit resolutions could reduce unrecognized tax benefits and income tax expense by up to $3.7 million, either because the company’s tax positions are sustained on audit or settled, or the applicable statute of limitations closes.