Income Taxes

Earnings from continuing operations are summarized below:



(in millions)	2015			2014		2013
Earnings (loss) from continuing operations before income taxes:
Domestic	$	(91.5	)	$	32.6	$	90.1
Foreign	148.1			136.8		135.1
Total	$	56.6		$	169.4	$	225.2

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



(in millions)	2015			2014			2013
Current:
Federal and state	$	(0.9	)	$	(12.0	)	$	24.1
Foreign	30.1			26.8			25.4
Total current	$	29.2		$	14.8		$	49.5
Deferred:
Federal and state	$	(37.7	)	$	4.5		$	(15.2	)
Foreign	1.8			(10.7		)	1.8
Total deferred	$	(35.9	)	$	(6.2	)	$	(13.4	)
(Benefit) provision for taxes on earnings	$	(6.7	)	$	8.6		$	36.1

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, 2015, 2014 and 2013 as follows:



	2015		2014		2013
Federal income tax at statutory rate	35.0	%	35.0	%	35.0	%
State income provision (benefit)	(7.3	)	(0.4	)	(0.5	)
Manufacturing & research incentives	(5.2	)	(2.7	)	(3.3	)
Taxes on foreign income which differ from the U.S. statutory rate	(34.2	)	(14.4	)	(9.3	)
Adjustments for unrecognized tax benefits	(2.7	)	(1.4	)	(5.4	)
Adjustments for valuation allowances	(31.2	)	26.8		(1.0	)
Capital loss generation	—		(45.7	)	—
Change in assertion over permanently reinvested foreign earnings	—		3.2		—
Business acquisitions & divestitures	14.1		—		—
Spin-off tax costs	13.3		—		—
Other items	6.4		4.7		0.5
Effective tax rate	(11.8	)%	5.1	%	16.0	%

The 2015, 2014, and 2013 effective tax rates were favorably impacted by income earned in jurisdictions where the statutory rate was less than 35%. The impact of the foreign rate differential in 2015 is consistent with prior years, however it presents as a large percentage of the effective tax rate reconciliation due to the reduction in 2015 earnings compared to the prior years.

The 2015 tax provision benefited by $17.8 million related to the divestiture of the Kysor Panel Systems business resulting in a favorable impact to the effective tax rate. The benefit was primarily due to the write-off of $13.8 million of the unamortized deferred tax liability that was recorded in purchase accounting and as a result of the utilization of the capital loss carryforward to offset the tax gain. The effective tax rate was also impacted by nondeductible costs associated with the Spin-Off of the Foodservice business.

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 2015, management determined that it was more likely than not that deferred tax assets of $4.0 million related to its Brazilian crane manufacturing operations were not realizable and recorded a valuation allowance. The company continues to record valuation allowances on the deferred tax assets in Brazil, France, 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)	2015			2014
Current deferred tax assets (liabilities):
Inventories	$	—		$	29.5
Accounts receivable	—			(5.6		)
Product warranty reserves	—			19.0
Product liability reserves	—			8.3
Deferred revenue, current portion	—			7.7
Deferred employee benefits	—			13.3
Other reserves and allowances	—			5.7
Less valuation allowance	—			(12.2		)
Net deferred tax assets, current	$	—		$	65.7
Non-current deferred tax assets (liabilities):
Inventories	37.6			—
Accounts receivable	(5.7		)	—
Property, plant and equipment	(13.6		)	(28.2		)
Intangible assets	(256.7		)	(281.8		)
Deferred employee benefits	92.9			87.7
Product warranty reserves	21.3			5.2
Product liability reserves	8.7			—
Tax credits	0.4			1.0
Loss carryforwards	157.7			199.0
Deferred revenue	11.2			4.0
Other	8.8			(0.7		)
Total non-current deferred tax liabilities	62.6			(13.8		)
Less valuation allowance	(137.0		)	(156.0		)
Net deferred tax liabilities, non-current	$	(74.4	)	$	(169.8	)

The net deferred tax assets (liabilities) are reflected in the Consolidated Balance Sheets for the years ended December 31, 2015 and December 31, 2014 as follows:



(in millions)	2015			2014
Current income tax asset	$	—		$	71.3
Long-term income tax assets, included in other non-current assets	15.0			16.4
Current deferred income tax liability, included in accounts payable and accrued expenses	—			(5.6		)
Long-term deferred income tax liability	(89.4		)	(186.2		)
Net deferred income tax liability	$	(74.4	)	$	(104.1	)

The company has not provided for additional U.S. income taxes on approximately $550.5 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, 2015, approximately $46.9 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 U.S. 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 U.S. because its U.S. operations and debt service are supported by the cash generated by its U.S. operations.

The company has approximately $538.5 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 $19.3 million for net operating loss carryforwards generated in the state of Wisconsin.

The company has approximately $506.8 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 $473.0 million are offset by a valuation allowance. The company also has approximately $63.3 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 — 2015
Wisconsin		2009 — 2015
China		2007 — 2015
France		2013 — 2015
Germany		2011 — 2015

Among other regular and ongoing examinations by federal and state jurisdictions globally, the company is under examination by the Internal Revenue Service for calendar year 2014. 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, 2015, 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, 2015, 2014 and 2013, the company recorded a change to gross unrecognized tax benefits including interest and penalties of $(2.0) million, $(9.8) million, and $(20.7) million, respectively. The effective tax rate in 2015, 2014, and 2013 was favorably impacted by the release of reserves of $0.0 million, $8.3 million and $9.4 million, respectively, resulting from favorable audit outcomes, and other settlements.

During the years ended December 31, 2015, 2014 and 2013, the company recognized in the Consolidated Statements of Operations $(0.5) million, $(5.2) million, and $(9.3) 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, 2015 and 2014, the company has accrued interest and penalties of $5.0 million and $5.6 million, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2015, 2014 and 2013 is as follows:



(in millions)	2015			2014			2013
Balance at beginning of year	$	33.3		$	35.9		$	47.3
Additions based on tax positions related to the current year	1.4			15.5			2.0
Additions for tax positions of prior years	0.2			0.1			3.7
Reductions for tax positions of prior years	—			(2.7		)	(8.1		)
Reductions based on settlements with taxing authorities	—			(7.3		)	(3.6		)
Reductions for lapse of statute	(3.1		)	(8.2		)	(5.4		)
Balance at end of year	$	31.8		$	33.3		$	35.9

Substantially all of the company’s unrecognized tax benefits as of December 31, 2015, 2014 and 2013, 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 $1.3 million, either because the company’s tax positions are sustained on audit or settled, or the applicable statute of limitations closes.