|12 Months Ended|
Dec. 31, 2016
|Income Tax Disclosure [Abstract]|
The sources of Earnings before income taxes were as follows:
The Income tax provision consisted of the following:
Temporary differences and carryforwards giving rise to deferred tax assets and liabilities at December 31, 2016 and 2015, are summarized in the table below:
During the third quarter of 2014, the Company completed the sale of its retail bowling business. This transaction generated capital gains for tax purposes allowing the Company to utilize all of its capital loss carryforwards. Therefore, during the third quarter of 2014, the Company recorded a $9.5 million reversal of its deferred tax asset valuation allowance reserves related to capital loss carryforwards, which has been reflected as a tax benefit reported in Note 2 – Discontinued Operations.
At December 31, 2016, the Company had a total valuation allowance against its deferred tax assets of $78.1 million. The remaining realizable value of deferred tax assets at December 31, 2016 was determined by evaluating the potential to recover the value of these assets through the utilization of tax loss and credit carrybacks, the reversal of existing taxable temporary differences and carryforwards, certain tax planning strategies and future taxable income exclusive of reversing temporary differences and carryforwards. At December 31, 2016, the Company retained valuation allowance reserves of $58.1 million against deferred tax assets in the U.S. primarily related to non-amortizable intangibles and various state operating loss carryforwards and state tax credits that are subject to restrictive rules for future utilization, and valuation allowances of $20.0 million for deferred tax assets related to foreign jurisdictions, primarily Brazil.
At December 31, 2016, the tax benefit of loss carryforwards totaling $71.8 million was available to reduce future tax liabilities. This deferred tax asset was comprised of $4.2 million for the tax benefit of federal net operating loss (NOL) carryforwards, $47.3 million for the tax benefit of state NOL carryforwards and $20.3 million for the tax benefit of foreign NOL carryforwards. NOL carryforwards of $51.6 million expire at various intervals between the years 2017 and 2036, while $20.2 million have an unlimited life.
At December 31, 2016, tax credit carryforwards totaling $49.5 million were available to reduce future tax liabilities. This deferred tax asset was comprised of $11.1 million related to general business credits and other miscellaneous federal credits, and $38.4 million of various state tax credits related to research and development, capital investment and job incentives. Tax credit carryforwards of $49.3 million expire at various intervals between the years 2017 and 2036, while $0.2 million have an unlimited life.
The Company provides deferred taxes for the presumed ultimate repatriation to the U.S. of earnings from certain of its non-U.S. subsidiaries and unconsolidated affiliates. Through December 31, 2014 the indefinite reinvestment criteria had been applied to certain entities and allowed the Company to overcome that presumption to the extent the earnings were to be indefinitely reinvested outside the United States. As a result of the Company's internal restructuring of its foreign entities that was initiated in the second quarter of 2015, the Company determined that the indefinite reinvestment assertion should be expanded to include additional non-U.S. subsidiaries. As a result of the 2015 actions, the Company recorded a discrete net tax benefit in the second quarter of 2015 which includes the benefit of applying the indefinite reinvestment assertion to the foreign entities reorganized under a new European holding company. No deferred income taxes have been provided as of December 31, 2016 on the applicable undistributed earnings of the non-U.S. subsidiaries where the indefinite reinvestment assertion has been applied. The Company had undistributed earnings of foreign subsidiaries of $286.7 million and $214.1 million at December 31, 2016 and 2015, respectively, for which deferred taxes have not been provided as such earnings are presumed to be indefinitely reinvested in the foreign subsidiaries. It is not practical to determine the amount of deferred income taxes not provided on these earnings. If at some future date these earnings cease to be indefinitely reinvested and are repatriated, the Company may be subject to additional U.S. income taxes and foreign withholding and other taxes on such amounts. The Company continues to provide deferred taxes, as required, on the undistributed net earnings of foreign subsidiaries and unconsolidated affiliates that are not deemed to be indefinitely reinvested in operations outside the United States.
As of December 31, 2016, 2015 and 2014 the Company had $3.5 million, $4.8 million and $5.1 million of gross unrecognized tax benefits, including interest, respectively. Substantially all of these amounts, if recognized, would impact the Company's tax provision and the effective tax rate.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2016, 2015 and 2014, the amounts accrued for interest and penalties were not significant.
The following is a reconciliation of the total amounts of unrecognized tax benefits excluding interest and penalties for the 2016 and 2015 annual reporting periods:
The Company believes it is reasonably possible that the total amount of gross unrecognized tax benefits as of December 31, 2016 could decrease by approximately $1.1 million in 2017 due to settlements with taxing authorities or lapses in applicable statutes of limitation. Due to the various jurisdictions in which the Company files tax returns and the uncertainty regarding the timing of the settlement of tax audits, it is possible that there could be significant changes in the amount of unrecognized tax benefits in 2017, but the amount cannot be estimated.
The Company is regularly audited by federal, state and foreign tax authorities. The Internal Revenue Service (IRS) has completed its field examination and has issued its Revenue Agents Report through the 2012 tax year and all open issues have been resolved. The Company is currently open to tax examinations by the IRS for the 2013 through 2015 tax years and the 2014 tax year is currently under examination. Primarily as a result of filing amended returns, which were generated by the closing of federal income tax audits, the Company is still open to state and local tax audits in major tax jurisdictions dating back to the 2011 taxable year. Following the completion in the fourth quarter of 2015 of the 2008 through 2012 Germany tax audit, the Company is no longer subject to income tax examinations by any major foreign tax jurisdiction for years prior to 2013.
The difference between the actual income tax provision (benefit) and the tax provision computed by applying the statutory Federal income tax rate to Earnings before income taxes is attributable to the following:
Income tax provision allocated to continuing operations and discontinued operations for the years ended December 31 was as follows:
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.
Reference 1: http://www.xbrl.org/2003/role/presentationRef