Equifax Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

INCOME TAXES

12 Months Ended

Dec. 31, 2015

The provision for income taxes from continuing operations consisted of the following:



	Twelve Months Ended December 31,
	2015			2014			2013
	(In millions)
Current:
Federal	$	159.0		$	140.7		$	130.9
State	14.7			18.3			16.4
Foreign	56.8			50.8			51.3
	230.5			209.8			198.6
Deferred:
Federal	(7.5		)	0.8			(3.7		)
State	(9.3		)	(0.2		)	2.8
Foreign	(11.9		)	(10.2		)	(8.8		)
	(28.7		)	(9.6		)	(9.7		)
Provision for income taxes	$	201.8		$	200.2		$	188.9

The provision for income taxes from discontinued operations was $17.9 million benefit for the year ended December 31, 2013.

Domestic and foreign income from continuing operations before income taxes was as follows:



	Twelve Months Ended December 31,
	2015		2014		2013
	(In millions)
U.S.	$	607.6	$	521.5	$	458.4
Foreign	29.0		52.7		72.0
	$	636.6	$	574.2	$	530.4

The provision for income taxes reconciles with the U.S. federal statutory rate, as follows:



	Twelve Months Ended December 31,
	2015			2014			2013
	(In millions)
Federal statutory rate	35.0		%	35.0		%	35.0		%

Provision computed at federal statutory rate	$	222.8		$	201.0		$	185.6
State and local taxes, net of federal tax benefit	5.2			13.1			12.1
Foreign	(21.8		)	(7.3		)	(4.1		)
Valuation allowance	—			(2.2		)	(0.6		)
Tax reserves	0.9			0.6			(1.2		)
Other	(5.3		)	(5.0		)	(2.9		)
Provision for income taxes	$	201.8		$	200.2		$	188.9

Effective income tax rate	31.7		%	34.9		%	35.6		%

We record deferred income taxes using enacted tax laws and rates for the years in which the taxes are expected to be paid. Deferred income tax assets and liabilities are recorded based on the differences between the financial reporting and income tax bases of assets and liabilities. For additional information about our income tax policy, see Note 1 of the Notes to Consolidated Financial Statements. The intercompany restructuring of legal entity ownership resulted in the recognition of tax-effected net operating losses for non-US tax purposes in the amount of $106.2 million in 2015. We do not anticipate being able to recognize the benefit of the net operating losses in the foreseeable future resulting in a full valuation allowance as of December 31, 2015.

Components of the deferred income tax assets and liabilities at December 31, 2015 and 2014, were as follows:



	December 31,
	2015			2014
	(In millions)
Deferred income tax assets:
Employee pension benefits	$	131.7		$	142.6
Net operating and capital loss carryforwards	236.1			136.1
Foreign tax credits	50.7			94.7
Employee compensation programs	70.9			67.1
Reserves and accrued expenses	13.9			6.4
Deferred revenue	3.4			3.3
Other	7.6			8.7
Gross deferred income tax assets	514.3			458.9
Valuation allowance	(222.9		)	(121.4		)
Total deferred income tax assets, net	$	291.4		$	337.5

Deferred income tax liabilities:
Goodwill and intangible assets	(332.8		)	(334.5		)
Pension expense	(99.3		)	(99.9		)
Undistributed earnings of foreign subsidiaries	(32.6		)	(96.1		)
Depreciation	(15.1		)	(13.4		)
Other	(10.8		)	(15.4		)
Total deferred income tax liability	(490.6		)	(559.3		)
Net deferred income tax liability	$	(199.2	)	$	(221.8	)

Our deferred income tax assets and deferred income tax liabilities at December 31, 2015 and 2014, are included in the accompanying Consolidated Balance Sheets as follows:



	December 31,
	2015			2014
	(In millions)
Long-term deferred income tax assets, included in other assets	$	6.3		$	6.5
Long-term deferred income tax liabilities	(205.5		)	(228.3		)
Net deferred income tax liability	$	(199.2	)	$	(221.8	)

We record deferred income taxes on the temporary differences of our foreign subsidiaries and branches, except for the temporary differences related to undistributed earnings of subsidiaries which we consider indefinitely invested. As of December 31, 2015, we have indefinitely invested $85.7 million attributable to pre-2004 undistributed earnings of our Canadian and Chilean subsidiaries. If the pre-2004 earnings were not considered indefinitely invested, it would not result in any additional income tax.

At December 31, 2015, we had U.S. federal and state net operating loss carryforwards of $66.3 million which will expire at various times between 2016 and 2032. We also had foreign net operating loss carryforwards totaling $719.9 million of which $13.3 million will expire between 2016 and 2035 and the remaining $706.6 million will carryforward indefinitely. Foreign capital loss carryforwards of $18.2 million may be carried forward indefinitely, and state capital loss carryforwards of $2.5 million will expire in 2018. The deferred tax asset related to the net operating loss and capital loss carryforwards is $236.1 million of which $222.0 million has been fully reserved in the deferred tax valuation allowance. Additionally, we had foreign tax credit carryforwards of $50.7 million, of which $21.6 million will expire in the years 2022 through 2025 and $29.1 million will be available to be utilized upon repatriation of foreign earnings.

Cash paid for income taxes, net of amounts refunded, was $202.9 million, $148.2 million and $174.8 million during the twelve months ended December 31, 2015, 2014 and 2013, respectively.

We recognize interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes on our Consolidated Statements of Income.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	2015			2014
	(In millions)
Beginning balance (January 1)	$	19.8		$	19.1
Increases related to prior year tax positions	5.5			3.0
Decreases related to prior year tax positions	(2.2		)	(0.4		)
Increases related to current year tax positions	4.0			4.4
Decreases related to settlements	(0.5		)	(0.6		)
Expiration of the statute of limitations for the assessment of taxes	(4.5		)	(5.3		)
Currency translation adjustment	(0.5		)	(0.4		)
Ending balance (December 31)	$	21.6		$	19.8

We recorded liabilities of $24.6 million and $23.3 million for unrecognized tax benefits as of December 31, 2015 and 2014, respectively, which included interest and penalties of $3.0 million and $3.5 million, respectively. As of December 31, 2015 and 2014, the total amount of unrecognized benefits that, if recognized, would have affected the effective tax rate was $22.0 million and $20.4 million, respectively, which included interest and penalties of $2.6 million and $3.1 million, respectively. During 2015 and 2014 interest and penalties of $1.3 million and $1.0 million respectively were accrued.

Equifax and its subsidiaries are subject to U.S. federal, state and international income taxes. We are generally no longer subject to federal, state or international income tax examinations by tax authorities for years before 2011. Due to the potential for resolution of state and foreign examinations, and the expiration of various statutes of limitations, it is reasonably possible that Equifax’s gross unrecognized tax benefit balance may change within the next twelve months by a range of zero to $9.4 million.