| Income Taxes | Income Taxes Pretax income for 2017 , 2016 and 2015 was taxed in the following jurisdictions: 2017 2016 2015 (In thousands) U.S. $ 302,515 $ 265,260 $ 285,399 Foreign 152,758 103,252 106,946 Total $ 455,273 $ 368,512 $ 392,345 The provision (benefit) for income taxes for 2017 , 2016 and 2015 , was as follows: 2017 2016 2015 (In thousands) Current U.S. $ 91,641 $ 67,668 $ 73,059 State and local 9,342 4,503 6,188 Foreign 50,775 42,540 30,630 Total current 151,758 114,711 109,877 Deferred U.S. (36,390 ) (6,249 ) 7,125 State and local 3,305 (331 ) (1,017 ) Foreign (657 ) (10,728 ) (6,447 ) Total deferred (33,742 ) (17,308 ) (339 ) Total provision for income taxes $ 118,016 $ 97,403 $ 109,538 Deferred tax assets (liabilities) at December 31, 2017 and 2016 were: 2017 2016 (In thousands) Employee and retiree benefit plans $ 31,804 $ 42,950 Capital loss carryforwards 12,853 18,668 Depreciation and amortization (176,592 ) (238,321 ) Inventories 8,548 11,519 Allowances and accruals 4,572 9,338 Interest rate exchange agreement 5,007 10,442 Other (8,019 ) (90 ) Total gross deferred tax (liabilities) (121,827 ) (145,494 ) Capital loss valuation allowance (12,853 ) (18,668 ) Total deferred tax (liabilities), net of valuation allowances $ (134,680 ) $ (164,162 ) The deferred tax assets and liabilities recognized in the Company’s Consolidated Balance Sheets as of December 31, 2017 and 2016 were: 2017 2016 (In thousands) Noncurrent deferred tax asset — Other noncurrent assets $ 2,958 $ 2,265 Noncurrent deferred tax liabilities — Deferred income taxes (137,638 ) (166,427 ) Net deferred tax liabilities $ (134,680 ) $ (164,162 ) The Company had prepaid income taxes, recorded within Other current assets on the Consolidated Balance Sheets, of $40.9 million and $42.2 million as of December 31, 2017 and 2016, respectively. The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to pretax income. The computed amount and the differences for 2017 , 2016 and 2015 are as follows: 2017 2016 2015 (In thousands) Pretax income $ 455,273 $ 368,512 $ 392,345 Provision for income taxes Computed amount at statutory rate of 35% $ 159,346 $ 128,979 $ 137,321 State and local income tax (net of federal tax benefit) 5,841 4,070 5,033 Taxes on non-U.S. earnings-net of foreign tax credits (24,914 ) (6,666 ) (11,663 ) Effect of flow-through entities 192 (8,735 ) (8,358 ) U.S. business tax credits (1,928 ) (1,665 ) (1,273 ) Domestic activities production deduction (8,516 ) (9,043 ) (6,521 ) Deferred tax effect of foreign tax rate change — — (2,636 ) Capital loss on divestitures (2,275 ) (23,444 ) — Share-based payments (6,844 ) (6,520 ) — Valuation allowance (361 ) 17,973 — Impact of Tax Act (100 ) — — Other (2,425 ) 2,454 (2,365 ) Total provision for income taxes $ 118,016 $ 97,403 $ 109,538 On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act included significant changes to the existing tax law, including, but not limited to, a permanent reduction to the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018, and the creation of a modified territorial tax system with a one-time repatriation tax on certain deferred foreign income (“Transition Tax”). We have estimated our provision for income taxes in accordance with the Tax Act and guidance available as of the date of this filing and as a result have recorded a net $0.1 million tax benefit in the fourth quarter of 2017, the period in which the legislation was enacted. Although the net effect from the Tax Act was a $0.1 million tax benefit, there were several offsetting adjustments, including: a $40.6 million provisional tax benefit related to the remeasurement of certain deferred tax assets and liabilities, based on the rates at which they are expected to reverse in the future; $30.3 million of provisional tax expense related to the one-time Transition Tax on the mandatory deemed repatriation of foreign earnings based on cumulative foreign earnings of $779.0 million ; and an additional $10.2 million of tax expense primarily related to the removal of the permanent reinvestment representation with respect to certain of its subsidiaries in Canada, Italy, and Germany. The Company has $350 million and $670 million of permanently reinvested earnings of non-U.S. subsidiaries as of December 31, 2017 and 2016, respectively. The significant decrease in permanently reinvested earnings of non-U.S. subsidiaries was due to the Company’s removal of its permanently reinvested assertion on select entities in Canada, Germany and Italy, mainly in response to the deemed distribution and repatriation tax incurred in 2017 as a result of the Tax Act, further described within the footnote. No deferred U.S. income taxes have been provided on the $350 million of permanently reinvested earnings, as these earnings are provisionally considered to be reinvested for an indefinite period of time, pending further evaluation of the impacts of the Tax Act on the Company. It should also be noted that, pursuant to the Tax Act, the aforementioned earnings will not incur U.S. taxes when ultimately repatriated other than potentially U.S. state and local taxes and/or U.S. federal income taxes on foreign exchange gains or losses crystallized on the distribution of such earnings. Such distributions could also be subject to additional foreign withholding and foreign income taxes. The amount of unrecognized deferred income tax liabilities on currently permanently reinvested earnings is estimated to be $8.2 million as of December 31, 2017. During the years ended December 31, 2017, 2016 and 2015 the Company repatriated $3.3 million , $28.8 million and $14.3 million of foreign earnings, respectively, exclusive of the repatriation tax distributions deemed to have been made under the Tax Act. These actual distributions resulted in $6.4 million of incremental income tax benefit, $2.7 million of incremental income tax expense and $0.3 million of incremental income tax expense, in 2017, 2016, and 2015, respectively. These repatriations represent distributions of current year earnings and distributions from liquidating subsidiaries and did not impact our representation that the undistributed earnings were permanently invested. Because the changes included in the Tax Act are broad and complex, on December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which provides guidance on accounting for tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate to be included in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Tax Act. While the Company is able to make reasonable estimates of the impact of the reduction in corporate rate and the deemed repatriation transition tax, the final impact of the Tax Act may differ from these estimates, due to, among other things, changes in the Company’s interpretations and assumptions, additional guidance that may be issued by either the Internal Revenue Service or the U.S. Department of Treasury, and actions the Company may take. The Company is continuing to gather additional information to determine the final impact. While the Company was able to make reasonable estimates of certain impacts (and therefore, recorded provisional adjustments), the Company’s accounting for the following elements of the Tax Act is incomplete: Deemed Repatriation Transition Tax : The Transition Tax is a tax on previously untaxed accumulated and current earnings and profits of certain foreign subsidiaries. To determine the amount of the Transition Tax, the Company must determine, in addition to other factors, the amount of post-1986 earnings and profits of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. The Company is able to make a reasonable estimate of the Transition Tax and recorded a provisional Transition Tax obligation of $30.3 million . However, the Company is continuing to gather additional information to more precisely compute the amount of Transition Tax. As of December 31, 2017, the company recorded $2.4 million of the Transition tax within accrued liabilities and the remaining $27.9 million within other noncurrent liabilities on the consolidated balance sheets based on the Company’s intention to pay these liabilities. The amount recorded within other noncurrent liabilities is included as a source of cash in Other-net within the operating activities of the Consolidated Statements of Cash Flows. Reduction of U.S. federal corporate tax rate : The Tax Act reduces the corporate tax rate to 21%, effective January 1, 2018. The Company recorded a provisional deferred income tax benefit of $40.6 million for the year ended December 31, 2017 in connection with the remeasurement of certain deferred tax assets and liabilities. While the Company is able to make a reasonable estimate of the impact of the reduction in corporate rate, it may be affected by other analyses related to the Tax Act which are still ongoing, including, but not limited to, the state tax effect of adjustments made to federal temporary differences. Removal of permanent reinvestment representation on certain undistributed foreign earnings : As a result of the enactment of the Tax Act, the Company has decided to remove the permanent reinvestment representation with respect to certain of its subsidiaries in Canada, Italy, and Germany, as of December 31, 2017. Under the mandatory repatriation provisions of the Tax Act, post-1986 undistributed earnings were taxed in the U.S. as if they were distributed before December 31, 2017. However, with the removal of the permanent reinvestment representation with respect to select subsidiaries in Canada, Italy, and Germany, the non-creditable withholding taxes and any local country taxes associated with future dividends from these subsidiaries are required to be recorded as deferred tax liabilities as of the end of 2017. The Company recorded a provisional increase in its deferred tax liability of $9.2 million , with a corresponding adjustment to deferred income tax expense of $9.2 million for the year ending December 31, 2017. The Company is considering removal of the permanent reinvestment representation with respect to its remaining subsidiaries, which it estimates would result in an additional $8.2 million increase in its deferred tax liability. Global intangible low taxed income (“GILTI”) : The Tax Act creates a new requirement that certain income (i.e. GILTI) earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFC’s U.S. shareholder. GILTI is the excess of the U.S. shareholder’s “net CFC tested income” over the net deemed intangible income return, which is currently defined as the excess of (1) 10% of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income. In January 2018, FASB released guidance on the accounting for the GILTI tax. The guidance indicates that either accounting for deferred taxes related to GILTI tax inclusions or treating the GILTI tax as a period cost are both acceptable methods subject to an accounting policy election. Because of the complexity of the new GILTI tax rules, the Company is continuing to evaluate this provision of the Tax Act and the application of ASC 740. Therefore, the Company has not made any adjustments related to potential GILTI tax in the Company’s financial statements and has not made a policy decision regarding whether to record deferred taxes on GILTI. As a result of the enactment of the Tax Act, the Company has decided to remove the ASC 830 representation with respect to certain intercompany loans between the Company’s foreign subsidiaries. Under ASC 830, functional currency assets and liabilities are translated into U.S. dollars generally using current rates of exchange prevailing at the balance sheet date of each respective subsidiary and the related translation adjustments are recorded as a separate component of other comprehensive income. The Company has decided to remove the ASC 830 representation with respect to certain intercompany loans between the Company’s foreign subsidiaries. As a result, the Company recorded an increase in income tax expense of $1.0 million . A reconciliation of the beginning and ending amount of unrecognized tax benefits for 2017 , 2016 and 2015 is as follows: 2017 2016 2015 (In thousands) Beginning balance January 1 $ 3,775 $ 7,228 $ 3,619 Gross increase due to non-U.S. acquisitions — — 3,772 Gross increases for tax positions of prior years 537 201 1,256 Gross decreases for tax positions of prior years (587 ) (93 ) — Settlements (604 ) (2,014 ) (667 ) Lapse of statute of limitations (399 ) (1,547 ) (752 ) Ending balance December 31 $ 2,722 $ 3,775 $ 7,228 We recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2017 , 2016 and 2015 , we had approximately $0.1 million , $0.1 million and $0.2 million , respectively, of accrued interest related to uncertain tax positions. As of December 31, 2017 , 2016 and 2015 , we had approximately zero , $0.1 million and $0.3 million , respectively, of accrued penalties related to uncertain tax positions. The total amount of unrecognized tax benefits that would affect our effective tax rate if recognized is $0.9 million , $1.8 million and $3.0 million as of December 31, 2017 , 2016 and 2015 , respectively. The tax years 2011-2016 remain open to examination by major taxing jurisdictions. Due to the potential for resolution of federal, state and foreign examinations, and the expiration of various statutes of limitation, it is reasonably possible that the Company’s gross unrecognized tax benefits balance may change within the next 12 months by a range of zero to $1.7 million . The Company had net operating loss and credit carryforwards related to prior acquisitions for U.S. federal purposes at December 31, 2017 and 2016 of $2.4 million and $3.5 million , respectively. The U.S. federal net operating loss and credit carryforwards are available for use against the Company’s consolidated U.S. federal taxable income and expire between 2021 and 2028. For non-U.S. purposes, the Company had net operating loss carryforwards at December 31, 2017 and 2016 of $24.5 million and $25.6 million , respectively, the majority of which relates to acquisitions. The entire balance of the non-U.S. net operating losses is available to be carried forward. At December 31, 2017 and 2016 , the Company had U.S. state net operating loss carryforwards of approximately $6.7 million and $33.1 million , respectively. If unutilized, the U.S. state net operating loss will expire between 2019 and 2037. At December 31, 2017 and 2016 , the Company recorded a valuation allowance against the deferred tax asset attributable to the U.S. state net operating loss of $0.1 million and $1.3 million , respectively. The Company had a capital loss carryover for U.S. federal purposes at December 31, 2017 and 2016 of approximately $46.0 million and $70.1 million , respectively. U.S. federal capital loss carryovers can be carried back three years and forward five years, thus, if unutilized, the U.S. federal capital loss carryover will expire in 2021. At December 31, 2017 and 2016 , the Company recorded a valuation allowance against the deferred tax asset attributable to the U.S. federal capital loss carryover of $9.7 million and $18.7 million , respectively. At December 31, 2017 and 2016 , the Company had U.S. state capital loss carryovers of approximately $62.7 million and $70.1 million , respectively. If unutilized, the U.S. state capital loss carryovers will expire between 2021 and 2031. At December 31, 2017 and 2016 , the Company recorded a valuation allowance against the deferred tax assets attributable to the U.S. state capital loss carryovers of $0.8 million and $0.7 million , respectively. At December 31, 2017 and 2016 , the Company had a foreign capital loss carryforward of approximately $14.2 million and $0.7 million , respectively. The foreign capital loss can be carried forward indefinitely. At both December 31, 2017 and 2016 , the Company has a full valuation allowance against the deferred tax asset attributable to the foreign capital loss. |
