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Income Taxes | 6 Months Ended
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Jun. 30, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The Company’s effective tax rates for the three-month and six-month periods ended June 30, 2018 were 30.0% and 23.2%, respectively. The variance from the 2018 federal statutory rate of 21% for the three months and six months ended June 30, 2018 was attributable to increases related to foreign earnings subject to U.S. taxation, the U.S. impact of the Enterprise acquisition, partially offset by lower tax rates in foreign jurisdictions, and the generation of tax credits in the current year. The Company’s effective tax rate was further increased by additional uncertain tax positions, adjustments to provisional items related to the Tax Cuts and Jobs Act enacted in December 2017 (“U.S. Tax Reform” or “the Act”), and partially decreased by share-based compensation benefits. The increase in uncertain tax positions is related to interpretive guidance issued during the second quarter of 2018 that impacted management’s judgment with respect to prior year tax positions. In the prior year, the effective tax rates for the three-month and six-month periods ended July 1, 2017 were 10.5% and (47.1)%, respectively. The variance from the 2017 federal statutory rate of 35% for the three months and six months ended July 1, 2017 was attributable to lower tax rates in foreign jurisdictions, the generation of tax credits and benefits for share-based compensation, which were partially offset by the U.S. impact of the Enterprise acquisition and state deferred tax expense due to changes in our business operations. The Company’s effective tax rate for the six months ended July 1, 2017 was further reduced by benefits associated with an intercompany sale of intellectual property and a rate decrease in Singapore. Pre-tax earnings outside the United States are primarily generated in the United Kingdom, Singapore, and Luxembourg, with statutory rates of 19%, 17%, and 27%, respectively. During 2017, the Company received approval from the Singapore Economic Development Board for a tax rate of 10% with the Company’s commitment to make increased investments in Singapore. The Singapore incentivized rate expires on December 31, 2018. Quarterly, Management evaluates all jurisdictions based on historical pre-tax earnings and taxable income to determine the need for valuation allowances. Based on this analysis, a valuation allowance has been recorded for any jurisdictions where, in the Company’s judgment, tax benefits will not be realized. Uncertain Tax Positions The Company is currently undergoing U.S. Federal income tax audits for the years 2013 through 2015, as well as UK income tax years 2012 and 2014. The tax years 2004 through 2016 remain open to examination by multiple foreign and U.S. state taxing jurisdictions. The Company continues to believe its positions are supportable, however, the Company anticipates that $22 million of uncertain tax benefits may be disallowed within the next twelve months and has reflected this liability as current within the Company’s Consolidated Balance Sheets. During the second quarter of 2018, the Company recorded a $13 million charge related to increases in income tax uncertainties for prior year tax positions. Due to uncertainties in any tax audit or litigation outcome, the Company’s estimates of the ultimate settlement of uncertain tax positions may change and the actual tax benefits may differ significantly from the estimates. Impact of U.S. Tax Reform Enacted on December 22, 2017, the Act reduces the U.S. federal corporate tax rate from 35% to 21%, and requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. Based on current operations, we estimate that the Company is subject to the Global Intangible Low-Taxed Income and the Deduction for Foreign-Derived Intangible Income provisions of the Act. We estimate that the new limitations which defer U.S. interest deductions in excess of 30% of Adjusted Taxable Income are not applicable. Additionally, the Company is no longer able to deduct performance-based compensation for its covered employees which exceeds the limitation under Internal Revenue Code Section 162(m). These impacts are included in the calculation of our annual estimated effective tax rate. Provisional amounts At June 30, 2018, we continue to analyze the accounting for the tax effects of enactment of the Act. The Company remeasured U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, the remeasurement of deferred taxes requires further analysis regarding the state tax impacts of the remeasurement, the impact of the Act on the taxation of executive compensation arrangements, changes to tax capitalization provisions and other aspects of the Act that may impact our tax balances. The Company recorded a provisional amount of $36 million in the December 31, 2017 financial statements for the one-time transition tax. The Internal Revenue Service issued Notice 2018-26 on April 2, 2018, which required an additional $8 million of tax expense to be recorded in the quarter ended June 30, 2018, increasing the total provisional amount to $44 million. The Company utilized $10 million of deferred tax assets for income tax credits available to offset the one-time transition tax, and estimates its cash tax liability to be $34 million, that will be remitted over the next eight years in annual amounts ranging from $3 to $8 million. We continue to evaluate the transition charge based on guidance issued. The transition tax is based in part on the amount of those earnings held in cash and other specified assets. This calculation may change when we finalize the calculation of post-1986 foreign earnings and profit previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets. The Company earns a significant amount of its operating income outside of the U.S. The Company’s policy considers its U.S. investment in directly-owned foreign affiliates to be indefinitely reinvested. Under the Act, future unremitted foreign earnings will no longer be subject to tax when repatriated to its U.S. parent, but may be subject to withholding taxes of the payor affiliate country. Additionally, gains and losses on taxable dispositions of U.S.-owned foreign affiliates continue to be subject to U.S. tax.

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- Definition 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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