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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Taxes |
Income Taxes | Note 4—Income Taxes The components of income before income taxes and the provision for income taxes are as follows:
|  | Year Ended December 31, |
|  | 2017 |  | 2016 |  | 2015 |
Income before income taxes: |  |  |  |  |  |  |  |  |  |
United States |  | $ | 153.0 |  | $ | 87.7 |  | $ | 134.4 |
Foreign |  |  | 1,199.4 |  |  | 1,053.4 |  |  | 918.4 |
|  | $ | 1,352.4 |  | $ | 1,141.1 |  | $ | 1,052.8 |
Current tax provision: |  |  |  |  |  |  |  |  |  |
United States |  | $ | 200.0 |  | $ | 74.6 |  | $ | 39.5 |
Foreign |  |  | 305.4 |  |  | 263.8 |  |  | 228.1 |
|  |  | 505.4 |  |  | 338.4 |  |  | 267.6 |
Deferred tax provision (benefit): |  |  |  |  |  |  |  |  |  |
United States |  |  | 51.0 |  |  | (32.3) |  |  | 13.3 |
Foreign |  |  | 135.3 |  |  | 2.4 |  |  | (0.4) |
|  |  | 186.3 |  |  | (29.9) |  |  | 12.9 |
Total provision for income taxes |  | $ | 691.7 |  | $ | 308.5 |  | $ | 280.5 |
On December 22, 2017, the United States federal government enacted the Tax Act, marking a change from a worldwide tax system to a modified territorial tax system in the United States. As part of this change, the Tax Act, among other changes, provides for a transition tax on the accumulated unremitted foreign earnings and profits of the Company’s foreign subsidiaries (“Transition Tax”) and a reduction of the U.S. federal corporate income tax rate from 35% to 21%. As a result, in the fourth quarter of 2017, the Company recorded an income tax charge of $398.5 (“Tax Act Charge”) that was comprised of (i) the Transition Tax of $259.4, (ii) a charge of $176.6 related to changes in the Company’s permanent reinvestment assertion with regards to prior accumulated unremitted earnings from certain foreign subsidiaries, partially offset by (iii) a tax benefit of $37.5 associated with the remeasurement of the Company’s U.S. net deferred tax liabilities due to the U.S. federal corporate tax rate reduction. These three components of the Tax Act Charge are provisional amounts recorded in accordance with Staff Accounting Bulletin No. 118 (“SAB 118”), which addresses the application of U.S. GAAP in situations where a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. Due to the timing of the Tax Act’s enactment and the complexity of its provisions, the Company has not completed its accounting for the impact of the Tax Act. The Company will analyze guidance and technical interpretations of the provisions of the Tax Act, as well as refine, analyze and update the underlying data, computations and assumptions used to prepare these provisional amounts. The Company will complete its accounting in 2018 once the Company has obtained, prepared and fully analyzed all the necessary information. We will pay the Transition Tax, net of applicable tax credits and deductions, over the next eight years starting in 2018, as permitted under the Tax Act. The current and long-term portions of the Transition Tax are recorded on the Consolidated Balance Sheet as of December 31, 2017 in Accrued income taxes and Other long-term liabilities, respectively. The tax charge related to changes in the Company’s permanent reinvestment assertion was recorded in 2017 due to our intention to repatriate prior accumulated unremitted earnings from certain foreign subsidiaries over time. We will pay such taxes when those respective earnings are repatriated. At December 31, 2017, the Company had $139.6 of foreign tax loss carryforwards, $3.5 of U.S. federal loss carryforwards, and $45.9 of U.S. state tax loss carryforwards, of which $98.6, $3.5 and $45.9, respectively, will either expire or be refunded at various dates through 2037 and the balance can be carried forward indefinitely. The Company had $2.8 of foreign tax credit carryforwards, $32.7 of U.S. federal tax credit carryforwards, and $12.4 of U.S. state tax credit carryforwards, of which $2.8, $32.7 and $6.8, respectively, will either expire or be refunded at various dates through 2037 and the balance can be carried forward indefinitely. A valuation allowance of $39.6 and $37.2 at December 31, 2017 and 2016, respectively, has been recorded which relates to the U.S. federal and state and foreign net operating loss carryforwards and U.S. state tax credits. The net change in the valuation allowance for deferred tax assets was an increase of $2.4 in 2017, which related to foreign net operating loss and U.S. state credit carryforwards. The net change in the valuation allowance for deferred tax assets was an increase of $18.7 in 2016, which was related to foreign net operating loss, U.S. federal net operating loss and state credit carryforwards. Differences between the U.S. statutory federal tax rate and the Company’s effective income tax rate are analyzed below:
|  | Year Ended December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
U.S. statutory federal tax rate |  | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State and local taxes |  | 0.2 |  |  | 0.1 |  |  | 0.1 |
Foreign earnings and dividends taxed at different rates |  | (9.1) |  |  | (9.7) |  |  | (8.8) |
Valuation allowance |  | 0.1 |  |  | 0.7 |  |  | 0.3 |
Tax Act - transition tax |  | 19.2 |  |  | — |  |  | — |
Tax Act - remeasurement of deferred tax liabilities, net |  | (2.8) |  |  | — |  |  | — |
Tax Act - change in indefinite reinvestment assertion |  | 13.1 |  |  | — |  |  | — |
Excess tax benefits related to stock-based compensation |  | (4.9) |  |  | — |  |  | — |
Impact of acquisition-related expenses |  | — |  |  | 0.5 |  |  | 0.1 |
Other, net |  | 0.3 |  |  | 0.4 |  |  | (0.1) |
Effective tax rate |  | 51.1 | % |  | 27.0 | % |  | 26.6 | %
The components of the Company’s deferred tax assets and liabilities are comprised of the following:
|  | December 31,
|  | 2017 |  | 2016
Deferred tax assets relating to: |  |  |  |  |  |
Accrued liabilities and reserves |  | $ | 31.7 |  | $ | 36.8
Operating loss and tax credit carryforwards |  |  | 84.2 |  |  | 58.8
Pensions |  |  | 27.8 |  |  | 64.7
Inventories |  |  | 35.1 |  |  | 45.3
Employee benefits |  |  | 29.8 |  |  | 43.4
Total deferred tax assets |  |  | 208.6 |  |  | 249.0
Valuation allowance |  |  | (39.6) |  |  | (37.2)
Total deferred tax assets, net of valuation allowances |  |  | 169.0 |  |  | 211.8
Deferred tax liabilities relating to: |  |  |  |  |  |
Goodwill |  |  | 135.5 |  |  | 185.9
Depreciation and amortization |  |  | 61.8 |  |  | 67.6
Unremitted foreign earnings |  |  | 176.6 |  |  | —
Contingent consideration |  |  | 4.3 |  |  | 6.6
Total deferred tax liabilities |  |  | 378.2 |  |  | 260.1
Net deferred tax liability |  | $ | 209.2 |  | $ | 48.3
Classification of deferred tax assets and liabilities, as reflected on the Consolidated Balance Sheets: |  |  |  |  |  |
Intangibles, net and other long-term assets |  | $ | 32.0 |  | $ | 29.4
Deferred income taxes |  |  | 241.2 |  |  | 77.7
Net deferred tax liability, long-term |  | $ | 209.2 |  | $ | 48.3
A tabular reconciliation of the gross amounts of unrecognized tax benefits excluding interest and penalties at the beginning and end of the year for 2017, 2016 and 2015 is shown below. The gross increases for tax positions in prior periods recorded in 2016 included $78.7 related to acquisitions.
|  | 2017 |  | 2016 |  | 2015 |
Unrecognized tax benefits as of January 1 |  | $ | 106.2 |  | $ | 29.8 |  | $ | 27.7 |
Gross increases for tax positions in prior periods |  |  | 32.7 |  |  | 81.9 |  |  | 0.3 |
Gross increases for tax positions in current period |  |  | 2.4 |  |  | 7.0 |  |  | 2.1 |
Settlements |  |  | (11.0) |  |  | (10.8) |  |  | — |
Lapse of statute of limitations |  |  | (3.0) |  |  | (1.7) |  |  | (0.3) |
Unrecognized tax benefits as of December 31 |  | $ | 127.3 |  | $ | 106.2 |  | $ | 29.8 |
The Company includes estimated interest and penalties related to unrecognized tax benefits in the provision for income taxes. During the years ended December 31, 2017, 2016 and 2015, the provision for income taxes included a net expense of $3.7, $6.5 and $1.5, respectively, in estimated interest and penalties. As of December 31, 2017, 2016 and 2015, the liability for unrecognized tax benefits included $39.3, $35.3 and $6.0, respectively, for tax-related interest and penalties. The Company operates in the U.S. and numerous foreign taxable jurisdictions, and at any point in time has numerous audits underway at various stages of completion. With few exceptions, the Company is subject to income tax examinations by tax authorities for the years 2013 and after. The Company is generally not able to precisely estimate the ultimate settlement amounts or timing until the close of an audit. The Company evaluates its tax positions and establishes liabilities for uncertain tax positions that may be challenged by tax authorities and may not be fully sustained, despite the Company’s belief that the underlying tax positions are fully supportable. As of December 31, 2017 and 2016, the amount of the liability for unrecognized tax benefits, including penalties and interest, which if recognized would impact the effective tax rate, was approximately $130.1 and $138.7, respectively, which is included in Other long-term liabilities in the accompanying Consolidated Balance Sheets. Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including progress of tax audits and the closing of statutes of limitation. Based on information currently available, management anticipates that over the next twelve-month period, audit activity could be completed and statutes of limitation may close relating to existing unrecognized tax benefits of approximately $38.4.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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