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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes |
14. | Income Taxes
The components of income from continuing operations before provision for income taxes consisted of the following (dollars in thousands):
|  | Year Ended December 31, |
|  |  | 2017 |  |  |  | 2016 |  |  |  | 2015 |
Domestic |  | $ | 577,098 |  |  | $ | 536,869 |  |  | $ | 600,939 |
Foreign |  |  | 586,995 |  |  |  | 343,857 |  |  |  | 278,791 |
|  | $ | 1,164,093 |  |  | $ | 880,726 |  |  | $ | 879,730 |
Our tax provision (benefit) consisted of the following (dollars in thousands):
|  | Year Ended December 31, |
|  |  | 2017 |  |  |  | 2016 |  |  |  | 2015 |
Federal: |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | 275,475 |  |  | $ | 172,380 |  |  | $ | 215,703 |
Deferred |  |  | 39,563 |  |  |  | 27,463 |  |  |  | 1,559 |
|  |  | 315,038 |  |  |  | 199,843 |  |  |  | 217,262 |
State: |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | 21,212 |  |  |  | 20,946 |  |  |  | 24,476 |
Deferred |  |  | 5,646 |  |  |  | 375 |  |  |  | 861 |
|  |  | 26,858 |  |  |  | 21,321 |  |  |  | 25,337 |
Foreign: |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | 123,840 |  |  |  | 94,909 |  |  |  | 91,048 |
Deferred |  |  | 411 |  |  |  | (19,411 | ) |  |  | (12,794 | )
|  |  | 124,251 |  |  |  | 75,498 |  |  |  | 78,254 |
|  | $ | 466,147 |  |  | $ | 296,662 |  |  | $ | 320,853 |
The following is a reconciliation stated as a percentage of pre-tax income of the U.S. statutory federal income tax rate to our effective tax rate:
|  | Year Ended December 31, |
|  |  | 2017 |  |  |  | 2016 |  |  |  | 2015 |
Federal statutory tax rate |  |  | 35 | % |  |  | 35 | % |  |  | 35 | %
Tax Reform |  |  | 12 |  |  |  | — |  |  |  | — |
State taxes, net of federal benefit |  |  | 2 |  |  |  | 2 |  |  |  | 3 |
Non-deductible expenses |  |  | 2 |  |  |  | — |  |  |  | 1 |
Change in valuation allowance |  |  | (2 | ) |  |  | 2 |  |  |  | (1 | )
Reserves for uncertain tax positions |  |  | (2 | ) |  |  | — |  |  |  | 1 |
Credits and exemptions |  |  | (3 | ) |  |  | (2 | ) |  |  | (2 | )
Foreign rate differential |  |  | (5 | ) |  |  | (2 | ) |  |  | (2 | )
Other |  |  | 1 |  |  |  | (1 | ) |  |  | 1 |
Effective tax rate |  |  | 40 | % |  |  | 34 | % |  |  | 36 | %
On December 22, 2017, the Tax Act was signed into law making significant changes to the IRC, including, but not limited to: (i) a U.S. corporate tax rate decrease from 35% to 21%, effective for tax years beginning after December 31, 2017; (ii) the transition of U.S. international taxation from a worldwide tax system to a territorial system; and (iii) a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. In December 2017, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin No. 118 (SAB 118), “Income Tax Accounting Implications of the Tax Cuts and Jobs Act,” which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Our provision for income taxes for 2017 included a net charge of $143.4 million attributable to the Tax Act, with a provisional amount of $158.0 million representing our estimate of the U.S. federal and state tax impact of the transition tax (which includes the anticipated income tax benefit of the release of valuation allowances on foreign income tax credits that will be used to reduce the tax liability resulting from the transition tax), partially offset by a net income tax benefit of $14.6 million related to the re-measurement of U.S. federal deferred tax assets and liabilities (after considering certain other measures of the Act that affected our existing deferred tax assets). These amounts are based upon our best estimate of the impact of the Tax Act in accordance with our understanding of the Tax Act and the related guidance available. Additional work is necessary on the provisional amount related to the transition tax, which includes performing a more detailed analysis of historic foreign earnings and tax pools and potential corresponding adjustments. The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act may differ from the above estimate due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates we have utilized to calculate the transition impacts, including impacts from changes to current-year earnings estimates and foreign exchange rates of foreign subsidiaries. Our accounting for the effects of the Tax Act is expected to be completed within the measurement period provided by SAB 118. Any subsequent adjustments to these amounts will be recorded to income tax expense from continuing operations. The Tax Act also includes provisions for Global Intangible Low-Taxed Income (GILTI) wherein taxes on foreign earnings are imposed for more than a deemed return on tangible assets of foreign corporations. An accounting policy election allows to either: (i) account for GILTI as a component of tax expense in the period in which we are subject to the rules (the “period cost method”) or (ii) account for GILTI in our measurement of deferred taxes (the “deferred method”). Due to the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the Tax Act and the application of Topic 740. Our accounting policy election will depend, in part on analyzing our global income to determine whether we expect material tax liabilities resulting from the application of this provision and if so, whether and when to record related current and deferred income taxes and whether such amounts can be reasonably estimated. Anticipated further guidance from the Internal Revenue Service (IRS) will clarify the manner in which the GILTI tax is computed. For these reasons, we have not recorded a deferred tax expense or benefit relating to potential GILTI tax for the year ended December 31, 2017 and have not made a policy decision regarding whether to record deferred taxes on GILTI or account for the GILTI entirely as a period cost. During the years ended December 31, 2017, 2016 and 2015, respectively, we recorded a $0.1 million, $0.4 million and $3.2 million income tax benefit in connection with stock options exercised. Of this income tax benefit, $2.3 million was charged directly to additional paid-in capital within the equity section of the accompanying consolidated balance sheets in 2015. With our adoption of ASU 2016-09 in the third quarter of 2016, which has been applied on a prospective basis to settlements of share-based payment awards occurring on or after January 1, 2016, excess tax benefits for 2016 have been recognized as income tax benefits in the income statement rather than to additional paid-in capital. Cumulative tax effects of temporary differences are shown below at December 31, 2017 and 2016 (dollars in thousands):
|  | December 31, |
|  |  | 2017 |  |  |  | 2016 |
Asset (Liability) |  |  |  |  |  |  |  |
Bonus and deferred compensation |  | $ | 186,093 |  |  | $ | 265,043 |
Net operating losses (NOLs) and state tax credits |  |  | 283,353 |  |  |  | 245,681 |
Bad debt and other reserves |  |  | 56,313 |  |  |  | 75,620 |
Pension obligation |  |  | 22,148 |  |  |  | 29,382 |
Unconsolidated affiliates |  |  | 6,267 |  |  |  | 28,107 |
Investments |  |  | 5,573 |  |  |  | 7,142 |
Foreign tax credits |  |  | — |  |  |  | 53,976 |
Derivative financial instruments |  |  | — |  |  |  | 7,308 |
Property and equipment |  |  | (40,024 | ) |  |  | (87,679 | )
Capitalized costs and intangibles |  |  | (256,087 | ) |  |  | (307,301 | )
All other |  |  | (1,441 | ) |  |  | 2,049 |
Net deferred tax assets before valuation allowance |  |  | 262,195 |  |  |  | 319,328 |
Valuation allowance |  |  | (277,466 | ) |  |  | (284,723 | )
Net deferred tax (liabilities) assets |  | $ | (15,271 | ) |  | $ | 34,605 |
As of December 31, 2017, we re-measured the U.S. component of the non-current deferred tax assets and liabilities at the applicable tax rate of 21% in accordance with the Tax Act. As of December 31, 2017, we had U.S. federal NOLs of approximately $27.5 million, translating to a deferred tax asset before valuation allowance of $5.8 million, which will begin to expire in 2023. As of December 31, 2017, there were also deferred tax assets before valuation allowances of approximately $3.3 million related to state NOLs as well as $273.1 million related to foreign NOLs. The state and foreign NOLs both begin to expire in 2018, but the majority carry forward indefinitely. The utilization of NOLs may be subject to certain limitations under U.S. federal, state and foreign laws. We have recorded a full valuation allowance for NOLs that we believe will not be fully utilized. In addition, as of December 31, 2017, we had deferred tax assets of $55.4 million related to foreign income tax credits that were reclassed to income taxes payable due to being utilized to reduce the liability related to the transition tax associated with the Tax Act. We determined that as of December 31, 2017, $277.5 million of deferred tax assets do not satisfy the realization criteria set forth in Topic 740. Accordingly, a valuation allowance has been recorded for this amount. If released, the entire amount would result in a benefit to continuing operations. During the year ended December 31, 2017, our valuation allowance decreased by approximately $7.3 million. This resulted from the release of valuation allowances of $42.3 million related to foreign income tax credits primarily in connection with the enactment of the Tax Act, $6.2 million of U.S. net operating loss utilization, $5.2 million related to re-measurement due to the enactment of the Tax Act and $4.7 million of foreign net operating loss utilization. These decreases were partially offset by $28.8 million of foreign currency translation, a $20.3 million increase in valuation allowances related to current year increases in foreign NOLs and $2.0 million for the establishment of valuation allowances related to U.S. NOLs. We believe it is more likely than not that future operations will generate sufficient taxable income to realize the benefit of the deferred tax assets recorded net of these valuation allowances. Our foreign subsidiaries have accumulated $2.5 billion of undistributed earnings for which we have not recorded a deferred tax liability. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, in connection with the enactment of the Tax Act, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. Although tax liabilities might result from dividends being paid out of these earnings, or as a result of a sale or liquidation of foreign subsidiaries, these earnings are permanently reinvested outside of the U.S. and we do not have any plans to repatriate them or to sell or liquidate any of our non-U.S. subsidiaries. To the extent that we are able to repatriate the earnings in a tax efficient manner, we would be required to accrue and pay U.S. taxes to repatriate these funds, net of foreign tax credits. Determining our tax liability upon repatriation is not practicable. The total amount of gross unrecognized tax benefits was approximately $35.8 million and $94.9 million as of December 31, 2017 and 2016, respectively. The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $18.8 million ($18.0 million, net of federal benefit received from state positions) and $39.1 million ($35.7 million, net of federal benefit received from state positions) as of December 31, 2017 and 2016, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2017 and 2016 is as follows (dollars in thousands):
|  | Year Ended December 31, |
|  |  | 2017 |  |  |  | 2016 |
Beginning balance, unrecognized tax benefits |  | $ | (94,915 | ) |  | $ | (92,538 | )
Gross increases - tax positions in prior period |  |  | (1,400 | ) |  |  | (514 | )
Gross decreases - tax positions in prior period |  |  | 23,896 |  |  |  | 358 |
Gross increases - current-period tax positions |  |  | (4,142 | ) |  |  | (4,237 | )
Decreases relating to settlements |  |  | 34,259 |  |  |  | 2,541 |
Reductions as a result of lapse of statute of limitations |  |  | 6,497 |  |  |  | 235 |
Foreign exchange movement |  |  | (21 | ) |  |  | (760 | )
Ending balance, unrecognized tax benefits |  | $ | (35,826 | ) |  | $ | (94,915 | )
During the year ended December 31, 2017, we released $58.2 million of gross unrecognized tax benefits primarily due to settlement of federal tax audits for tax years 2005 to 2012. As a result, we recognized $17.0 million of income tax benefits related to decreases in tax positions and $15.3 million of income tax benefits related to interest and penalties. We believe the amount of gross unrecognized tax benefits that will be settled during the next twelve months due to filing amended returns and settling ongoing exams cannot be reasonably estimated but will not be significant. Our continuing practice is to recognize potential accrued interest and/or penalties related to income tax matters within income tax expense. During the years ended December 31, 2017, 2016 and 2015, we accrued an additional $1.0 million, $2.9 million and $3.2 million, respectively, in interest and penalties associated with uncertain tax positions. As of December 31, 2017, and 2016, we have recognized a liability for interest and penalties of $3.9 million ($3.4 million, net of related federal benefit received from interest expense) and $31.7 million ($24.3 million, net of related federal benefit received from interest expense), respectively. We conduct business globally and, as a result, one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and in multiple state, local and foreign jurisdictions. We are no longer open to assessment by the U.S. Internal Revenue Service for years prior to 2014. With limited exception, our significant state and foreign tax jurisdictions are no longer subject to audit by the various tax authorities for tax years prior to 2009.

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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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