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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes |
14. | Income Taxes
The components of income before provision for income taxes consisted of the following (dollars in thousands):
|  | Year Ended December 31, |
|  |  | 2018 |  |  |  | 2017 |  |  |  | 2016 |
|  |  |  |  |  | (As Adjusted) (1 ) |  |  | (As Adjusted) (1) |
Domestic |  | $ | 807,590 |  |  | $ | 575,222 |  |  | $ | 536,709 |
Foreign |  |  | 571,416 |  |  |  | 596,111 |  |  |  | 345,361 |
|  | $ | 1,379,006 |  |  | $ | 1,171,333 |  |  | $ | 882,070 |
Our tax provision (benefit) consisted of the following (dollars in thousands):
|  | Year Ended December 31, |
|  |  | 2018 |  |  |  | 2017 |  |  |  | 2016 |
|  |  |  |  |  | (As Adjusted) (1 ) |  |  | (As Adjusted) (1) |
Federal: |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | 166,024 |  |  | $ | 275,475 |  |  | $ | 172,380 |
Deferred |  |  | (7,667 | ) |  |  | 39,045 |  |  |  | 27,428 |
|  |  | 158,357 |  |  |  | 314,520 |  |  |  | 199,808 |
State: |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | 43,320 |  |  |  | 21,212 |  |  |  | 20,946 |
Deferred |  |  | (3,692 | ) |  |  | 5,573 |  |  |  | 375 |
|  |  | 39,628 |  |  |  | 26,785 |  |  |  | 21,321 |
Foreign: |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | 149,194 |  |  |  | 123,840 |  |  |  | 94,910 |
Deferred |  |  | (34,121 | ) |  |  | 2,612 |  |  |  | (19,139 | )
|  |  | 115,073 |  |  |  | 126,452 |  |  |  | 75,771 |
|  | $ | 313,058 |  |  | $ | 467,757 |  |  | $ | 296,900 |
(1) | We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 and 2016 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information.
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, |
|  |  | 2018 |  |  |  | 2017 |  |  |  | 2016 |
Federal statutory tax rate |  |  | 21 | % |  |  | 35 | % |  |  | 35 | %
State taxes, net of federal benefit |  |  | 3 |  |  |  | 2 |  |  |  | 2 |
Non-deductible expenses |  |  | 2 |  |  |  | 2 |  |  |  | — |
Tax Reform |  |  | 1 |  |  |  | 12 |  |  |  | — |
Change in valuation allowance |  |  | (1 | ) |  |  | (2 | ) |  |  | 2 |
Acquisition-related costs |  |  | (2 | ) |  |  | — |  |  |  | — |
Credits and exemptions |  |  | (2 | ) |  |  | (3 | ) |  |  | (2 | )
Foreign rate differential |  |  | — |  |  |  | (5 | ) |  |  | (2 | )
Reserves for uncertain tax positions |  |  | — |  |  |  | (2 | ) |  |  | — |
Other |  |  | 1 |  |  |  | 1 |  |  |  | (1 | )
Effective tax rate |  |  | 23 | % |  |  | 40 | % |  |  | 34 | %
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 (i.e. toll charge) 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. In March 2018, the FASB issued ASU 2018-05, “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118,” which added SEC guidance related to SAB 118. The Tax Act requires us to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent attributed to foreign cash and certain other net current assets, and 8% on the remainder. We recorded a provisional amount for our one-time transitional tax liability of $158.0 million for the year ended December 31, 2017 representing our estimate of the U.S. federal and state tax impact of 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 due to the re-measurement of net U.S. federal deferred tax assets and liabilities primarily related to a reduced U.S. federal statutory rate of 21% (after considering certain other measures of the Tax Act that affected our existing deferred tax assets). During 2018, we continued to analyze the impact of the Tax Act and interpreted the additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service, and other standard-setting bodies. Our provision for income taxes for 2018 included a net expense true-up of $13.3 million associated with the Tax Act, including an additional $5.3 million charge related to the transition tax on unremitted earnings of our foreign operations and an $8.0 million reduction to the net income tax benefit related to the remeasurement of deferred taxes initially recorded in 2017, based upon our final analysis. As of December 31, 2018, we have completed our analysis and the final net expense associated with the Tax Act was $156.7 million. We were able to apply existing foreign income tax credits to reduce the amount payable associated with Tax Act. The federal tax liability for the transition tax can be paid in annual interest-free installments over a period of eight years through 2025, which we have elected to do. The state tax liability for the transition tax was required to be paid in full in 2018. As of December 31, 2018, the second installment due in 2019 of $7.4 million is included within income taxes payable and the remaining long-term taxes payable related to the Tax Act of $91.7 million is included within non-current tax liabilities in the accompanying consolidated balance sheets. 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 did not elect a policy for the year ended December 31, 2017 as we continued to analyze our global income to determine whether we expected 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 could be reasonably estimated. During 2018, as a result of completing our analysis of the Tax Act, we made an accounting policy election to account for GILTI using the period cost method. Cumulative tax effects of temporary differences are shown below at December 31, 2018 and 2017 (dollars in thousands):
|  | December 31, |
|  |  | 2018 |  |  |  | 2017 |
|  |  |  |  |  | (As Adjusted) (1) |
Asset (Liability) |  |  |  |  |  |  |  |
Bonus and deferred compensation |  | $ | 276,572 |  |  | $ | 208,198 |
Net operating losses (NOLs) and state tax credits |  |  | 275,574 |  |  |  | 283,353 |
Bad debt and other reserves |  |  | 57,506 |  |  |  | 56,313 |
Pension obligation |  |  | 22,950 |  |  |  | 22,148 |
Investments |  |  | 5,211 |  |  |  | 5,573 |
Tax effect on revenue items related to new revenue recognition guidance |  |  | (38,510 | ) |  |  | (55,306 | )
Property and equipment |  |  | (49,935 | ) |  |  | (40,024 | )
Unconsolidated affiliates and partnerships |  |  | (64,448 | ) |  |  | 6,267 |
Capitalized costs and intangibles |  |  | (289,674 | ) |  |  | (256,087 | )
All other |  |  | (2,457 | ) |  |  | (1,441 | )
Net deferred tax assets before valuation allowance |  |  | 192,789 |  |  |  | 228,994 |
Valuation allowance |  |  | (248,511 | ) |  |  | (277,466 | )
Net deferred tax (liabilities) assets |  | $ | (55,722 | ) |  | $ | (48,472 | )
(1) | We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 and 2016 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information.
As of December 31, 2018, we had U.S. federal NOLs, net of related reserves for uncertain tax positions of approximately $72.7 million, translating to a deferred tax asset before valuation allowance of $15.3 million, which will begin to expire in 2027. As of December 31, 2018, there were also deferred tax assets before valuation allowances of approximately $3.5 million related to state NOLs as well as $255.9 million related to foreign NOLs. The state and foreign NOLs both begin to expire in 2019, 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. We determined that as of December 31, 2018, $248.5 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, 2018, our valuation allowance decreased by approximately $29.0 million. The decrease was driven by $11.8 million associated with foreign currency translation and tax rate changes, the release of valuation allowances of $11.6 million (due to current and forecasted earnings of our U.S. and foreign subsidiaries resulting in an expectation that the benefit for NOLs may be utilized before expiration), $5.5 million related to adjustments to both the valuation allowance and related deferred tax asset for foreign NOLs, $2.0 million related to foreign NOL utilization and $1.8 million of U.S. NOL utilization. These decreases were partially offset by a $3.7 million increase in valuation allowance related to current year increases in foreign 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 $2.1 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. While federal and state current income tax expense has been recognized as a result of the Tax Act, we have not provided any additional deferred taxes with respect to items such as foreign withholding taxes, state income tax or foreign exchange gain or loss that would be due when cash is actually repatriated to the U.S. because those foreign earnings are considered permanently reinvested in the business or may be remitted substantially free of any additional local taxes. The determination of the amount of the unrecognized deferred tax liability related to the undistributed earnings if eventually remitted is not practicable. The total amount of gross unrecognized tax benefits was approximately $95.0 million and $35.8 million as of December 31, 2018 and 2017, respectively. The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $50.2 million ($49.2 million, net of federal benefit received from state positions) and $18.8 million ($18.0 million, net of federal benefit received from state positions) as of December 31, 2018 and 2017, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2018 and 2017 is as follows (dollars in thousands):
|  | Year Ended December 31, |
|  |  | 2018 |  |  |  | 2017 |
Beginning balance, unrecognized tax benefits |  | $ | (35,826 | ) |  | $ | (94,915 | )
Gross increases - tax positions in prior period |  |  | (49,412 | ) |  |  | (1,400 | )
Gross decreases - tax positions in prior period |  |  | — |  |  |  | 23,896 |
Gross increases - current-period tax positions |  |  | (18,861 | ) |  |  | (4,142 | )
Decreases relating to settlements |  |  | 4,619 |  |  |  | 34,259 |
Reductions as a result of lapse of statute of limitations |  |  | 4,531 |  |  |  | 6,497 |
Foreign exchange movement |  |  | (13 | ) |  |  | (21 | )
Ending balance, unrecognized tax benefits |  | $ | (94,962 | ) |  | $ | (35,826 | )
During the year ended December 31, 2018, we released $4.5 million of gross unrecognized tax benefits primarily due to expiration of the U.S. federal statute of limitations related to the 2014 tax year. As a result, we recognized $3.1 million of income tax benefits related to decreases in tax positions and $0.4 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, 2018, 2017 and 2016, we accrued an additional $0.6 million, $1.0 million and $2.9 million, respectively, in interest and penalties associated with uncertain tax positions. As of December 31, 2018, and 2017, we have recognized a liability for interest and penalties of $4.0 million ($3.5 million, net of related federal benefit received from interest expense) and $3.9 million ($3.4 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 2015. 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 2011.

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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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