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INCOME TAXES | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The Company's income before provision for income taxes was generated from United States and international operations as follows (in millions):
| Years Ended December 31,
| 2018 |  | 2017 |  | 2016
United States | $ | 266.1 |  |  | $ | 491.5 |  |  | $ | 378.2 |
International, including Puerto Rico | 495.3 |  |  | 543.4 |  |  | 359.7 |
| $ | 761.4 |  |  | $ | 1,034.9 |  |  | $ | 737.9 |
The provision for income taxes consists of the following (in millions):
| Years Ended December 31,
| 2018 |  | 2017 |  | 2016
Current |  |  |  |  |  |  |  |
United States: |  |  |  |  |  |  |  |
Federal | $ | 10.9 |  |  | $ | 330.8 |  |  | $ | 153.4 |
State and local | 13.6 |  |  | 32.8 |  |  | 12.1 |
International, including Puerto Rico | 35.9 |  |  | 60.6 |  |  | 27.4 |
Current income tax expense | $ | 60.4 |  |  | $ | 424.2 |  |  | $ | 192.9 |
Deferred |  |  |  |  |  |  |  |
United States: |  |  |  |  |  |  |  |
Federal | $ | (16.1 | ) |  | $ | 39.3 |  |  | $ | (19.6 | )
State and local | (22.4 | ) |  | (3.8 | ) |  | (4.3 | )
International, including Puerto Rico | 17.3 |  |  | (8.4 | ) |  | (0.6 | )
Deferred income tax (benefit) expense | (21.2 | ) |  | 27.1 |  |  | (24.5 | )
Total income tax provision | $ | 39.2 |  |  | $ | 451.3 |  |  | $ | 168.4 |
The components of deferred tax assets and liabilities are as follows (in millions):
| December 31,
| 2018 |  | 2017
Deferred tax assets |  |  |  |  |
Compensation and benefits | $ | 71.4 |  |  | $ | 53.9 |
Benefits from uncertain tax positions | 22.2 |  |  | 66.1 |
Net tax credit carryforwards | 94.4 |  |  | 78.8 |
Net operating loss carryforwards | 42.1 |  |  | 47.3 |
Accrued liabilities | 78.8 |  |  | 29.2 |
Inventories | 7.2 |  |  | 6.8 |
Cash flow and net investment hedges | — |  |  | 13.3 |
State income taxes | 0.6 |  |  | 5.8 |
Investments | 1.6 |  |  | 1.6 |
Other | 4.1 |  |  | 1.7 |
Total deferred tax assets | 322.4 |  |  | 304.5 |
Deferred tax liabilities |  |  |  |  |
Property, plant, and equipment | (24.5 | ) |  | (20.0 | )
Cash flow and net investment hedges | (4.5 | ) |  | — |
Deferred tax on foreign earnings | (0.6 | ) |  | (3.1 | )
Inventories | (3.9 | ) |  | (4.2 | )
Other intangible assets | (77.1 | ) |  | (49.5 | )
Other | (0.1 | ) |  | (0.1 | )
Total deferred tax liabilities | (110.7 | ) |  | (76.9 | )
Valuation allowance | (46.7 | ) |  | (41.6 | )
Net deferred tax assets | $ | 165.0 |  |  | $ | 186.0 |
During 2018, net deferred tax assets decreased $21.0 million, including items that were recorded to stockholders' equity and which did not impact the Company's income tax provision. The valuation allowance of $46.7 million as of December 31, 2018 reduces certain deferred tax assets to amounts that are more likely than not to be realized. This allowance primarily relates to the net operating loss carryforwards of certain United States and non-United States subsidiaries and certain non-United States credit carryforwards. Net operating loss and capital loss carryforwards and the related carryforward periods at December 31, 2018 are summarized as follows (in millions):
| Carryforward Amount |  | Tax Benefit Amount |  | Valuation Allowance |  | Net Tax Benefit |  | Carryforward Period Ends
United States federal net operating losses | $ | 9.6 |  |  | $ | 2.0 |  |  | $ | — |  |  | $ | 2.0 |  |  | 2033-2036
United States state net operating losses | 19.1 |  |  | 1.2 |  |  | (1.2 | ) |  | — |  |  | 2019-2036
Non-United States net operating losses | 42.3 |  |  | 6.6 |  |  | (4.6 | ) |  | 2.0 |  |  | 2019-2027
Non-United States net operating losses | 180.0 |  |  | 32.3 |  |  | (17.9 | ) |  | 14.4 |  |  | Indefinite
United States capital losses | 34.2 |  |  | 0.5 |  |  | (0.5 | ) |  | — |  |  | 2022
Total | $ | 285.2 |  |  | $ | 42.6 |  |  | $ | (24.2 | ) |  | $ | 18.4 |  |  |
Certain tax attributes are subject to an annual limitation as a result of the acquisition of Harpoon Medical, Inc. (see Note 7), which constitutes a change of ownership as defined under Internal Revenue Code Section 382. The gross tax credit carryforwards and the related carryforward periods at December 31, 2018 are summarized as follows (in millions):
| Carryforward Amount |  | Valuation Allowance |  | Net Tax Benefit |  | Carryforward Period Ends
California research expenditure tax credits | $ | 106.4 |  |  | $ | — |  |  | $ | 106.4 |  |  | Indefinite
Federal research expenditure tax credits | 0.2 |  |  | — |  |  | 0.2 |  |  | Indefinite
Puerto Rico purchases credit | 20.4 |  |  | (20.4 | ) |  | — |  |  | Indefinite
Total | $ | 127.0 |  |  | $ | (20.4 | ) |  | $ | 106.6 |  |  |
The Company has $106.4 million of California research expenditure tax credits it expects to use in future periods. The credits may be carried forward indefinitely. Based upon anticipated future taxable income, the Company expects that it is more likely than not that all California research expenditure tax credits will be utilized, although the utilization of the full benefit is expected to occur over a number of years and into the distant future. Accordingly, no valuation allowance has been provided. On December 22, 2017, Public Law 115-97, commonly referred to as the Tax Cuts and Jobs Act (the "2017 Act"), was signed into law. The 2017 Act (1) reduced the U.S. federal corporate tax rate from 35 percent to 21 percent for tax years beginning after December 31, 2017, (2) required companies to pay a one-time mandatory deemed repatriation tax on the cumulative earnings of certain foreign subsidiaries that were previously tax deferred, and (3) created new taxes on certain foreign earnings in future years. On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of generally accepted accounting principles in the United States of America in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Act. In accordance with SAB 118, as of December 31, 2017, the Company had estimated provisional amounts for (1) $3.3 million of tax benefits in connection with the remeasurement of certain tax assets and liabilities, (2) $297.4 million of net tax expense (discussed below) recorded in connection with the one-time mandatory deemed repatriation tax on cumulative earnings of certain foreign subsidiaries, and (3) $32.3 million of tax benefits associated with a tax reform related restructuring. In accordance with SAB 118, during 2018 the Company adjusted the provisional amounts as described below. As a result of Internal Revenue Service ("IRS") guidance issued subsequent to the 2017 Act, the $32.3 million of tax benefits associated with the tax reform related restructuring mentioned above were reversed. In addition, during 2018, the Company recorded a $12.8 million reduction in the repatriation tax and an additional benefit of $3.7 million in connection with the remeasurement of deferred tax assets. In accordance with SAB 118, the Company completed its accounting for the 2017 Act during the fourth quarter of 2018. In addition, the Company elected to pay the repatriation tax in installments over eight years. The Company asserts that $1.1 billion of its foreign earnings continue to be indefinitely reinvested and it intends to repatriate $0.6 billion of its foreign earnings as of December 31, 2018. The estimated net tax liability (after credits) on the indefinitely reinvested earnings if repatriated is $12.7 million. The Company has received tax incentives in certain non-U.S. tax jurisdictions, the primary benefit of which will expire in 2024. The tax reductions as compared to the local statutory rates were $144.9 million ($0.70 per diluted share), $81.0 million ($0.39 per diluted share), and $78.7 million ($0.32 per diluted share) for the years ended December 31, 2018, 2017, and 2016, respectively. A reconciliation of the United States federal statutory income tax rate to the Company's effective income tax rate is as follows (in millions):
| Years Ended December 31,
| 2018 |  | 2017 |  | 2016
Income tax expense at U.S. federal statutory rate | $ | 159.9 |  |  | $ | 362.2 |  |  | $ | 258.3 |
Foreign income taxed at different rates | (16.2 | ) |  | (106.9 | ) |  | (88.6 | )
State and local taxes, net of federal tax benefit | 6.8 |  |  | 11.5 |  |  | 9.7 |
Tax credits, federal and state | (36.7 | ) |  | (25.8 | ) |  | (21.3 | )
(Release) build of reserve for prior years' uncertain tax positions | (35.5 | ) |  | (7.7 | ) |  | 4.6 |
U.S. tax on foreign earnings, net of credits | (12.2 | ) |  | (30.3 | ) |  | 5.1 |
Foreign-derived intangible income deduction | (6.6 | ) |  | — |  |  | — |
Deductible employee share-based compensation | (41.8 | ) |  | (48.2 | ) |  | — |
Nondeductible employee share-based compensation | 2.8 |  |  | 3.9 |  |  | 3.6 |
Impacts related to 2017 U.S. Tax Reform | 15.8 |  |  | 294.1 |  |  | — |
Other | 2.9 |  |  | (1.5 | ) |  | (3.0 | )
Income tax provision | $ | 39.2 |  |  | $ | 451.3 |  |  | $ | 168.4 |
The Company's effective tax rate for 2018 is lower than its effective tax rate for 2017 primarily because of the benefit from the reduction in the U.S. federal corporate rate from 35% to 21% and tax benefits related to the settlement of tax audits. In addition, the effective tax rate for 2017 included the one-time impact of the mandatory taxation of previously unrepatriated earnings, partially offset by the revaluation of tax-related balance sheet items due to U.S. tax rate changes required by the 2017 Act. Uncertain Tax Positions As of December 31, 2018 and 2017, the gross uncertain tax positions were $150.7 million and $225.6 million, respectively. The Company estimates that these liabilities would be reduced by $42.7 million and $94.0 million, respectively, from offsetting tax benefits associated with the correlative effects of potential transfer pricing adjustments, state income taxes, and timing adjustments. The net amounts of $108.0 million and $131.6 million, respectively, if not required, would favorably affect the Company's effective tax rate. A reconciliation of the beginning and ending amount of uncertain tax positions, excluding interest, penalties, and foreign exchange, is as follows (in millions):
| December 31,
| 2018 |  | 2017 |  | 2016
Uncertain gross tax positions, January 1 | $ | 225.6 |  |  | $ | 245.5 |  |  | $ | 216.1 |
Current year tax positions | 37.8 |  |  | 77.7 |  |  | 29.0 |
Increase in prior year tax positions | 13.9 |  |  | 63.7 |  |  | 2.7 |
Decrease in prior year tax positions | (78.8 | ) |  | (65.0 | ) |  | (0.9 | )
Settlements | (46.5 | ) |  | (95.3 | ) |  | (0.3 | )
Lapse of statutes of limitations | (1.3 | ) |  | (1.0 | ) |  | (1.1 | )
Uncertain gross tax positions, December 31 | $ | 150.7 |  |  | $ | 225.6 |  |  | $ | 245.5 |
The table above summarizes the gross amounts of uncertain tax positions without regard to reduction in tax liabilities or additions to deferred tax assets and liabilities if such uncertain tax positions were settled. The Company recognizes interest and penalties, if any, related to uncertain tax positions in the provision for income taxes. As of December 31, 2018, the Company had accrued $4.6 million (net of $1.9 million tax benefit) of interest related to uncertain tax positions, and as of December 31, 2017, the Company had accrued $7.4 million (net of $2.9 million tax benefit) of interest related to uncertain tax positions. During 2018, 2017, and 2016, the Company recognized interest (benefit) expense, net of tax benefit, of $(2.8) million, $(7.3) million, and $4.0 million, respectively, in "Provision for Income Taxes" on the consolidated statements of operations. The Company strives to resolve open matters with each tax authority at the examination level and could reach agreement with a tax authority at any time. While the Company has accrued for matters it believes are more likely than not to require settlement, the final outcome with a tax authority may result in a tax liability that is more or less than that reflected in the consolidated financial statements. Furthermore, the Company may later decide to challenge any assessments, if made, and may exercise its right to appeal. The uncertain tax positions are reviewed quarterly and adjusted as events occur that affect potential liabilities for additional taxes, such as lapsing of applicable statutes of limitations, proposed assessments by tax authorities, negotiations between tax authorities, identification of new issues, and issuance of new legislation, regulations, or case law. Management believes that adequate amounts of tax and related penalty and interest have been provided in income tax expense for any adjustments that may result from these uncertain tax positions. At December 31, 2018, all material state, local, and foreign income tax matters have been concluded for years through 2008. During 2018, the Company signed agreements with the IRS to settle tax years 2009 through 2014 including transfer pricing matters and the tax treatment of a portion of a litigation settlement payment received in 2014. The IRS began its examination of the 2015 and 2016 tax years during the fourth quarter of 2018. During 2018, the Company executed an Advance Pricing Agreement ("APA") between the United States and Switzerland governments for tax years 2009 through 2020 covering various transfer pricing matters and the Company has updated its transfer pricing policies accordingly. Certain intercompany transactions covering tax years 2015 through 2018 were not resolved and those related tax positions remain uncertain. These transfer pricing matters may be significant to the Company's consolidated financial statements. In addition, the Company executed other APAs as follows: during 2017, an APA between the United States and Japan covering tax years 2015 through 2019, and during 2018, APAs between Japan and Singapore as well as Switzerland and Japan covering tax years 2015 through 2019. Based upon the information currently available and numerous possible outcomes, the Company cannot reasonably estimate what, if any, changes in its existing uncertain tax positions may occur in the next 12 months and thus has recorded the gross uncertain tax positions as a long-term liability.

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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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