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Income Taxes | 9 Months Ended
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Sep. 30, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes On December 22, 2017, the President signed the U.S. Tax Reform Act into law. The provisions of the U.S. Tax Reform Act are effective for the Company’s year beginning January 1, 2018. As such, the income tax rate for the three and nine months ended September 30, 2018 reflects the impact of the provisions of the U.S. Tax Reform Act. The Company’s effective tax rate for the three months ended September 30, 2018 and 2017 was 26.1% and 28.3%, respectively. The Company's effective tax rate for the nine months ended September 30, 2018 and 2017 was 26.3% and 30.1% respectively. The Company’s income tax rate for the three and nine months ended September 30, 2018 and 2017 differed from the U.S. federal statutory rates of 21.0% and 35.0%, respectively, principally due to subpart F income (for the nine months ended September 30, 2018 subpart F income is primarily due to global intangible low-taxed income ("GILTI") earned by the Company’s foreign subsidiaries), changes in the Company’s uncertain tax positions, related valuation allowances as described more fully below, and certain other permanent items. The Company accounts for the GILTI tax in the period in which such tax arises. The impact of the U.S. Tax Reform Act has been reflected in the Company's U.S. federal and state income tax returns the Company filed during the quarter ended September 30, 2018. The estimated impact of the U.S. Tax Reform Act as filed by the Company within its federal and state income tax returns has been reflected within the Company’s income tax provision for the three and nine month periods ended September 30, 2018 and remains provisional. The Company will continue to assess the impact of the U.S. Tax Reform Act and will record adjustments through the income tax provision in the relevant period as authoritative guidance is made available to the public. Accordingly, the impact of the U.S. Tax Reform Act may ultimately differ from the impact reflected in the Company's U.S. federal and state income tax returns and income tax provision due to and among other factors, information currently not available, changes in interpretations and the issuance of additional guidance, as well as changes in assumptions the Company has currently made, including actions the Company may take in future periods as a result of the U.S. Tax Reform Act. The Company has been involved in a dispute with the Danish Tax Authority ("SKAT") regarding the royalty paid by a U.S. subsidiary of Tempur Sealy International to a Danish subsidiary (the "Danish Tax Matter"). The royalty is paid by the U.S. subsidiary for the right to utilize certain intangible assets owned by the Danish subsidiary in the U.S. production process. With respect to the Danish Tax Matter, the Company has received income tax assessments from SKAT for the tax years 2001 through 2008 (the "Danish Assessments") asserting the royalties paid by the U.S. to the Danish subsidiary were too low, which the Company has disputed. In its assessments, SKAT asserts that the amount of royalty paid annually (reflected as a royalty rate) by the U.S. subsidiary to the Danish subsidiary is not reflective of an arm's-length transaction. Accordingly, the tax assessments received from SKAT were based, in part, on a 20% royalty rate, which is substantially higher than that historically used or deemed appropriate by the Company. The Company expected SKAT to continue issuing income tax assessments for tax years 2009 and thereafter reflecting SKAT's view that a 20% royalty rate was appropriate. During the three month period ended September 30, 2018, the Company reached agreements with both SKAT and the U.S. Internal Revenue Service ("IRS") to settle the Danish Tax Matter for tax years 2001 to 2011 (the "Settlement Years"). The agreement to resolve the Settlement Years is hereinafter referred to as the "Settlement". The terms of the Settlement reflected the amount of the Danish liability for tax and interest that was previously accrued by the Company as an uncertain income tax position. At September 30, 2018, the Danish liability related to the Settlement (i.e., approximately DKK 835.0 million; approximately $130.0 million using the September 30, 2018 exchange rate) is included in accrued expenses and other current liabilities within the Company’s Condensed Consolidated Balance Sheet. It is anticipated that SKAT will issue the Company final tax assessments for each of the Settlement Years within the next twelve month period reflecting the Settlement, at which time the liability will be extinguished. The deferred tax asset representing the U.S. correlative benefit related to the Settlement was $46.3 million. The Company had previously recorded a valuation allowance related to such deferred tax asset of approximately $19.3 million. The Company realized the beneficial impact of the Settlement in its U.S. federal and state income tax returns for 2017 (which the Company filed in the quarter ended September 30, 2018). As such, the full correlative relief related to the Settlement was reflected in the Company’s 2017 U.S. federal and state income tax liabilities. As a result, the associated valuation allowance was released and reflected as a benefit within the Company’s income tax provision for the three month period ended September 30, 2018. At September 30, 2018, the Company also had accrued Danish tax and interest for tax years subsequent to 2011 (the "Post-2011 Years") of approximately DKK 221.0 million ($34.4 million using the September 30, 2018 exchange rates) as an uncertain income tax liability. The amount accrued is included in other non-current liabilities on the Company's Condensed Consolidated Balance Sheet at September 30, 2018. The deferred tax asset for the U.S. correlative benefit associated with the accrual of Danish tax for the Post-2011 Years is approximately $8.4 million. The Post-2011 Years are subject to further negotiation as part of an Advance Pricing Agreement request ("APA") the Company filed with the IRS on October 26, 2018. In the APA process, the IRS will negotiate the matter for the Post-2011 Years directly with SKAT. The negotiation process is not expected to conclude in the near term. At December 31, 2017, the Company had accrued Danish tax and interest for the Danish Tax Matter of approximately DKK 854.7 million (approximately $137.8 million using the December 31, 2017 exchange rate) as an uncertain income tax position. Approximately DKK 835.0 million (approximately $134.8 million using December 31, 2017 exchange rate) represents the amount accrued with respect to the Settlement Years. The balance of approximately DKK 19.7 million (approximately $3.2 million using the December 31, 2017 exchange rates) are accrued for the Post-2011 Years. The amount accrued at December 31, 2017 was included in other non-current liabilities on the Company's Consolidated Balance Sheet. In addition, at December 31, 2017, the Company had recorded a deferred tax asset for the U.S. correlative benefit related to the Danish Tax Matter of approximately $48.3 million. At December 31, 2017, the Company maintained a valuation allowance with respect to this benefit (specifically related to the Settlement Years) of approximately $19.3 million as it was more likely than not that this portion of the deferred tax asset would not be realized. The gross deferred tax asset was netted with the Company's U.S. deferred tax liabilities in non-current liabilities in the Company's Condensed Consolidated Balance Sheet at December 31, 2017. The Company’s uncertain income tax position associated with the Danish Tax Matter is derived using the cumulative probability analysis with possible outcomes based on the Company's updated evaluation of the facts and circumstances regarding this matter and applying the technical requirements applicable to U.S., Danish, and international transfer pricing standards as required by GAAP, taking into account both the U.S. and Danish income tax implications of such outcomes. Both the uncertain income tax position and the deferred tax asset discussed herein reflects the Company’s best judgment of the facts, circumstances and information available through September 30, 2018. If the Company is not successful in resolving the Danish Tax Matter for the Post-2011 Years or there is a change in facts and circumstances, the Company may be required to further increase its uncertain income tax position associated with this matter, or decrease its deferred tax asset, also related to this matter, which could have a material impact on the Company's reported earnings. From June 2012 through September 30, 2018, SKAT withheld Value Added Tax refunds otherwise owed to the Company, pending resolution of the Danish Tax Matter. Total withheld refunds at September 30, 2018 and December 31, 2017 are approximately DKK 392.6 million and DKK 336.5 million, respectively, (the "VAT Withheld Refund," approximately $61.1 million and $54.1 million using the applicable exchange rates). In July 2016, the Company paid a deposit to SKAT in the amount of approximately DKK 615.2 (approximately $95.8 million and $98.9 million using the applicable exchange rates) (the "Tax Deposit") and applied approximately DKK 220.7 million (approximately $34.4 million and $35.6 million using the applicable exchange rates) of its Value Added Tax refund (the "VAT Refund Applied") to the aforementioned Danish tax liability related to the Settlement. The deposit was made to mitigate additional interest and foreign exchange exposure. At September 30, 2018, the Tax Deposit and the VAT Refund Applied are included in "Prepaid expenses and other current assets" in the Company's Condensed Consolidated Balance Sheet. At December 31, 2017, the Tax Deposit and the VAT Refund Applied are included in other non-current assets in the Company's Condensed Consolidated Balance Sheets. The balance of the VAT Withheld Refund, approximately DKK 171.9 million (approximately $26.8 million using the September 30, 2018 exchange rate) may be refunded in the future or applied to the Danish tax liability for the Post-2011 Years (as may ultimately be agreed upon with SKAT as part of the negotiation of the Post-2011 Years). The amount of unrecognized tax benefits that would impact the effective tax rate if recognized at September 30, 2018 and December 31, 2017 would be $84.5 million and $31.7 million (exclusive of interest and penalties and translated at the applicable exchange rates, respectively. There were no other significant changes to the liability for unrecognized income tax benefits during the three months ended September 30, 2018, other than those items discussed herein. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense. It is reasonably possible that there could be material changes to the amount of uncertain income tax positions due to activities of the taxing authorities, settlement of audit issues, reassessment of existing uncertain tax positions, including the Danish tax matter, or the expiration of applicable statute of limitations; however, the Company is not able to estimate the impact of these items at this time.

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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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