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INCOME TAXES | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES
|  |  |  |  | (In Millions) |
| 2017 |  | 2016 |  | 2015
Income from continuing operations before income taxes: |  |  |  |  |
U.S. | $ | 731 |  |  | $ | 614 |  |  | $ | 496 |
Foreign | 154 |  |  | 216 |  |  | 193 |
| $ | 885 |  |  | $ | 830 |  |  | $ | 689 |
Income tax expense on income from continuing operations: |  |  |  |  |
Currently payable: |  |  |  |  |
U.S. Federal | $ | 196 |  |  | $ | 73 |  |  | $ | 10 |
State and local | 31 |  |  | 24 |  |  | 27 |
Foreign | 68 |  |  | 69 |  |  | 56 |
Deferred: |  |  |  |  |
U.S. Federal | 10 |  |  | 140 |  |  | 192 |
State and local | (1 | ) |  | 2 |  |  | 3 |
Foreign | 1 |  |  | (12 | ) |  | 5 |
| $ | 305 |  |  | $ | 296 |  |  | $ | 293 |
Deferred tax assets at December 31: |  |  |  |  |
Receivables | $ | 8 |  |  | $ | 10 |  |  |
Inventories | 13 |  |  | 17 |  |  |
Other assets, including stock-based compensation | 36 |  |  | 58 |  |  |
Accrued liabilities | 45 |  |  | 53 |  |  |
Long-term liabilities | 169 |  |  | 280 |  |  |
Net operating loss carryforward | 53 |  |  | 51 |  |  |
Capital loss carryforward | 1 |  |  | — |  |  |
Tax credit carryforward | 8 |  |  | 9 |  |  |
| 333 |  |  | 478 |  |  |
Valuation allowance | (47 | ) |  | (45 | ) |  |
| 286 |  |  | 433 |  |  |
Deferred tax liabilities at December 31: |  |  |  |  |
Property and equipment | 98 |  |  | 127 |  |  |
Intangibles | 139 |  |  | 222 |  |  |
Investment in foreign subsidiaries | 7 |  |  | 15 |  |  |
Other | 20 |  |  | 21 |  |  |
| 264 |  |  | 385 |  |  |
Net deferred tax asset at December 31 | $ | 22 |  |  | $ | 48 |  |  |
The net deferred tax asset consisted of net deferred tax assets (included in other assets) of $48 million and $68 million, and net deferred tax liabilities (included in other liabilities) of $26 million and $20 million, at December 31, 2017 and 2016, respectively. The current portion of the state and local income tax includes a $5 million, $8 million and $5 million tax benefit from the reversal of an accrual for uncertain tax positions resulting primarily from the expiration of applicable statutes of limitations and favorable settlements on state audits in 2017, 2016 and 2015, respectively. The deferred portion of the state and local taxes includes a $(1) million, $5 million and $(1) million tax (benefit) expense resulting from a change in the valuation allowance against state and local deferred tax assets in 2017, 2016 and 2015, respectively. The deferred portion of the foreign taxes includes $6 million and $12 million tax expense from a change in the valuation allowance against foreign deferred tax assets in 2016 and 2015, respectively. Q. INCOME TAXES (Continued) Due to the enactment of the Tax Cuts and Jobs Act (“Tax Act”) on December 22, 2017, we recorded a $20 million tax benefit from the elimination of a deferred tax liability previously recorded on undistributed foreign earnings as a result of the change from a worldwide to a territorial system of taxation. This tax benefit was offset by a $3 million tax charge resulting from the re-measurement of our remaining net deferred tax assets due to a reduction in the U.S. Federal corporate tax rate from 35 percent to 21 percent. In addition, the Tax Act requires a mandatory deemed repatriation of undistributed foreign earnings resulting in a toll charge of 15.5 percent on earnings related to cash and liquid assets and 8 percent on earnings for non-liquid assets. Due to the ability to offset positive foreign earnings with existing foreign deficits, we do not anticipate paying any toll charge related to our undistributed foreign earnings. The $64 million loss from the divestiture of Moores that was recorded in the fourth quarter of 2017 provided no tax benefit. The accounting guidance for income taxes requires us to allocate our provision for income taxes between continuing operations and other categories of earnings, such as other comprehensive income (loss). Subsequent adjustments to deferred taxes originally recorded to other comprehensive income (loss) may reverse in a different category of earnings, such as continuing operations resulting in a disproportionate tax effect within accumulated other comprehensive loss. We created a $14 million disproportionate tax effect in prior years as the result of allocating a deferred tax charge to other comprehensive income (loss) on the unrealized gain of certain available-for-sale securities that was later reversed through continuing operations by a valuation allowance adjustment, followed by the disposition of the securities while in a full valuation allowance position. Such disproportionate tax effect has remained in accumulated other comprehensive loss until such time as we cease to have an available-for-sale securities portfolio. In the fourth quarter of 2016 as a result of our final auction rate securities being called by our counterparty and redeemed, the disproportionate tax effect was eliminated by recording a $14 million charge to income tax expense included in continuing operations that was offset by a corresponding tax benefit included in other comprehensive income (loss). In the fourth quarter of 2016, we recorded a $13 million tax benefit from the recognition of a deferred tax asset on certain German net operating losses primarily resulting from a return to sustainable profitability. During 2015 we recorded a $21 million valuation allowance against certain deferred tax assets related to TopBuild as a non-cash charge to income tax expense. The TopBuild deferred tax assets have been impaired by our decision to spin off TopBuild into a separate company that on a stand-alone basis as of June 30, 2015, the spin off date, was unlikely to be able to realize the value of such deferred tax assets as a result of its history of losses. Our capital allocation strategy includes reinvesting in our business, balancing share repurchases with potential acquisitions and maintaining an appropriate dividend. In order to provide greater flexibility in the execution of our capital allocation strategy, we determined in the fourth quarter of 2015 that we may repatriate earnings from certain foreign subsidiaries that were previously considered permanently reinvested. As a result, we recorded a $19 million charge to income tax expense in 2015 to recognize the required taxes on foreign earnings, including those previously considered permanently reinvested. Our December 31, 2016, deferred tax balance on investments in foreign subsidiaries reflects the impact of all taxable temporary differences, including those related to substantially all undistributed foreign earnings, except those that are legally restricted. As a result of the enactment of the Tax Act, no deferred tax is required at December 31, 2017 on our foreign taxable temporary differences, other than foreign withholding taxes. During 2015, the tax benefit from certain stock-based compensation was not recognized as a deferred tax asset until the tax deduction reduces cash taxes. We recorded deferred tax assets of $53 million to paid-in capital in 2015 related to additional net operating losses, previously not recognized, that were used to reduce cash taxes on our 2015 taxable income. We continue to maintain a valuation allowance on certain state and foreign deferred tax assets as of December 31, 2017. Should we determine that we would not be able to realize our remaining deferred tax assets in these jurisdictions in the future, an adjustment to the valuation allowance would be recorded in the period such determination is made. Q. INCOME TAXES (Continued) Of the $61 million and $60 million deferred tax asset related to the net operating loss and tax credit carryforwards at December 31, 2017 and 2016, respectively, $33 million and $35 million will expire between 2021 and 2036 and $28 million a nd $25 million are unlimited, respectively. A reconciliation of the U.S. Federal statutory tax rate to the income tax expense on income from continuing operations was as follows:
| 2017 |  | 2016 |  | 2015
U.S. Federal statutory tax rate | 35 | % |  | 35 | % |  | 35 | %
State and local taxes, net of U.S. Federal tax benefit | 2 |  |  | 2 |  |  | 3 |
Lower taxes on foreign earnings | (1 | ) |  | (2 | ) |  | (1 | )
U.S. and foreign taxes on distributed and undistributed foreign earnings | 1 |  |  | 1 |  |  | 3 |
Domestic production deduction | (2 | ) |  | (1 | ) |  | — |
Stock-based compensation | (2 | ) |  | — |  |  | — |
Business divestitures with no tax impact | 4 |  |  | — |  |  | — |
Change in U.S. Federal tax law | (2 | ) |  | — |  |  | — |
U.S. Federal valuation allowance | — |  |  | — |  |  | 3 |
Other, net | (1 | ) |  | 1 |  |  | — |
Effective tax rate | 34 | % |  | 36 | % |  | 43 | %
Income taxes paid were $258 million, $190 million and $107 million in 2017, 2016 and 2015, respectively. A reconciliation of the beginning and ending liability for uncertain tax positions, including related interest and penalties, is as follows, in millions:
| Uncertain Tax Positions |  | Interest and Penalties |  | Total
Balance at January 1, 2016 | $ | 43 |  |  | $ | 10 |  |  | $ | 53 |
Current year tax positions: |  |  |  |  |
Additions | 11 |  |  | — |  |  | 11 |
Reductions | (1 | ) |  | — |  |  | (1 | )
Prior year tax positions: |  |  |  |  |
Additions | 1 |  |  | — |  |  | 1 |
Reductions | (2 | ) |  | — |  |  | (2 | )
Lapse of applicable statute of limitations | (6 | ) |  | — |  |  | (6 | )
Interest and penalties recognized in income tax expense | — |  |  | (1 | ) |  | (1 | )
Balance at December 31, 2016 | $ | 46 |  |  | $ | 9 |  |  | $ | 55 |
Current year tax positions: |  |  |  |  |
Additions | 13 |  |  | — |  |  | 13 |
Reductions | — |  |  | — |  |  | — |
Prior year tax positions: |  |  |  |  |
Additions | 3 |  |  | — |  |  | 3 |
Reductions | (1 | ) |  | — |  |  | (1 | )
Lapse of applicable statute of limitations | (7 | ) |  | — |  |  | (7 | )
Interest and penalties recognized in income tax expense | — |  |  | (1 | ) |  | (1 | )
Balance at December 31, 2017 | $ | 54 |  |  | $ | 8 |  |  | $ | 62 |
Q. INCOME TAXES (Concluded) If recognized, $43 million and $30 million of the liability for uncertain tax positions at December 31, 2017 and 2016, respectively, net of any U.S. Federal tax benefit, would impact our effective tax rate. Of the $62 million and $55 million total liability for uncertain tax positions (including related interest and penalties) at December 31, 2017 and 2016, respectively, $59 million and $54 million are recorded in other liabilities, respectively, and $3 million and $1 million is recorded as a net offset to other assets at December 31, 2017 and 2016, respectively. We file income tax returns in the U.S. Federal jurisdiction, and various local, state and foreign jurisdictions. We continue to participate in the Compliance Assurance Process ("CAP"). CAP is a real-time audit of the U.S. Federal income tax return that allows the Internal Revenue Service ("IRS"), working in conjunction with us, to determine tax return compliance with the U.S. Federal tax law prior to filing the return. This program provides us with greater certainty about our tax liability for a given year within months, rather than years, of filing our annual tax return and greatly reduces the need for recording a liability for U.S. Federal uncertain tax positions. The IRS has completed their examination of our consolidated U.S. Federal tax returns through 2016. With few exceptions, we are no longer subject to state or foreign income tax examinations on filed returns for years before 2006. As a result of tax audit closings, settlements and the expiration of applicable statutes of limitations in various jurisdictions within the next 12 months, we anticipate that it is reasonably possible the liability for uncertain tax positions could be reduced by approximately $8 million.

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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 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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