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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Income (loss) before income taxes for the Company’s U.S. and non-U.S. operations was as follows:
(In millions) |  | 2018 |  | 2017 |  | 2016
U.S. |  | $ | 190.8 |  |  | $ | (119.8 | ) |  | $ | (782.1 | )
Non-U.S. |  | 56.9 |  |  | 33.3 |  |  | 48.1 |
Income (loss) before income taxes |  | $ | 247.7 |  |  | $ | (86.5 | ) |  | $ | (734.0 | )
The income tax provision (benefit) was as follows:
(In millions) |  | 2018 |  | 2017 |  | 2016
Current: |  |  |  |  |  |
Federal |  | $ | 1.0 |  |  | $ | (0.8 | ) |  | $ | 0.5 |
State |  | (0.8 | ) |  | (1.3 | ) |  | (1.5 | )
Foreign |  | 10.1 |  |  | 6.2 |  |  | 14.4 |
Total |  | 10.3 |  |  | 4.1 |  |  | 13.4 |
Deferred: |  |  |  |  |  |
Federal |  | 1.3 |  |  | 2.4 |  |  | (115.8 | )
State |  | (0.5 | ) |  | (14.4 | ) |  | (3.5 | )
Foreign |  | (0.1 | ) |  | 1.1 |  |  | (1.0 | )
Total |  | 0.7 |  |  | (10.9 | ) |  | (120.3 | )
Income tax provision (benefit) |  | $ | 11.0 |  |  | $ | (6.8 | ) |  | $ | (106.9 | )
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code. Changes impacting the Company’s 2018 tax provision include the following: (1) reducing the U.S. federal current and deferred rate to 21%; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries, with $5.9 million included in the 2018 tax provision; (3) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations, commonly referred to as Global Intangible Low-Taxed Income (GILTI), for which the Company is currently utilizing net operating losses (NOLs) prior to January 1, 2018 to offset the 2018 inclusion of $25.7 million; (4) creating a new limitation on deductible interest expense, for which the Company has estimated the federal limitation to be $38 million in 2018, creating an indefinite lived deferred tax asset for which a valuation allowance was established. This limitation is affected by the interpretation of the meaning of depreciation in the proposed regulations, which could change as additional guidance and/or final regulations are issued. The following is a reconciliation of income taxes computed at the statutory U.S. Federal income tax rate to the actual effective income tax provision (benefit):
(In millions) |  | 2018 |  | 2017 |  | 2016
Taxes computed at the federal rate |  | $ | 52.0 |  |  | $ | (30.3 | ) |  | $ | (256.9 | )
Goodwill impairment |  | — |  |  | 36.6 |  |  | — |
State and local income taxes, net of federal tax benefit |  | (0.5 | ) |  | — |  |  | (26.8 | )
Valuation allowance |  | (48.0 | ) |  | (14.5 | ) |  | 171.5 |
Repatriation of foreign earnings (GILTI starting in 2018) |  | 5.4 |  |  | 14.2 |  |  | 2.1 |
Impact of U.S. tax reform |  | 5.9 |  |  | (4.1 | ) |  | — |
Foreign earnings taxed at different rate |  | 3.2 |  |  | (3.5 | ) |  | (1.2 | )
Adjustment to prior years’ taxes |  | (5.8 | ) |  | (5.2 | ) |  | 3.4 |
Withholding taxes |  | 2.7 |  |  | 2.2 |  |  | — |
Preferential tax rate |  | (4.8 | ) |  | (3.7 | ) |  | (4.1 | )
Other |  | 0.9 |  |  | 1.5 |  |  | 5.1 |
Income tax provision (benefit) |  | $ | 11.0 |  |  | $ | (6.8 | ) |  | $ | (106.9 | )
As proposed and final income tax regulations were issued throughout 2018, the Company continued to analyze the impact of the Tax Act. The Company estimated the impact of the Tax Act as part of the 2017 year-end financial statements. The change in the U.S. federal corporate tax rate from 35% to 21% resulted in a $2.6 million benefit as it relates to the remeasurement of indefinite lived deferred tax liabilities. The repeal of the alternative minimum tax resulted in a $1.5 million decrease in the deferred tax asset valuation allowance. The $4.1 million combination of these items was reflected within the 2017 financial statements and is located on the line labeled Impact from U.S. tax reform in the above table. In 2018, the Company was granted a preferential tax rate related to the STAL joint venture operations in China for tax years 2018 through 2020. The preferential tax rate is 15%, compared to the statutory rate of 25%. The Company has benefited from past preferential tax rate grants by the Chinese government, and the previous 15% three-year preferential tax rate expired on December 31, 2017. The Company recognizes deferred tax assets to the extent it believes these deferred tax assets are more likely than not to be realized. Valuation allowances are established when it is estimated that it is more likely than not the tax benefit of the deferred tax asset will not be realized. In making such determination, the Company considers all available evidence, both positive and negative, regarding the estimated future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, historical taxable income in prior carryback periods if carryback is permitted, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused. The verifiable evidence such as future reversals of existing temporary differences and the ability to carryback are considered before the subjective sources such as estimate future taxable income exclusive of temporary differences and tax planning strategies. In situations where a three-year cumulative loss position exists, accounting standards limit the ability to consider projections of future results as positive evidence to assess the realizability of deferred tax assets. If the Company determines that it would not be able to realize its deferred tax assets in the future in excess of their recorded net amount, an adjustment to the deferred tax asset valuation allowance would result. Since 2015, the Company’s results have reflected a three year cumulative loss from U.S. operations. As a result, the Company established $74.5 million in deferred tax asset valuation allowances in 2015, of which $68.4 million were for certain federal and state deferred tax assets. In 2016, the actions to indefinitely idle the Rowley, UT titanium sponge production facility (see Note 17 for further information) resulted in a reassessment of the realizability of U.S. federal deferred tax assets. In 2016, the Company’s results of operations included an increase to deferred tax asset valuation allowances of $171.5 million, including an additional $165.8 million valuation allowance on federal and state deferred tax assets. In 2017, the Company’s results reflected a partial release of the valuation allowance related to the federal and state deferred tax assets, along with the one-time transition tax inclusion in 2017. As discussed below, the transition tax inclusion presented in the year end 2017 financial statements reflected a reduction in the NOL deferred tax asset. This presentation was changed in 2018 based upon updated guidance whereby the Company utilized approximately $28.2 million of available tax credits instead of the NOL. This overall change in presentation is reflected within the 2018 effective tax rate. In 2018, the Company reported income before tax of $247.7 million, of which $190.8 million is attributable to the U.S. The overall income, along with the GILTI inclusion for the year, resulted in the Company utilizing NOL deferred tax assets in 2018, which resulted in a U.S. valuation allowance release of $46.3 million for 2018. The Company has elected to recognize GILTI liabilities as an element of income tax expense in the period incurred. The Company continues to maintain a valuation allowance on the net deferred tax assets for U.S. federal and state income tax purposes, with the exception of the indefinite lived deferred tax liability related to goodwill and the withholding tax liability associated with its permanent reinvestment assertion, as well as valuation allowances for certain foreign operations. The Company also established valuation allowances on deferred tax amounts recorded in accumulated other comprehensive loss in 2016, 2017 and 2018 of $45.6 million, $28.8 million and $49.3 million, respectively, which are not reflected in the preceding table reconciling amounts recognized in the income tax provision (benefit) recorded on the statement of operations (see Note 13). Additional Internal Revenue Service (IRS) guidance and Internal Revenue Code (IRC) elections have been published, along with individual state guidance, which have aided in refining the initial estimate related to the tax on the mandatory repatriation of foreign earnings, otherwise known as the “transition tax”. The transition tax is an income tax on certain previously untaxed accumulated and current earnings and profits (E&P) of the Company’s foreign subsidiaries. The Company was able to reasonably estimate the transition tax and recorded an initial provisional transition tax liability of $0 as of December 31, 2017 for federal income tax purposes. The initial estimate was approximately $100 million of federal taxable income on the mandatory deemed repatriation of foreign E&P, for which the Company planned to utilize a portion of its federal NOL deferred tax asset to fully offset the estimated transition tax liability of $35 million. On the basis of finalized E&P computations, the Company recognized an additional measurement-period adjustment of $5.9 million related to the transition tax liability, with a corresponding adjustment of $5.9 million to income tax expense. This was based on the Company’s finalized untaxed foreign E&P of $97.5 million, resulting in a transition tax liability of $34.1 million. The Company made an election to forego the utilization of NOLs to offset the transition tax liability, and instead utilized available income tax credits of $28.2 million, resulting in a net transition tax liability of $5.9 million. Even though the final regulations were not issued by December 31, 2018, the Company does not anticipate any change to this calculation. The transition tax liability is payable over eight years under the IRC, and the first installment payment of $0.5 million was paid in 2018. The election not to use NOLs to offset the transition tax inclusion preserved $97.5 million of the federal NOL tax attribute that the Company expects it will be able to utilize before expiration, while using tax credits that would potentially expire due to utilization limitations. The overall impact on the Company’s deferred tax assets as of December 31, 2017 is zero due to the net valuation allowance position. Based upon the limited guidance issued by states at the time of the year-end 2017 provision, the Company determined that estimating the impact of the transition tax for state purposes was not feasible. The Company has subsequently quantified the overall impact of the transition tax to be a reduction of $1.2 million to the state NOL deferred tax asset with an offset to the state valuation allowance. Changes to certain deferred tax assets and the valuation allowance at December 31, 2017 as a result of the Company’s final transition tax calculation for federal and state purposes were as follows (in millions):
Deferred Income Tax Assets |  | Estimate Refinement |  | Originally Reported |  | Change
Net operating loss tax carryovers |  | $ | 355.9 |  |  | $ | 336.1 |  |  | $ | 19.8 |
Tax credits |  | 63.2 |  |  | 92.6 |  |  | (29.4 | )
Gross deferred income tax assets |  | 733.3 |  |  | 742.9 |  |  | (9.6 | )
Valuation allowance |  | (264.4 | ) |  | (274.0 | ) |  | 9.6 |
Total deferred income tax assets |  | $ | 468.9 |  |  | $ | 468.9 |  |  | $ | — |
The utilization of income tax credits of $28.2 million does not match the change in the deferred tax asset amount due to the refinement of the transition tax calculation. The Company continues to maintain a valuation allowance on the federal, state and some foreign net deferred tax assets as of December 31, 2018. Deferred income taxes result from temporary differences in the recognition of income and expense for financial and income tax reporting purposes, and differences between the fair value of assets acquired in business combinations accounted for as purchases for financial reporting purposes and their corresponding tax bases. Deferred income taxes represent future tax benefits or costs to be recognized when those temporary differences reverse. The categories of assets and liabilities that have resulted in differences in the timing of the recognition of income and expense at December 31, 2018 and 2017 were as follows:
(In millions) |  | 2018 |  | 2017
Deferred income tax assets |  |  |  |
Pensions |  | $ | 159.4 |  |  | $ | 158.0 |
Postretirement benefits other than pensions |  | 87.3 |  |  | 86.5 |
Net operating loss tax carryovers |  | 307.5 |  |  | 336.1 |
Tax credits |  | 49.7 |  |  | 92.6 |
Deferred compensation and other benefit plans |  | 2.4 |  |  | 13.8 |
Other items |  | 67.3 |  |  | 55.9 |
Gross deferred income tax assets |  | 673.6 |  |  | 742.9 |
Valuation allowance for deferred tax assets |  | (194.8 | ) |  | (274.0 | )
Total deferred income tax assets |  | 478.8 |  |  | 468.9 |
Deferred income tax liabilities |  |  |  |
Bases of property, plant and equipment |  | 371.5 |  |  | 375.3 |
Inventory valuation |  | 67.1 |  |  | 50.0 |
Bases of amortizable intangible assets |  | 29.9 |  |  | 38.7 |
Other items |  | 14.5 |  |  | 7.0 |
Total deferred tax liabilities |  | 483.0 |  |  | 471.0 |
Net deferred tax liability |  | $ | (4.2 | ) |  | $ | (2.1 | )
The following summarizes the carryforward periods for the tax attributes related to NOLs and credits by jurisdiction.
($ in millions) |  |  |  |  |
Jurisdiction | Attribute | Amount | Expiration Period | Amount expiring within 5 years | Amount expiring in 5-20 years
U.S. | NOL | $943 | 20 years | $— | $943
U.S. | Foreign Tax Credit | $37 | 10 years | $13 | $24
U.S. | Research and Development Credit | $1 | 20 years | $— | $1
State | NOL | $140 | Various | $30 | $110
State | Credits | $12 | Various | $3 | $9
U.K. | NOL | $13 | Indefinite | $— | $—
Luxembourg | NOL | $18 | Indefinite | $— | $—
Poland | Economic Zone Credit | $2 | 9 years | $— | $2
Income taxes paid and amounts received as refunds were as follows:
(In millions) |  | 2018 |  | 2017 |  | 2016
Income taxes paid |  | $ | 9.7 |  |  | $ | 10.4 |  |  | $ | 8.6 |
Income tax refunds received |  | (1.6 | ) |  | (7.1 | ) |  | (10.5 | )
Income taxes paid (received), net |  | $ | 8.1 |  |  | $ | 3.3 |  |  | $ | (1.9 | )
In general, the Company is responsible for filing consolidated U.S. federal, foreign and combined, unitary or separate state income tax returns. The Company is responsible for paying the taxes relating to such returns, including any subsequent adjustments resulting from the redetermination of such tax liability by the applicable taxing authorities. As of December 31, 2018, the Company has outstanding federal tax refunds of $6.9 million related to filing of amended returns. In 2016 and 2017, the Company received $7.3 million and $3.2 million, respectively, for federal tax refunds of prior years’ taxes paid. Deferred taxes of $3.2 million have been recorded for foreign withholding taxes on earnings expected to be repatriated to the U.S. parent. The Company does not intend to distribute the $97.5 million taxed under the Tax Act, and has not recorded any deferred taxes related to such amounts. The remaining excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries is indefinitely reinvested, and the determination of any deferred tax liability on this amount is not practicable. Uncertain tax positions are recorded using a two-step process based on (1) determining whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those positions that meet the more-likely-than-not-recognition threshold, the Company records the largest amount of the tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The changes in the liability for unrecognized income tax benefits for the years ended December 31, 2018, 2017 and 2016 were as follows:
(In millions) |  | 2018 |  | 2017 |  | 2016
Balance at beginning of year |  | $ | 14.7 |  |  | $ | 22.7 |  |  | $ | 19.6 |
Increases in prior period tax positions |  | — |  |  | — |  |  | 7.9 |
Decreases in prior period tax positions |  | (0.1 | ) |  | (0.7 | ) |  | (0.1 | )
Increases in current period tax positions |  | 0.7 |  |  | 0.7 |  |  | 0.6 |
Expiration of the statute of limitations |  | (0.6 | ) |  | (0.4 | ) |  | (1.1 | )
Settlements |  | — |  |  | (7.6 | ) |  | (4.2 | )
Balance at end of year |  | $ | 14.7 |  |  | $ | 14.7 |  |  | $ | 22.7 |
For years ended December 31, 2018 and 2017, the liability includes $12.1 million and $11.7 million, respectively, of unrecognized tax benefits that are classified within deferred income taxes as a reduction of NOL carryforwards. The total estimated unrecognized tax benefit that, if recognized, would affect ATI’s effective tax rate is approximately $3 million. At this time, the Company believes that it is reasonably possible that approximately $1 million of the estimated unrecognized tax benefits as of December 31, 2018 will be recognized within the next twelve months based on the expiration of statutory review periods. The Company recognizes accrued interest and penalties related to uncertain tax positions as income tax expense. The amounts accrued for interest and penalty charges for the years ended December 31, 2018, 2017 and 2016 were not significant. At December 31, 2018 and 2017, the accrued liabilities for interest and penalties related to unrecognized tax benefits were $2.7 million and $3.2 million, respectively. The Company, and/or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. A summary of tax years that remain subject to examination, by major tax jurisdiction, is as follows:
Jurisdiction |  | Earliest Year Open to Examination
U.S. Federal |  | 2017
States: |  |
Pennsylvania |  | 2015
Foreign: |  |
China |  | 2015
Poland |  | 2012
United Kingdom |  | 2016

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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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