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INCOME TAXES | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
INCOME TAXES | 11. INCOME TAXES The Tax Cuts and Jobs Act of 2017 (the "TCJA”), enacted on December 22, 2017, provided a broad range of change to U.S. corporate tax law, including changes to the U.S. corporate income tax rate, new business-related exclusions, deductions and credits, as well as international tax provisions. Most notably, the TCJA permanently reduced the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018, and imposed a one-time tax on the deemed repatriation of undistributed foreign earnings (the "transition tax"). The TCJA also introduced anti-base erosion provisions, including the global intangible low-taxed income ("GILTI") tax. As a result of the reduction in the U.S. corporate income tax rate, the Company remeasured its U.S. deferred income tax balances and recorded a provisional deferred income tax benefit of $56.4 million for the year ended December 31, 2017. The Company also recognized provisional current income tax expense for the transition tax under the TCJA of $82.8 million for the year ended December 31, 2017. After the utilization of foreign tax credit carryforwards of $17.8 million, a provisional liability of $65.0 million was accrued for the transition tax as of December 31, 2017, which is payable over a period of eight years. During the year ended December 31, 2018, the Company completed its accounting for the income tax effects of the TCJA, which resulted in an additional deferred income tax benefit of $0.9 million and a discrete benefit of $3.4 million. As of December 31, 2018, a liability of $43.2 million was in the Consolidated Balance Sheet for the transition tax. The accounting for the income tax effects of the TCJA was completed based on regulatory guidance issued to date. Additional guidance could be issued, which could affect the amounts described above. Future adjustments (if any) will be recognized as discrete income tax expense or benefit in the period in which guidance is issued. The following table sets forth the components of income before income taxes by jurisdiction:
| Year Ended December 31,
| 2018 |  | 2017 |  | 2016
|  |  | (In thousands) |  |
United States | $ | 198,556 |  |  | $ | 180,957 |  |  | $ | 80,881 |
Foreign | 82,469 |  |  | 71,483 |  |  | 50,670 |
Income before income taxes | $ | 281,025 |  |  | $ | 252,440 |  |  | $ | 131,551 |
The following table sets forth the components of the provision (benefit) for income taxes:
| Year Ended December 31,
| 2018 |  | 2017 |  | 2016
|  |  | (In thousands) |  |
Current income taxes: |  |  |  |  |
Federal(1) | $ | 28,464 |  |  | $ | 122,170 |  |  | $ | 65,614 |
State | 7,458 |  |  | 2,259 |  |  | 6,489 |
Foreign | 10,611 |  |  | 15,274 |  |  | 3,502 |
Total current income taxes | 46,533 |  |  | 139,703 |  |  | 75,605 |
Deferred income taxes: |  |  |  |  |
Federal | 5,253 |  |  | (48,060 | ) |  | (42,835 | )
State | 1,967 |  |  | 4,508 |  |  | (2,938 | )
Foreign | 1,917 |  |  | (6,844 | ) |  | 599 |
Total deferred income taxes | 9,137 |  |  | (50,396 | ) |  | (45,174 | )
Provision for income taxes | $ | 55,670 |  |  | $ | 89,307 |  |  | $ | 30,431 |
(1) | Income tax expense related to stock-based awards and other equity instruments recorded directly to additional paid in capital totaled $0.1 million in 2016. Due to the adoption of ASU 2016-09 in the first quarter of 2017, there was no income tax expense or benefit recorded to additional paid in capital for stock-based awards in 2018 and 2017.
The following table sets forth the reconciliation between the federal statutory income tax rate and the effective tax rate:
| Year Ended December 31,
| 2018 |  | 2017 |  | 2016
Federal statutory rate | 21.0 | % |  | 35.0 | % |  | 35.0 | %
State income taxes, net of federal income tax benefit | 2.8 |  |  | 1.4 |  |  | 1.0 |
Deemed repatriation of undistributed foreign earnings | (1.2 | ) |  | 32.8 |  |  | — |
Deferred income tax remeasurement | (0.3 | ) |  | (22.4 | ) |  | — |
Tax effect of intercompany financing | (5.6 | ) |  | (10.5 | ) |  | (19.9 | )
Other(1) | 3.1 |  |  | (0.9 | ) |  | 7.0 |
Effective tax rate | 19.8 | % |  | 35.4 | % |  | 23.1 | %
(1) | Certain components of the effective tax rate for 2017 and 2016 have been reclassified to conform to the current period presentation.
As a result of the TCJA, WESCO reevaluated its intent and ability to repatriate foreign earnings based upon the liquidity of the Company's domestic operations and cash flow needs of its foreign subsidiaries. Consequently, during the year ended December 31, 2018, WESCO repatriated a portion of the previously taxed earnings attributable to the Company's Canadian operations to repay outstanding indebtedness in the U.S. WESCO continues to assert that the remaining undistributed earnings of its foreign subsidiaries, the majority of which were subject to the transition tax described above, are indefinitely reinvested. WESCO believes that it is able to maintain a sufficient level of liquidity for its domestic operations and commitments without repatriating cash held by these foreign subsidiaries. Upon any future repatriation, additional income taxes may be incurred; however, it is not practicable to determine the amount at this time. The following table sets forth deferred tax assets and liabilities:
| As of December 31,
| 2018 |  | 2017
|  |  | (In thousands) |  |
| Assets |  | Liabilities |  | Assets |  | Liabilities
Accounts receivable | $ | 3,657 |  |  | $ | — |  |  | $ | 3,496 |  |  | $ | — |
Inventories | — |  |  | 3,315 |  |  | — |  |  | 3,181 |
Depreciation of property, buildings and equipment | — |  |  | 17,384 |  |  | — |  |  | 13,283 |
Amortization of intangible assets | — |  |  | 158,795 |  |  | — |  |  | 159,107 |
Employee benefits | 20,107 |  |  | — |  |  | 14,835 |  |  | — |
Stock-based compensation(1) | 12,840 |  |  | — |  |  | 16,341 |  |  | — |
Advance payments | — |  |  | — |  |  | 8,456 |  |  | — |
Tax loss carryforwards | 15,557 |  |  | — |  |  | 19,128 |  |  | — |
Other | 7,927 |  |  | 4,115 |  |  | 11,850 |  |  | 8,672 |
Deferred income taxes before valuation allowance | 60,088 |  |  | 183,609 |  |  | 74,106 |  |  | 184,243 |
Valuation allowance | (4,072 | ) |  | — |  |  | (2,518 | ) |  | — |
Total deferred income taxes | $ | 56,016 |  |  | $ | 183,609 |  |  | $ | 71,588 |  |  | $ | 184,243 |
(1) | The Company does not expect the executive compensation deduction rules in Section 162(m) of the Internal Revenue Code as amended by the TCJA to have a material impact on the realizability of the deferred tax asset related to stock-based compensation.
As of December 31, 2018 and 2017, WESCO had deferred tax assets of $6.4 million and $10.4 million, respectively, related to Canadian net operating loss carryforwards. The Canadian net operating loss carryforwards expire beginning in 2036 through 2037. Additionally, WESCO had deferred tax assets of $7.2 million and $7.0 million as of December 31, 2018 and 2017, respectively, related to non-Canadian foreign net operating loss carryforwards. These net operating loss carryforwards expire beginning in 2019 through 2028, while some may be carried forward indefinitely. As of December 31, 2018 and 2017, WESCO had deferred tax assets of $3.2 million and $3.1 million, respectively, related to state net operating loss carryforwards. These carryforwards expire beginning in 2022 through 2037. The Company has determined, based upon an evaluation of all available evidence, that it "more-likely-than-not" will utilize all of its net operating loss carryforwards before expiration, other than those incurred in certain non-Canadian foreign jurisdictions. Accordingly, the Company recorded a full valuation allowance against deferred tax assets related to certain non-Canadian foreign net operating loss carryforwards of $4.1 million and $2.5 million at December 31, 2018 and 2017, respectively. The Company is under examination by tax authorities in the U.S. and Canada and remains subject to examination until the applicable statutes of limitation expire. The statutes of limitation for the material jurisdictions in which the Company files income tax returns remain open principally due to certain transfer pricing matters and are as follows:
United States — Federal |  | 2004 and forward
United States — Material States |  | 2004 and forward
Canada |  | 2004 and forward
The following table sets forth the reconciliation of gross unrecognized tax benefits:
| As of December 31,
| 2018 |  | 2017 |  | 2016
| (In thousands)
Beginning balance January 1 | $ | 4,348 |  |  | $ | 6,181 |  |  | $ | 5,436 |
Additions for tax positions of prior years | — |  |  | — |  |  | 3,298 |
Reductions for tax positions of prior years | — |  |  | (155 | ) |  | (21 | )
Settlements | (2,646 | ) |  | (1,025 | ) |  | (1,921 | )
Lapse in statute of limitations | (287 | ) |  | (755 | ) |  | (728 | )
Foreign currency exchange rate changes | (122 | ) |  | 102 |  |  | 117 |
Ending balance December 31 | $ | 1,293 |  |  | $ | 4,348 |  |  | $ | 6,181 |
The total amount of unrecognized tax benefits were $1.3 million, $4.3 million, and $6.2 million as of December 31, 2018, 2017 and 2016, respectively. The amount of unrecognized tax benefits that would affect the effective tax rate if recognized in the consolidated financial statements was $1.3 million, $1.7 million, and $7.5 million, respectively. It is reasonably possible that the amount of unrecognized tax benefits will decrease by approximately $0.1 million within the next twelve months due to the settlement of uncertain tax positions related to state audits or the expiration of statutes of limitation. This amount could affect the effective tax rate if recognized in the consolidated financial statements. The Company classifies interest related to unrecognized tax benefits as a component of net interest and other in the Consolidated Statement of Income and Comprehensive Income. Interest expense on unrecognized tax benefits was $0.2 million, $0.1 million, and $1.2 million for 2018, 2017 and 2016, respectively. As of December 31, 2018 and 2017, WESCO had a liability of $0.8 million and $1.8 million, respectively, for interest expense related to unrecognized tax benefits. The Company classifies penalties related to unrecognized tax benefits as part of income tax expense. Penalties recorded in income tax expense were immaterial in 2018, 2017, and 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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