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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes: On December 22, 2017, the TCJA was signed into law in the U.S. The TCJA contains several key tax provisions including, among other things, the reduction of the corporate income tax rate from 35% to 21% effective January 1, 2018, the requirement of companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and the creation of new taxes on certain foreign sourced earnings such as global intangible low-taxed income (“GILTI”). Subsequent to December 31, 2017 the U.S. Department of the Treasury has issued additional interpretive guidance on the application of the rules around the one-time transition tax. The Company has incorporated guidance in all material respects issued through January 31, 2018, however, any additional guidance issued after this date has not been incorporated into the provisional estimate as the Company is still evaluating its impact. Under ASC 740, Income Taxes, the effect of changes in tax rates and laws are recognized in the period in which the new legislation is enacted. However, the SEC staff issued SAB 118, which will allow us to record provisional amounts during a measurement period, which should not extend beyond one year from the enactment date. In accordance with SAB 118, income tax effects of the TCJA may be refined as additional analysis is completed based on obtaining, preparing, or analyzing additional information about facts and circumstances that existed as of the enactment date that was not initially reported as provisional amounts. In addition, the provisional amounts may also be affected upon additional TCJA guidance being issued during the measurement period. As of December 31, 2017, we have not completed our accounting for the effects of enactment of the TCJA; however, in certain cases, as described below, we have recorded a provisional tax benefit of $62.3 million related to the remeasurement of our existing deferred tax balances from 35% to 21% and a provisional tax expense of $429.2 million related to the one-time transition tax. The prospective release of additional guidance may require us to refine our calculations and adjust our estimate. Each of the provisional estimates have been included as a component of income tax from continuing operations. As of December 31, 2017, we have not completed the accounting for the tax effects of the GILTI tax law provision and an accounting policy has not yet been elected. The effect of the GILTI international provision is uncertain. Quantifying the impacts of GILTI is not estimable at this time due, among other things, to the inherent complexities involved. Income from continuing operations before income taxes and equity in net income of unconsolidated investments, and current and deferred income tax expense (benefit) are composed of the following (in thousands):
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
Income from continuing operations before income taxes and equity in net income of unconsolidated investments: |  |  |  |  |
Domestic | $ | (8,293 | ) |  | $ | 49,630 |  |  | $ | (15,861 | )
Foreign | 455,091 |  |  | 465,634 |  |  | 326,605 |
Total | $ | 446,798 |  |  | $ | 515,264 |  |  | $ | 310,744 |
Current income tax expense (benefit): |  |  |  |  |
Federal | $ | 394,747 |  |  | $ | 7,717 |  |  | $ | 76,778 |
State | 323 |  |  | 1,407 |  |  | (983 | )
Foreign | 78,688 |  |  | 63,957 |  |  | 58,710 |
Total | $ | 473,758 |  |  | $ | 73,081 |  |  | $ | 134,505 |
Deferred income tax (benefit) expense: |  |  |  |  |
Federal | $ | (58,640 | ) |  | $ | 12,230 |  |  | $ | (127,212 | )
State | (2,288 | ) |  | (1,715 | ) |  | (1,267 | )
Foreign | 18,987 |  |  | 12,667 |  |  | 5,108 |
Total | $ | (41,941 | ) |  | $ | 23,182 |  |  | $ | (123,371 | )
Total income tax expense | $ | 431,817 |  |  | $ | 96,263 |  |  | $ | 11,134 |
The increase in the Federal current expense of $387.0 million is primarily related to the tax impact of the one-time transition tax imposed by the TCJA of $429.2 million. The increase in Federal deferred benefit of $70.8 million is primarily related to the tax impact associated with the remeasurement of deferred tax assets and liabilities under the recently enacted tax legislation from a statutory rate of 35% to 21%. This resulted in a deferred tax benefit of $62.3 million. The reconciliation of the U.S. federal statutory rate to the effective income tax rate is as follows:
| % of Income Before Income Taxes
| 2017 |  | 2016 |  | 2015
Federal statutory rate | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State taxes, net of federal tax benefit | (0.5 | ) |  | (0.1 | ) |  | 1.4 |
Change in valuation allowance | (1.4 | ) |  | 3.7 |  |  | 5.7 |
Impact of foreign earnings, net(a) | (13.5 | ) |  | (19.3 | ) |  | (22.0 | )
Change in U.S. federal statutory rate(b) | (14.0 | ) |  | — |  |  | — |
Transition tax on deferred foreign earnings(b) | 96.1 |  |  | — |  |  | — |
Subpart F income | 2.0 |  |  | 0.2 |  |  | 7.8 |
Deemed repatriation of foreign income(c) | — |  |  | — |  |  | 105.5 |
Undistributed earnings of foreign subsidiaries(a)(c) | (2.2 | ) |  | 0.1 |  |  | (114.8 | )
Stock-based compensation | (1.9 | ) |  | — |  |  | — |
Nondeductible transaction costs | — |  |  | — |  |  | 2.0 |
Depletion | (1.4 | ) |  | (1.0 | ) |  | (1.8 | )
Revaluation of unrecognized tax benefits/reserve requirements(d) | (0.7 | ) |  | (0.4 | ) |  | (14.4 | )
Domestic manufacturing tax deduction | — |  |  | (0.9 | ) |  | (0.5 | )
Other items, net | (0.9 | ) |  | 1.4 |  |  | (0.3 | )
Effective income tax rate | 96.6 | % |  | 18.7 | % |  | 3.6 | %
(a) | During 2017, 2016 and 2015, we received actual and deemed distributions of $42.5 million, $308.4 million and $1.4 billion, respectively, from various foreign subsidiaries and joint ventures, and realized income tax expense, net of foreign tax credits, of $9.1 million, $67.5 million and $350.2 million, respectively, related to the repatriation of these earnings, which impacted our effective tax rate. Our statutory rate is decreased by of our share of the income of JBC, a Free Zones company under the laws of the Hashemite Kingdom of Jordan. The applicable provisions of the Jordanian law, and applicable regulations thereunder, do not have a termination provision and the exemption is indefinite. As a Free Zones company, JBC is not subject to income taxes on the profits of products exported from Jordan, and currently, substantially all of the profits are from exports. This resulted in a rate benefit of 8.9%, 7.3%, and 8.2% for 2017, 2016, and 2015, respectively.
(b) | We have made a reasonable estimate of the tax impact of the U.S. enacted tax law on our business and our consolidated financial statements and have recorded a provisional tax benefit of $62.3 million related to the remeasurement of our deferred tax assets and liabilities for the reduction in the Federal statutory tax rate from 35% to 21%. We have also recognized a provisional tax expense of $429.2 million for the one-time transition tax.
(c) | In prior years, we designated the undistributed earnings of substantially all of our foreign subsidiaries as indefinitely reinvested. In 2015, we were not indefinitely reinvested in a portion of earnings from legacy Rockwood entities that were part of the repatriation planning, for which a deferred tax liability of $387.0 million was established in the opening balance sheet. This liability reversed upon the completion of the repatriation with $356.2 million impacting earnings and $30.8 million from foreign exchange differences. The reversal of this liability offsets the tax amount of $327.9 million from legacy Rockwood entities included in the deemed repatriation of foreign income.
(d) | In 2015, the main impact is from the release of reserves on the close of a U.S. federal audit, and lapse of statute of limitations. These releases provided a net benefit of approximately $42.7 million.
Deferred income tax assets and liabilities recorded on the consolidated balance sheets as of December 31, 2017 and 2016 consist of the following (in thousands):
| December 31,
| 2017 |  | 2016
Deferred tax assets: |  |  |
Accrued employee benefits | $ | 21,463 |  |  | $ | 32,622 |
Accrued expenses | — |  |  | 10,065 |
Operating loss carryovers(a) | 459,644 |  |  | 91,934 |
Pensions | 64,799 |  |  | 96,635 |
Tax credit carryovers | 11,634 |  |  | 1,029 |
Other | 44,714 |  |  | 34,866 |
Gross deferred tax assets | 602,254 |  |  | 267,151 |
Valuation allowance(a) | (458,288 | ) |  | (69,900 | )
Deferred tax assets | 143,966 |  |  | 197,251 |
Deferred tax liabilities: |  |  |
Depreciation | (334,162 | ) |  | (379,161 | )
Intangibles | (113,792 | ) |  | (99,969 | )
Hedge of Net Investment of Foreign Subsidiary | (17,028 | ) |  | (51,192 | )
Other | (24,265 | ) |  | (18,536 | )
Deferred tax liabilities | (489,247 | ) |  | (548,858 | )
Net deferred tax liabilities | $ | (345,281 | ) |  | $ | (351,607 | )
Classification in the consolidated balance sheets: |  |  |
Noncurrent deferred tax assets | $ | 25,108 |  |  | $ | 61,132 |
Noncurrent deferred tax liabilities | (370,389 | ) |  | (412,739 | )
Net deferred tax liabilities | $ | (345,281 | ) |  | $ | (351,607 | )
(a) | During 2017, the Company recorded a change in estimate related to a foreign entity that resulted in an increase to the deferred tax asset for net operating losses and an associated and equal valuation allowance of approximately $400.6 million.
Changes in the balance of our deferred tax asset valuation allowance are as follows (in thousands):
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
Balance at January 1 | $ | (69,900 | ) |  | $ | (84,137 | ) |  | $ | (30,768 | )
Additions | (408,252 | ) |  | (20,568 | ) |  | (59,889 | )
Deductions | 19,864 |  |  | 34,805 |  |  | 6,520 |
Balance at December 31 | $ | (458,288 | ) |  | $ | (69,900 | ) |  | $ | (84,137 | )
At December 31, 2017, we had approximately $11.6 million of domestic credits available to offset future payments of income taxes, expiring in varying amounts between 2018 and 2027. We have established valuation allowances for $0.3 million of those domestic credits since we believe that it is more likely than not that the related deferred tax assets will not be realized. We believe that sufficient taxable income will be generated during the carryover period in order to utilize the other remaining credit carryovers. At December 31, 2017, we have on a pre-tax basis, domestic state net operating losses of $156.1 million, expiring between 2018 and 2037, which have pre-tax valuation allowances of $39.3 million established. In addition, we have on a pre-tax basis $1.75 billion of foreign net operating losses of which a majority have an indefinite life, which have pre-tax valuation allowances for $1.73 billion established. We have established valuation allowances for these deferred tax assets since we believe that it is more likely than not that the related deferred tax assets will not be realized. For the same reason, we established pre-tax valuation allowances of $8.7 million and $34.4 million for other state and foreign deferred tax assets, respectively, unrelated to net operating losses. The realization of the deferred tax assets is dependent on the generation of sufficient taxable income in the appropriate tax jurisdictions. Although realization is not assured, we believe it is more likely than not that the remaining deferred tax assets will be realized. However, the amount considered realizable could be reduced if estimates of future taxable income change. We believe that it is more likely than not that the Company will generate sufficient taxable income in the future to fully utilize all other deferred tax assets. At December 31, 2017, as part of the TCJA, we recorded a provisional amount for our one-time transition tax liability of $429.2 million based on approximately $4.8 billion of cumulative undistributed earnings and profits of our non-U.S. subsidiaries and joint ventures, which in prior year, had been indefinitely reinvested or subject to a tax-free liquidation and do not give rise to significant incremental taxes. At December 31, 2017, no additional U.S. federal income taxes, U.S. state and local taxes, or foreign withholding or income taxes have been provided with respect to accumulated earnings of foreign subsidiaries, as the Company continues to evaluate is indefinite reinvestment assertion as a result of the TCJA. The accounting is expected to be completed within the one-year measurement period as allowed by SAB 118. During that period, if it is determined that cash can be repatriated with little to no tax consequences, we may choose to repatriate cash at that time. If in the foreseeable future, we can no longer demonstrate that these earnings are indefinitely reinvested, a deferred tax liability will be recognized. A determination of the amount of the unrecognized deferred tax liability related to these undistributed earnings is not practicable. During the year ended December 31, 2017, we recorded an income tax benefit of $9.7 million related to previously taxed foreign earnings that we expect to repatriate within the foreseeable future. No additional amounts of income tax expense or benefit related to the previously taxed foreign earnings have been recorded as of December 31, 2017, as the Company continues to evaluate its indefinite reinvestment assertion as a result of the TCJA. Liabilities related to uncertain tax positions were $24.4 million and $27.9 million at December 31, 2017 and 2016, respectively, inclusive of interest and penalties of $2.9 million and $3.0 million at December 31, 2017 and 2016, respectively, and are reported in Other noncurrent liabilities as provided in Note 16, “Other Noncurrent Liabilities.” These liabilities at December 31, 2017 and 2016 were reduced by $14.6 million and $15.1 million, respectively, for offsetting benefits from the corresponding effects of potential transfer pricing adjustments, state income taxes and rate arbitrage related to foreign structure. These offsetting benefits are recorded in Other assets as provided in Note 11, “Other Assets.” The resulting net liabilities of $6.9 million and $9.8 million at December 31, 2017 and 2016, respectively, if recognized and released, would favorably affect earnings. The liabilities related to uncertain tax positions, exclusive of interest, were $21.4 million and $25.4 million at December 31, 2017 and 2016, respectively. The following is a reconciliation of our total gross liability related to uncertain tax positions for 2017, 2016 and 2015 (in thousands):
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
Balance at January 1 | $ | 25,384 |  |  | $ | 95,715 |  |  | $ | 24,969 |
Acquisition of Rockwood | — |  |  | — |  |  | 124,758 |
Divestitures(a) | — |  |  | (55,881 | ) |  | — |
Additions for tax positions related to prior years | — |  |  | 548 |  |  | 4,329 |
Reductions for tax positions related to prior years | (1,933 | ) |  | (1,253 | ) |  | (46,211 | )
Additions for tax positions related to current year | 1,132 |  |  | 1,271 |  |  | 202 |
Lapses in statutes of limitations/settlements | (4,198 | ) |  | (12,591 | ) |  | (6,736 | )
Foreign currency translation adjustment | 1,053 |  |  | (2,425 | ) |  | (5,596 | )
Balance at December 31 | $ | 21,438 |  |  | $ | 25,384 |  |  | $ | 95,715 |
(a) | Reclassified to Other noncurrent liabilities as a result of the indemnification of certain income tax liabilities associated with the Chemetall Surface Treatment entities sold. See Note 16, “Other Noncurrent Liabilities.”
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Due to the statute of limitations, we are no longer subject to U.S. federal income tax audits by the Internal Revenue Service (“IRS”) for years prior to 2011. Due to the statute of limitations, we also are no longer subject to U.S. state income tax audits prior to 2011. With respect to jurisdictions outside the U.S., several audits are in process. We have audits ongoing for the years 2006 through 2015 related to Germany, Taiwan, Canada, Italy, India, and France, some of which are for entities that have since been divested. While we believe we have adequately provided for all tax positions, amounts asserted by taxing authorities could be greater than our accrued position. Accordingly, additional provisions on federal and foreign tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved. Since the timing of resolutions and/or closure of tax audits is uncertain, it is difficult to predict with certainty the range of reasonably possible significant increases or decreases in the liability related to uncertain tax positions that may occur within the next twelve months. Our current view is that it is reasonably possible that we could record a decrease in the liability related to uncertain tax positions, relating to a number of issues, up to approximately $1.6 million as a result of closure of tax statutes.

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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 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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