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Income Taxes | 12 Months Ended
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Dec. 31, 2018
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 GILTI. 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 allowed us to record provisional amounts during a measurement period ending December 22, 2018. In accordance with SAB 118, income tax effects of the TCJA could be refined as additional analysis was completed based on obtaining, preparing, or analyzing additional information about facts and circumstances that existed as of the enactment date that were not initially reported as provisional amounts. In addition, the provisional amounts could also be affected upon additional TCJA guidance issued during the measurement period. As of December 31, 2018, we have completed our accounting for the effects of enactment of the TCJA and adjustments made to the provisional amounts allowed under SAB 118 were identified and recorded. During the year ended December 31, 2018, we recorded income tax expense of $0.4 million related to the remeasurement of our deferred tax assets and liabilities for the reduction in the Federal statutory tax rate. We also recognized an income tax benefit of $42.3 million for the refinement of the tax liability calculation related to the one-time transition tax. Additionally, during the year ended December 31, 2018 we recognized income tax expense of $2.1 million related to excess executive employee remuneration for awards determined not to be grandfathered consistent with Notice 2018-68. The TCJA provides for a territorial tax system, beginning in 2018, which includes tax imposed on GILTI. The Company has elected to account for GILTI tax in the period in which it is incurred. The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. As of December 31, 2018, we recorded income tax expense of $6.4 million for GILTI, as well as $4.1 million related to excess employee remuneration that became effective in 2018 under the TCJA. As additional regulations or guidance in relation to TCJA continues to be issued, the Company will analyze and record the necessary impacts in the quarter in which guidance is received. 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,
| 2018 |  | 2017 |  | 2016
Income from continuing operations before income taxes and equity in net income of unconsolidated investments: |  |  |  |  |
Domestic | $ | 223,702 |  |  | $ | (8,293 | ) |  | $ | 49,630 |
Foreign | 570,999 |  |  | 455,091 |  |  | 465,634 |
Total | $ | 794,701 |  |  | $ | 446,798 |  |  | $ | 515,264 |
Current income tax expense (benefit): |  |  |  |  |
Federal | $ | (2,712 | ) |  | $ | 394,747 |  |  | $ | 7,717 |
State | 6,793 |  |  | 323 |  |  | 1,407 |
Foreign | 91,581 |  |  | 78,688 |  |  | 63,957 |
Total | $ | 95,662 |  |  | $ | 473,758 |  |  | $ | 73,081 |
Deferred income tax (benefit) expense: |  |  |  |  |
Federal | $ | 15,573 |  |  | $ | (58,640 | ) |  | $ | 12,230 |
State | 1,614 |  |  | (2,288 | ) |  | (1,715 | )
Foreign | 31,977 |  |  | 18,987 |  |  | 12,667 |
Total | $ | 49,164 |  |  | $ | (41,941 | ) |  | $ | 23,182 |
Total income tax expense | $ | 144,826 |  |  | $ | 431,817 |  |  | $ | 96,263 |
The decrease in the current income tax expense is primarily related to the tax impact of the one-time transition tax imposed by the TCJA in 2017. The increase in the deferred tax expense in 2018 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% recorded in 2017. The reconciliation of the U.S. federal statutory rate to the effective income tax rate is as follows:
| % of Income Before Income Taxes
| 2018 |  | 2017 |  | 2016
Federal statutory rate | 21.0 | % |  | 35.0 | % |  | 35.0 | %
State taxes, net of federal tax benefit | 0.9 |  |  | (0.5 | ) |  | (0.1 | )
Change in valuation allowance (a) | 0.7 |  |  | (1.4 | ) |  | 3.7 |
Impact of foreign earnings, net(b) | (0.3 | ) |  | (13.5 | ) |  | (19.3 | )
Global intangible low tax inclusion | 0.8 |  |  | — |  |  | — |
Change in U.S. federal statutory rate(c) | 0.1 |  |  | (14.0 | ) |  | — |
Transition tax on deferred foreign earnings(d) | (5.3 | ) |  | 96.1 |  |  | — |
Subpart F income | 0.9 |  |  | 2.0 |  |  | 0.2 |
Undistributed earnings of foreign subsidiaries | — |  |  | (2.2 | ) |  | 0.1 |
Stock-based compensation | (0.7 | ) |  | (1.9 | ) |  | — |
Depletion | (0.6 | ) |  | (1.4 | ) |  | (1.0 | )
Revaluation of unrecognized tax benefits/reserve requirements | — |  |  | (0.7 | ) |  | (0.4 | )
Domestic manufacturing tax deduction | — |  |  | — |  |  | (0.9 | )
Other items, net | 0.7 |  |  | (0.9 | ) |  | 1.4 |
Effective income tax rate | 18.2 | % |  | 96.6 | % |  | 18.7 | %
(a) | The year ended December 31, 2018 includes an $8.2 million expense due to the establishment of a valuation allowance due to a foreign restructuring plan and a $1.5 million benefit due to the release of a foreign valuation allowance due to changes in expected profitability. 2017 includes a $10.9 million benefit from the release of valuation allowances due to a foreign restructuring plan.
(b) | 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 3.3%, 8.9%, and 7.3% for 2018, 2017, and 2016, respectively.
(c) | At December 31, 2017 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%. In 2018, the updates to our calculation of the remeasurement of deferred tax assets and liabilities resulted in income tax expense of $0.4 million.
(d) | At December 31, 2017 we made a reasonable estimate of the tax impact of the U.S. enacted tax law on our business and our consolidated financial statements and recognized a provisional tax expense of $429.2 million for the one-time transition tax. During 2018, the impact of the refined one-time transition tax calculation was an income tax benefit of $42.3 million.
Deferred income tax assets and liabilities recorded on the consolidated balance sheets as of December 31, 2018 and 2017 consist of the following (in thousands):
| December 31,
| 2018 |  | 2017
Deferred tax assets: |  |  |
Accrued employee benefits | $ | 18,462 |  |  | $ | 21,463 |
Operating loss carryovers(a) | 1,210,377 |  |  | 459,644 |
Pensions | 61,308 |  |  | 64,799 |
Tax credit carryovers | 1,270 |  |  | 11,634 |
Other | 35,895 |  |  | 44,714 |
Gross deferred tax assets | 1,327,312 |  |  | 602,254 |
Valuation allowance(a) | (1,213,750 | ) |  | (458,288 | )
Deferred tax assets | 113,562 |  |  | 143,966 |
Deferred tax liabilities: |  |  |
Depreciation | (337,503 | ) |  | (334,162 | )
Intangibles | (88,871 | ) |  | (113,792 | )
Hedge of net investment of foreign subsidiary | (21,854 | ) |  | (17,028 | )
Other | (31,287 | ) |  | (24,265 | )
Deferred tax liabilities | (479,515 | ) |  | (489,247 | )
Net deferred tax liabilities | $ | (365,953 | ) |  | $ | (345,281 | )
Classification in the consolidated balance sheets: |  |  |
Noncurrent deferred tax assets | $ | 17,029 |  |  | $ | 25,108 |
Noncurrent deferred tax liabilities | (382,982 | ) |  | (370,389 | )
Net deferred tax liabilities | $ | (365,953 | ) |  | $ | (345,281 | )
(a) | During 2018, the Company recognized intercompany losses at a foreign entity related to international restructuring resulting in an increase to the deferred tax asset for net operating losses and an associated and equal valuation allowance of $749.8 million.
Changes in the balance of our deferred tax asset valuation allowance are as follows (in thousands):
| Year Ended December 31,
| 2018 |  | 2017 |  | 2016
Balance at January 1 | $ | (458,288 | ) |  | $ | (69,900 | ) |  | $ | (84,137 | )
Additions | (766,012 | ) |  | (408,252 | ) |  | (20,568 | )
Deductions | 10,550 |  |  | 19,864 |  |  | 34,805 |
Balance at December 31 | $ | (1,213,750 | ) |  | $ | (458,288 | ) |  | $ | (69,900 | )
At December 31, 2018, we had approximately $1.3 million of domestic credits available to offset future payments of income taxes, expiring in varying amounts between 2019 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, 2018, we have on a pre-tax basis, domestic state net operating losses of $152.7 million, expiring between 2019 and 2038, which have pre-tax valuation allowances of $58.3 million established. In addition, we have on a pre-tax basis $4.64 billion of foreign net operating losses, of which a majority have an indefinite life, which have pre-tax valuation allowances for $4.61 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 $9.9 million and $55.2 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. As of December 31, 2018, we have not recorded taxes on approximately $505.6 million of cumulative undistributed earnings of our non-U.S. subsidiaries and joint ventures. We generally do not provide for taxes related to our undistributed earnings because such earnings either would not be taxable when remitted or they are considered to be indefinitely reinvested. 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 due to the complexity and variety of assumptions necessary based on the manner in which the undistributed earnings would be repatriated. Liabilities related to uncertain tax positions were $22.9 million and $24.4 million at December 31, 2018 and 2017, respectively, inclusive of interest and penalties of $3.2 million and $2.9 million at December 31, 2018 and 2017, respectively, and are reported in Other noncurrent liabilities as provided in Note 16, “Other Noncurrent Liabilities.” These liabilities at December 31, 2018 and 2017 were reduced by $13.0 million and $14.6 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 $6.7 million and $6.9 million at December 31, 2018 and 2017, respectively, if recognized and released, would favorably affect earnings. The liabilities related to uncertain tax positions, exclusive of interest, were $19.7 million and $21.4 million at December 31, 2018 and 2017, respectively. The following is a reconciliation of our total gross liability related to uncertain tax positions for 2018, 2017 and 2016 (in thousands):
| Year Ended December 31,
| 2018 |  | 2017 |  | 2016
Balance at January 1 | $ | 21,438 |  |  | $ | 25,384 |  |  | $ | 95,715 |
Divestitures(a) | — |  |  | — |  |  | (55,881 | )
Additions for tax positions related to prior years | 874 |  |  | — |  |  | 548 |
Reductions for tax positions related to prior years | — |  |  | (1,933 | ) |  | (1,253 | )
Additions for tax positions related to current year | 1,091 |  |  | 1,132 |  |  | 1,271 |
Lapses in statutes of limitations/settlements | (3,578 | ) |  | (4,198 | ) |  | (12,591 | )
Foreign currency translation adjustment | (83 | ) |  | 1,053 |  |  | (2,425 | )
Balance at December 31 | $ | 19,742 |  |  | $ | 21,438 |  |  | $ | 25,384 |
(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 2017 related to Germany, Taiwan, Italy, India, Belgium, and Chile, 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 $4.4 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://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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