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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 Tax Cuts and Jobs Act (“Tax Act”) was signed into law. The Tax Act, among other things, reduced the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries, requires a current inclusion in U.S. federal taxable income of certain earnings of foreign corporations, and creates a new limitation on deductible interest expense. Consequently, we recorded a $22.5 net favorable tax benefit during the fourth quarter of 2017 related to the Tax Act. This benefit mainly consisted of a one-time, provisional benefit of $26.9 related to the remeasurement of certain of our deferred tax liabilities using the lower U.S. federal corporate tax rate of 21%. This was partially offset by (i) a one-time, provisional charge of $8.7 related to the deemed repatriation transition tax, which is a tax on previously untaxed accumulated earnings and profits of certain of our foreign subsidiaries, and (ii) a one-time tax expense and tax benefit of $4.5 and $8.7, respectively, related to our intent to amend pre-acquisition Hudson U.S. federal tax returns. As we complete our analysis of the Tax Act, further collect and analyze data, interpret any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, we may make adjustments to the provisional amounts. Those adjustments may materially impact our provision for income taxes in the period in which the adjustments are made. At December 31, 2017, we have not completed our accounting for the income tax effects of certain elements of the Tax Act. If we were able to make reasonable estimates of the effects of elements for which our analysis is not yet complete, we recorded provisional adjustments. If we were not yet able to make reasonable estimates of the impact of certain elements, we have not recorded any adjustments related to those elements and have continued accounting for them in accordance with ASC 740 on the basis of the tax laws in effect before the Tax Act. Our accounting for the following elements of the Tax Act is incomplete. However, we were able to make reasonable estimates of certain effects and, therefore, recorded provisional adjustments as follows: Reduction of U.S. federal corporate tax rate: The Tax Act reduces the U.S. federal corporate tax rate to 21% effective January 1, 2018. For certain of our deferred tax liabilities, we have recorded a provisional decrease of $26.9, with a corresponding adjustment to deferred income tax benefit $26.9 for the year ended December 31, 2017. While we are able to make a reasonable estimate of the impact of the reduction in the U.S. federal corporate tax rate, it may be affected by other analyses related to the Tax Act, including, but not limited to, our calculation of deemed repatriation of deferred foreign income and the state tax effect of adjustments made to federal temporary differences. Deemed Repatriation Transition Tax: The Deemed Repatriation Transition Tax (“Transition Tax”) is a tax on total post-1986 earnings and profits (E&P) of certain of our foreign subsidiaries. We were able to make a reasonable estimate of the Transition Tax and recorded (i) a one-time, provisional charge of $8.7 related to the deemed repatriation transition tax, and (ii) a one-time tax expense and tax benefit of $4.5 and $8.7, respectively, related to our intent to amend pre-acquisition Hudson U.S. federal tax returns. We have not yet completed our calculation of the total post-1986 E&P for these foreign subsidiaries. Furthermore, the Transition Tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when we finalize the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the Transition Tax, or any additional outside basis difference inherent in these entities since these amounts continue to be indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the Transition Tax and additional outside basis difference in these entities (i.e., basis difference in excess of that subject to the one-time Transition Tax) is not practicable. Valuation allowances: We must assess whether our valuation allowance analyses are affected by various aspects of the Tax Act (e.g. deemed repatriation of deferred foreign income, Global intangible low-taxed income (GILTI) inclusions, new categories of foreign tax credits). The GILTI provisions require us in our U.S. income tax return, to include foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. We are evaluating if it will be subject to incremental U.S. tax on GILTI income beginning in 2018, due to expense allocations required by the U.S. foreign tax credit rules. We have provisionally elected to account for GILTI tax in the period in which it is incurred, and therefore, we have not provided any provisional deferred tax impacts of GILTI in our consolidated financial statements for the year ended December 31, 2017. Since, as discussed herein, we have recorded provisional amounts related to certain portions of the Tax Act, any corresponding determination of the need for or change in a valuation allowance is also provisional. Income (Loss) Before Income Taxes Income (loss) before income taxes consists of the following:
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
United States | $ | 2.7 |  |  | $ | 40.5 |  |  | $ | (187.2 | )
Foreign | 10.9 |  |  | (2.1 | ) |  | (14.6 | )
Income (loss) before income taxes | $ | 13.6 |  |  | $ | 38.4 |  |  | $ | (201.8 | )
Provision Significant components of income tax (benefit) expense are as follows:
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
Current: |  |  |  |  |
Federal | $ | 6.1 |  |  | $ | 10.0 |  |  | $ | 22.9 |
State and local | 0.5 |  |  | 1.0 |  |  | 1.1 |
Foreign | 7.3 |  |  | 5.3 |  |  | 3.1 |
Total current | 13.9 |  |  | 16.3 |  |  | 27.1 |
Deferred: |  |  |  |  |
Federal | (28.8 | ) |  | (3.3 | ) |  | (25.7 | )
State and local | (0.4 | ) |  | (0.2 | ) |  | (0.6 | )
Foreign | (0.6 | ) |  | 0.9 |  |  | 1.9 |
Total deferred | (29.8 | ) |  | (2.6 | ) |  | (24.4 | )
Total income tax (benefit) expense | $ | (15.9 | ) |  | $ | 13.7 |  |  | $ | 2.7 |
Effective Tax Rate Reconciliation The reconciliation of income taxes computed at the U.S. federal statutory tax rate to income tax (benefit) expense is as follows:
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
Income tax expense (benefit) at U.S. statutory rate | $ | 4.8 |  |  | $ | 13.4 |  |  | $ | (70.6 | )
State income taxes, net of federal tax benefit | 0.6 |  |  | 0.7 |  |  | 0.4 |
Foreign income, net of credit on foreign taxes | 8.8 |  |  | 0.2 |  |  | — |
Effective tax rate differential of earnings outside of U.S. | (0.5 | ) |  | 0.5 |  |  | — |
Change in valuation allowance | 7.8 |  |  | 6.6 |  |  | 5.6 |
Research & experimentation credits | (0.6 | ) |  | (0.9 | ) |  | (0.9 | )
Non-deductible items | 0.6 |  |  | 0.7 |  |  | 2.7 |
Change in uncertain tax positions | 0.1 |  |  | (0.2 | ) |  | 0.1 |
Domestic production activities deduction | (0.4 | ) |  | (1.2 | ) |  | (2.1 | )
Tax effect of asset impairments | — |  |  | — |  |  | 67.3 |
Tax effect of insurance proceeds | — |  |  | (5.8 | ) |  | — |
Tax effect of 2017 tax reform federal rate change | (26.9 | ) |  | — |  |  | — |
Tax effect of carryforward foreign tax credits | (10.3 | ) |  | — |  |  | — |
Other items | 0.1 |  |  | (0.3 | ) |  | 0.2 |
Income tax (benefit) expense | $ | (15.9 | ) |  | $ | 13.7 |  |  | $ | 2.7 |
Deferred Taxes Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows:
| December 31,
| 2017 |  | 2016
Deferred tax assets: |  |  |
Accruals and reserves | $ | 11.8 |  |  | $ | 24.1 |
Pensions | 2.0 |  |  | 5.3 |
Inventory | 4.3 |  |  | 6.8 |
Share-based compensation | 6.6 |  |  | 9.4 |
Tax credit carryforwards | 16.4 |  |  | 2.2 |
Foreign net operating loss carryforwards | 12.4 |  |  | 5.9 |
State net operating loss carryforwards | 2.0 |  |  | 1.6 |
Other – net | 0.2 |  |  | 0.9 |
Total deferred tax assets before valuation allowances | 55.7 |  |  | 56.2 |
Valuation allowances | (27.2 | ) |  | (15.1 | )
Total deferred tax assets, net of valuation allowances | $ | 28.5 |  |  | $ | 41.1 |
Deferred tax liabilities: |  |  |
Property, plant and equipment | $ | 15.0 |  |  | $ | 19.4 |
Goodwill and intangible assets | 72.9 |  |  | 22.9 |
Convertible notes | (0.5 | ) |  | 1.0 |
Other – net | 2.9 |  |  | — |
Total deferred tax liabilities | $ | 90.3 |  |  | $ | 43.3 |
Net deferred tax liabilities | $ | 61.8 |  |  | $ | 2.2 |
The net deferred tax liability is classified as follows: |  |  |
Other assets | (0.7 | ) |  | (2.0 | )
Long-term deferred tax liabilities | 62.5 |  |  | 4.2 |
Net deferred tax liabilities | $ | 61.8 |  |  | $ | 2.2 |
Federal, State and Local Net Operating Loss Carryforwards: As a result of our acquisition of SeQual in 2010, we have $15.9 of state net operating losses. California tax law limits the use of these state net operating losses. The remaining state net operating losses expire between 2018 and 2030. In addition, we have state net operating losses in various other states which begin to expire in 2018. The gross deferred tax asset for the state net operating losses of $2.5 is substantially offset by a valuation allowance of $2.2. Foreign Net Operating Loss and Tax Credit Carryforwards: As of December 31, 2017, cumulative foreign operating losses of $70.8 generated by the Company were available to reduce future taxable income. Approximately $67.6 of these operating losses expire between 2019 and 2028. The remaining $3.2 can be carried forward indefinitely. The deferred tax asset for the foreign operating losses of $12.4 is substantially offset by a valuation allowance of $12.1. As of December 31, 2017, we have $1.0 of investment tax credits available to reduce its future tax liability. The gross deferred tax asset of $1.0 is fully offset by a valuation allowance due to uncertainties relating to our ability to fully use these credits prior to expiration. Other Tax Information We previously considered the earnings in our non-U.S. subsidiaries to be indefinitely reinvested and, accordingly, recorded no deferred income taxes. As of December 31, 2016, we had undistributed foreign earnings of approximately $190.4. While the Tax Act subjected approximately $200.0 of undistributed foreign earnings to tax, an actual repatriation from our non-U.S. subsidiaries could still be subject to additional foreign withholding taxes and U.S. state taxes. We have analyzed our global working capital and cash requirements and have determined that we may be repatriating approximately $50.0, for which we were not able to make a reasonable estimate of foreign withholding taxes and U.S. state taxes at December 31, 2017. We will record the tax effects of the $50.0 cash repatriation in the period that we are first able to make a reasonable estimate, no later than December 31, 2018. Cash paid for income taxes during the years ended December 31, 2017, 2016 and 2015 was $15.4, $17.6, and $30.5, respectively. Unrecognized Income Tax Benefits The reconciliation of beginning to ending unrecognized tax benefits is as follows:
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
Unrecognized tax benefits at beginning of the year | $ | 0.8 |  |  | $ | 1.0 |  |  | $ | 0.9 |
Additions for tax positions of prior years | 0.1 |  |  | — |  |  | 0.1 |
Reductions for tax positions of prior years | (0.1 | ) |  | — |  |  | — |
Lapse of statutes of limitation | — |  |  | (0.2 | ) |  | — |
Unrecognized tax benefits at end of the year | $ | 0.8 |  |  | $ | 0.8 |  |  | $ | 1.0 |
Included in the balance of unrecognized tax benefits at both December 31, 2017 and 2016 were $0.6 of income tax benefits which, if ultimately recognized, would impact our annual effective tax rate. We had accrued approximately $0.1 for the payment of interest and penalties at both December 31, 2017 and 2016. We are subject to income taxes in the U.S. federal jurisdiction and various state and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, we are no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years prior to 2013. Due to the expiration of various statutes of limitation, it is reasonably possible our unrecognized tax benefits at December 31, 2017 may decrease within the next twelve months, the amount by which was insignificant for disclosure.

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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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