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INCOME TAXES | 12 Months Ended
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Dec. 31, 2017
INCOME TAXES |
INCOME TAXES | NOTE 5 INCOME TAXES On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted by the U.S. federal government. The legislation lowered the federal corporate tax rate from 35.0% to 21.0%, effective January 1, 2018 and imposed a one-time transition tax on previously unremitted earnings of non-U.S. subsidiaries as of December 31, 2017. In addition, there are many new provisions effective in 2018, including changes to bonus depreciation, the deduction for executive compensation and interest expense, a tax on global intangible low-taxed income provisions (“GILTI”), the base erosion anti-abuse tax (“BEAT”), and a deduction for foreign-derived intangible income (“FDII”). The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides us with up to one year to finalize accounting for the impacts of U.S. tax reform. We have made reasonable estimates of the provisional tax impacts related to the transition tax and the revaluation of deferred tax assets and liabilities. As a result, we recognized a net tax charge of approximately $24.7 million, including a provisional charge of $31.6 million for the transition tax and a provisional benefit of $6.8 million related to the corporate rate change. We have not finalized our election to account for the tax on GILTI as a period cost or as a component of deferred taxes at this time. Accordingly, we have not adjusted any of the deferred tax assets and liabilities of our foreign subsidiaries for U.S. tax reform. The ultimate impact may differ from these provisional amounts as we continue to evaluate the law and its impacts on our business and as additional regulatory guidance is issued. Income before income taxes consists of:
Years Ended December 31, |  | 2017 |  | 2016 |  | 2015 |
United States |  | $ | 36,139 |  | $ | 55,278 |  | $ | 73,492 |
International |  |  | 258,686 |  |  | 225,219 |  |  | 221,079 |
Total |  | $ | 294,825 |  | $ | 280,497 |  | $ | 294,571 |
The provision (benefit) for income taxes is composed of:
Years Ended December 31, |  | 2017 |  | 2016 |  | 2015 |
Current: |  |  |  |  |  |  |  |  |  |
U.S. Federal |  | $ | (342) |  | $ | 24,045 |  | $ | 19,749 |
State/Local |  |  | 230 |  |  | 449 |  |  | 82 |
International |  |  | 72,670 |  |  | 61,511 |  |  | 82,586 |
|  | $ | 72,558 |  | $ | 86,005 |  | $ | 102,417 |
Deferred: |  |  |  |  |  |  |  |  |  |
U.S. Federal/State |  | $ | 2,570 |  | $ | (4,002) |  | $ | 1,605 |
International |  |  | (332) |  |  | (7,110) |  |  | (8,746) |
|  | $ | 2,238 |  | $ | (11,112) |  | $ | (7,141) |
Total |  | $ | 74,796 |  | $ | 74,893 |  | $ | 95,276 |
The difference between the actual income tax provision and the tax provision computed by applying the statutory federal income tax rate of 35.0% in 2017, 2016 and 2015 to income before income taxes is as follows:
Years Ended December 31, |  | 2017 |  | 2016 |  | 2015 |
Income tax at statutory rate |  | $ | 103,189 |  | $ | 98,174 |  | $ | 103,100 |
State income (benefits) taxes, net of federal (tax) benefit |  |  | (594) |  |  | (980) |  |  | (1,254) |
Investment incentives |  |  | (1,900) |  |  | (6,413) |  |  | (3,082) |
Tax resolutions |  |  | (5,188) |  |  | (7,205) |  |  | 2,375 |
Excess tax benefits from equity compensation |  |  | (10,383) |  |  | — |  |  | — |
Deferred benefits from tax rate changes |  |  | (5,055) |  |  | — |  |  | — |
U.S. tax reform - transition tax |  |  | 31,575 |  |  | — |  |  | — |
Results of forward contract |  |  | (23,883) |  |  | — |  |  | — |
Provision for distribution of current foreign earnings |  |  | 2,843 |  |  | 3,494 |  |  | 2,031 |
Rate differential on earnings of foreign operations |  |  | (17,318) |  |  | (12,037) |  |  | (5,688) |
Other items, net |  |  | 1,510 |  |  | (140) |  |  | (2,206) |
Actual income tax provision |  | $ | 74,796 |  | $ | 74,893 |  | $ | 95,276 |
Effective income tax rate |  |  | 25.4 | % |  | 26.7 | % |  | 32.3 | %
The 2017 tax provision was favorably impacted by the mix of pretax income in various non-U.S. tax jurisdictions. The tax provision for 2017 reflects $10.4 million related to the excess tax benefits on deductible stock compensation, which is new for 2017. The deferred tax benefit of $5.1 million is net of a provisional benefit of $6.8 million recorded for the change in the U.S. tax rate and a charge of $1.7 million for tax rate changes in France and Argentina. The $5.2 million related to tax resolutions includes an amount of $3.2 million related to uncertain tax positions in Europe. The remaining $2.0 million is a refund from a distribution tax paid in France. Furthermore, the tax provision for 2017 reflects a provisional charge of $31.6 million from the transition tax enacted as part of the U.S. tax reform. This was partially offset by a benefit of $23.9 million from the forward contracts discussed in Note 10 – Derivative Instruments and Hedging Activities. The state income tax provision for 2016 reflects a benefit of $1.6 million related to the reduction of valuation allowances mostly associated with U.S. state tax credits. The tax provision for 2016 also reflects benefits of $6.4 million associated with the exceptional depreciation allowances enacted in France and Italy. The $7.2 million related to tax resolutions includes an amount of $5.0 million related to dividends previously taxed in France. The remaining $2.2 million is a net amount related to uncertain tax positions in France, Italy and Germany. The $3.5 million charge pertaining to the distribution of earnings reflects $2.1 million of tax incurred in 2016 for income recognized under the U.S. deemed dividend provisions and $1.4 million for cash movements in Europe during 2016. The rate differential on earnings of foreign operations reflects a $4.7 million benefit due to the reduction in the corporate income tax rate in France from 38.00% to 34.43%. In addition, the rate differential on earnings of foreign operations reflects benefits of $2.0 million, $2.2 million, and $2.2 million due to reductions in the corporate income tax rates in Germany, Switzerland, and China, respectively. The tax provision for 2015 reflects a benefit of $1.1 million related to the reduction of valuation allowances mostly associated with U.S. state tax credits. Additional benefits of $3.1 million associated with the exceptional depreciation allowances enacted in France during 2015 were partially offset by a $2.4 million charge for expected income tax assessments in France for a transfer pricing issue. While the Company expects to seek compensating offsets for this amount, no receivable has been recorded at this time. The $2.0 million charge pertaining to the distribution of earnings reflects $1.6 million of tax incurred in 2015 for income recognized under the U.S. deemed dividend provisions and $0.4 million for planned cash movements in Europe during 2016. Significant deferred tax assets and liabilities as of December 31, 2017 and 2016 are composed of the following temporary differences:
|  | 2017 |  | 2016 |
Deferred Tax Assets: |  |  |  |  |  |  |
Pension liabilities |  | $ | 19,393 |  | $ | 27,087 |
Stock compensation |  |  | 9,101 |  |  | 18,943 |
Foreign tax credit carryforward |  |  | 8,320 |  |  | 10,813 |
Net operating loss carryforwards |  |  | 10,803 |  |  | 5,150 |
U.S. state tax credits |  |  | 9,384 |  |  | 8,103 |
Vacation |  |  | 4,748 |  |  | 4,783 |
Workers compensation |  |  | 4,534 |  |  | 3,575 |
Other |  |  | 4,660 |  |  | 12,651 |
Total gross deferred tax assets |  |  | 70,943 |  |  | 91,105 |
Less valuation allowance |  |  | (5,414) |  |  | (4,070) |
Net deferred tax assets |  |  | 65,529 |  |  | 87,035 |
Deferred Tax Liabilities: |  |  |  |  |  |  |
Depreciation, amortization and leases |  |  | 25,062 |  |  | 39,189 |
Acquisition related intangibles |  |  | 27,866 |  |  | 30,417 |
Total gross deferred tax liabilities |  |  | 52,928 |  |  | 69,606 |
Net deferred tax assets |  | $ | 12,601 |  | $ | 17,429 |
The foreign tax credit carryforward will expire in the years 2024 and 2026. There is no expiration date on $6.9 million of the tax‑effected net operating loss carry forwards and $3.9 million (tax effected) will expire in the years 2018 to 2037. The U.S. state tax credit carryforwards of $9.4 million (tax effected) will expire in the years 2018 to 2032. It is currently expected that U.S. state tax credit carryforwards of $0.1 million will expire unused in 2018. The Company evaluates the deferred tax assets and records a valuation allowance when it is believed it is more likely than not that the benefit will not be realized. The Company has established a valuation allowance of $2.7 million of the $10.8 million of tax effected net operating loss carry forwards. These losses are generally in start‑up jurisdictions or locations that have not produced an operating profit to date. A valuation allowance of $2.7 million has also been established against the $9.4 million of U.S. state tax credit carry forwards. As a result of U.S. tax reform, all previously unremitted earnings as of December 31, 2017 will be included in the U.S. federal and state taxable income. The Company maintains its assertion that the cash and distributable reserves at its non-U.S. affiliates are indefinitely reinvested. We estimate the amount of additional local and withholding tax that would be payable on these amounts to be in the range of $25 million to $35 million. The Company has not provided for taxes on certain tax‑deferred income of a foreign operation. The income arose predominately from government grants. Taxes of approximately $1.7 million would become payable in the event the terms of the grant are not fulfilled. INCOME TAX UNCERTAINTIES The Company provides a liability for the amount of tax benefits realized from uncertain tax positions. A reconciliation of the beginning and ending amount of income tax uncertainties is as follows:
|  | 2017 |  | 2016 |  | 2015 |
Balance at January 1 |  | $ | 6,356 |  | $ | 7,934 |  | $ | 6,408 |
Increases based on tax positions for the current year |  |  | 370 |  |  | 270 |  |  | 255 |
Increases based on tax positions of prior years |  |  | 1,562 |  |  | 1,283 |  |  | 2,684 |
Decreases based on tax positions of prior years |  |  | — |  |  | (1,472) |  |  | (518) |
Settlements |  |  | (4,874) |  |  | (1,444) |  |  | (207) |
Lapse of statute of limitations |  |  | (334) |  |  | (215) |  |  | (688) |
Balance at December 31 |  | $ | 3,080 |  | $ | 6,356 |  | $ | 7,934 |
The amount of income tax uncertainties that, if recognized, would impact the effective tax rate is approximately $3.1 million. The Company estimates that it is reasonably possible that the liability for uncertain tax positions will decrease no more than $1.4 million in the next twelve months from the resolution of various uncertain positions as a result of the completion of tax audits, litigation and the expiration of the statute of limitations in various jurisdictions. The Company recognizes interest and penalties accrued related to unrecognized tax benefits as a component of income taxes. As of December 31, 2017, 2016 and 2015, the Company had approximately $1.6 million, $1.5 million and $1.1 million, respectively, accrued for the payment of interest and penalties, of which approximately $0.1 million, $0.4 million and $0.4 million was recognized in income tax expense in the years ended December 31, 2017, 2016 and 2015, respectively. The Company or its subsidiaries file income tax returns in the U.S. Federal jurisdiction and various state and foreign jurisdictions. The major tax jurisdictions the Company files in, with the years still subject to income tax examinations, are listed below:
|  | Tax Years |
Major Tax |  | Subject to |
Jurisdiction |  | Examination |
United States — Federal |  | 2014-2017 |
United States — State |  | 2009-2017 |
France |  | 2015-2017 |
Germany |  | 2015-2017 |
Italy |  | 2013-2017 |
China |  | 2008-2017 |

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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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