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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Following is a summary of earnings before income taxes for United States and foreign operations:
| 2018 |  | 2017 |  | 2016
United States | $ | 387,564 |  |  | 754,562 |  |  | 627,567 |
Foreign | 661,637 |  |  | 563,295 |  |  | 613,558 |
Earnings before income taxes | $ | 1,049,201 |  |  | 1,317,857 |  |  | 1,241,125 |
Income tax expense (benefit) for the years ended December 31, 2018, 2017 and 2016 consists of the following:
| 2018 |  | 2017 |  | 2016
Current income taxes: |  |  |  |  |
U.S. federal | $ | 22,700 |  |  | 327,697 |  |  | 247,917 |
State and local | 14,521 |  |  | 17,811 |  |  | 31,939 |
Foreign | 58,669 |  |  | 73,248 |  |  | 61,712 |
Total current | 95,890 |  |  | 418,756 |  |  | 341,568 |
Deferred income taxes: |  |  |  |  |
U.S. federal | 54,983 |  |  | (17,419 | ) |  | (16,167 | )
State and local | 19,076 |  |  | (3,046 | ) |  | (22,115 | )
Foreign | 14,397 |  |  | (55,126 | ) |  | 4,273 |
Total deferred | 88,456 |  |  | (75,591 | ) |  | (34,009 | )
Total | $ | 184,346 |  |  | 343,165 |  |  | 307,559 |
The geographic dispersion of earnings and losses contributes to the annual changes in the Company’s effective tax rates. Approximately 37% of the Company’s current year earnings before income taxes was generated in the United States at a combined federal and state effective tax rate that is higher than the Company’s overall effective tax rate. The Company is also subject to taxation in other jurisdictions where it has operations, including Australia, Belgium, Brazil, Bulgaria, France, Ireland, Italy, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Poland, Russia, Spain, the U.K. and the Ukraine. The effective tax rates that the Company accrues in these jurisdictions vary widely, but they are generally lower than the Company’s overall effective tax rate. The Company’s domestic effective tax rates for the years ended December 31, 2018, 2017 and 2016 were 28.7%, 43.1%, and 38.5%, respectively, and its non-U.S. effective tax rates for the years ended December 31, 2018, 2017 and 2016 were 11.0%, 3.2%, and 10.8%, respectively. The difference in rates applicable in foreign jurisdictions results from a number of factors, including lower statutory rates, historical loss carry-forwards, financing arrangements, and other factors. The Company’s effective tax rate has been and will continue to be impacted by the geographical dispersion of the Company’s earnings and losses. To the extent that domestic earnings increase while the foreign earnings remain flat or decrease, or increase at a lower rate, the Company’s effective tax rate will increase. Income tax expense (benefit) attributable to earnings before income taxes differs from the amounts computed by applying the U.S. statutory federal income tax rate to earnings before income taxes as follows:
| 2018 |  | 2017 |  | 2016
Income taxes at statutory rate | $ | 220,332 |  |  | 461,250 |  |  | 434,394 |
State and local income taxes, net of federal income tax benefit | 22,315 |  |  | 10,133 |  |  | 6,298 |
Foreign income taxes(a) | (39,915 | ) |  | (113,520 | ) |  | (111,217 | )
Change in valuation allowance | 2,472 |  |  | 10,008 |  |  | (21,106 | )
Manufacturing deduction | — |  |  | (11,911 | ) |  | (15,186 | )
2017 revaluation of deferred tax assets and liabilities (b) | — |  |  | (150,546 | ) |  | — |
Transition Tax | 28,201 |  |  | 105,165 |  |  | — |
Transition tax planning initiatives | (18,706 | ) |  | 14,825 |  |  | 3,881 |
Tax contingencies and audit settlements, net | (31,874 | ) |  | 23,097 |  |  | 2,496 |
Other, net | 1,521 |  |  | (5,336 | ) |  | 7,999 |
| $ | 184,346 |  |  | 343,165 |  |  | 307,559 |
(a) Foreign income taxes includes statutory rate differences, financing arrangements, withholding taxes, local income taxes, notional deductions, and other miscellaneous items. The significant decrease in foreign income taxes for 2018 is primarily due to the impact of the U.S. statutory rate reduction from 35% to 21% as a result of the Tax Cuts and Jobs Act (“TCJA”) discussed below. (b) 2017 revaluation of deferred tax assets and liabilities includes $106,107 related to the TCJA and $44,439 related to Belgium tax reform. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2018 and 2017 are presented below:
| 2018 |  | 2017
Deferred tax assets: |  |  |
Accounts receivable | $ | 8,312 |  |  | 18,481 |
Inventories | 47,212 |  |  | 41,169 |
Employee benefits | 37,335 |  |  | 42,191 |
Accrued expenses and other | 71,621 |  |  | 52,635 |
Deductible state tax and interest benefit | 2,904 |  |  | 2,087 |
Intangibles | 16,134 |  |  | 22,119 |
Federal, foreign and state net operating losses and credits | 575,625 |  |  | 530,978 |
Gross deferred tax assets | 759,143 |  |  | 709,660 |
Valuation allowance | (347,786 | ) |  | (362,963 | )
Net deferred tax assets | 411,357 |  |  | 346,697 |
Deferred tax liabilities: |  |  |
Inventories | (18,332 | ) |  | (14,423 | )
Plant and equipment | (477,734 | ) |  | (397,668 | )
Intangibles | (181,436 | ) |  | (170,817 | )
Other liabilities | (96,134 | ) |  | (31,702 | )
Gross deferred tax liabilities | (773,636 | ) |  | (614,610 | )
Net deferred tax liability | $ | (362,279 | ) |  | (267,913 | )
The Company evaluates its ability to realize the tax benefits associated with deferred tax assets by analyzing its forecasted taxable income using both historic and projected future operating results, the reversal of existing temporary differences, taxable income in prior carry-back years (if permitted) and the availability of tax planning strategies. The valuation allowance as of December 31, 2018, and 2017 is $347,786 and $362,963, respectively. The valuation allowance as of December 31, 2018 relates to the net deferred tax assets of certain of the Company’s foreign subsidiaries as well as certain state net operating losses and tax credits. The total change in the 2018 valuation allowance was a decrease of $15,177 which includes $15,357 related to foreign currency translation. The total change in the 2017 valuation allowance was an increase of $73,885, which includes $36,792 related to foreign currency translation. Management believes it is more likely than not that the Company will realize the benefits of its deferred tax assets, net of valuation allowances, based upon the expected reversal of deferred tax liabilities and the level of historic and forecasted taxable income over periods in which the deferred tax assets are deductible. As of December 31, 2018, the Company has state net operating loss carry forwards and state tax credits with potential tax benefits of $68,714, net of federal income tax benefit; these carry forwards expire over various periods based on taxing jurisdiction. A valuation allowance totaling $37,870 has been recorded against these state deferred tax assets as of December 31, 2018. In addition, as of December 31, 2018, the Company has net operating loss carry forwards in various foreign jurisdictions with potential tax benefits of $1,805,648. A valuation allowance totaling $309,916 has been recorded against these deferred tax assets as of December 31, 2018. The large increase in the foreign losses is predominantly from the Company’s redemptions of Luxembourg hybrid instruments which resulted in a tax effected loss of $1,298,737. The Company redeemed these hybrid instruments in response to changes in global tax regimes. The changes were triggered by the EU’s Base Erosion and Profit Shifting “BEPS” and Anti-Tax Avoidance Directives “ATAD” I and II initiatives, recently adopted by various member states. The Company has recorded a ASC 740-10 liability for the full tax effected loss, as reflected in the Tax Uncertainties section below. This ASC 740-10-45 liability is recorded as a reduction to the related deferred tax asset in the financial statements as a result of management’s determination that it is not more likely than not that the benefit will be realized. Historically, the Company has not provided for U.S. federal and state income taxes on the undistributed accumulated earnings of its foreign subsidiaries because such earnings were deemed to be permanently reinvested. Due to the passage of the Tax Cuts and Jobs Act (“TCJA”) on December 22, 2017, the Company was required to recognize U.S. federal and state taxes on the higher of its accumulated earnings as of November 2, 2017, or December 31, 2017. Accordingly, as of December 31, 2018, the Company recognized $133,366 of income tax expense on its foreign earnings. As of December 31, 2018, the Company has recognized net income tax expense on earnings of approximately $1,936,000 as discussed further below. Should these earnings be distributed in the form of dividends in the future, the Company might be subject to withholding taxes (possibly offset by U.S. foreign tax credits) in various foreign jurisdictions, but the Company would not expect incremental U.S. federal or state taxes to be accrued on these previously taxed earnings. Despite the new territorial tax regime created by the TCJA, the Company continues to assert that earnings of its foreign subsidiaries are permanently reinvested. The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the income tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the enactment date of the TCJA for companies to complete the accounting under ASC 740, Income Taxes (“ASC 740”). In accordance with SAB 118, a company must (1) reflect the income tax effects of those aspects of TCJA for which the accounting under ASC 740 is complete, (2) record a provisional estimate for those aspects of TCJA for which the accounting is incomplete but a reasonable estimate can be made, and/or (3) continue to apply ASC 740 on the basis of the provisions of tax laws in effect immediately before the enactment of the TCJA if no reasonable estimate can be made. At December 31, 2017, the Company has recorded a net provisional tax expense of $45,249 based on the initial impact of the TCJA and related transactions for the year ended December 31, 2017. This provisional expense primarily consisted of a tax expense of $105,165 for the Deemed Repatriation Transition Tax and $46,191 for related transactions, offset by a tax benefit of $106,107 for the corporate tax rate reduction, and the associated revaluation of the Company’s net deferred tax liability. In accordance with the SAB 118 measurement period, the Company has completed its accounting for the income tax effects of all elements of the TCJA and reduced the net provisional tax expense to $25,564. The Deemed Repatriation Transition Tax (“Transition Tax”) is a tax on previously untaxed earnings of certain foreign subsidiaries. To determine the amount of the Transition Tax, the Company must determine, in addition to other factors, the amount of post-1986 earnings of the relevant foreign subsidiaries, as well as the amount of non-U.S. income and withholding taxes paid on such earnings. The Company has finalized its determination of the Transition Tax obligation and will elect to pay the transition tax liability of $132,236 over the 8-year deferral period, with 8% due in each of the first five years, 15% in the sixth year, 20% in the seventh year, and 25% in the eighth year. This total liability, except for the first installment, is recorded in other long-term liabilities within the consolidated balance sheet. In addition, the Company will pay $1,130 of state tax resulting from the transition tax with its 2018 state tax returns. Due to the fiscal year end of the company’s foreign subsidiaries, the new Global Intangible Low-Taxed Income (“GILTI”) rules, are only applicable for one-twelfth of the Company’s earnings for the calendar year ending December 31, 2018. The Company’s accounting for the effects of GILTI have been completed and an accrual for the current year has been included in current tax expense. In accordance with U.S. GAAP guidance, the Company will elect to treat tax due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”). Tax Uncertainties In the normal course of business, the Company’s tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing jurisdictions. Accordingly, the Company accrues liabilities when it believes that it is not more likely than not that it will realize the benefits of tax positions that it has taken in its tax returns or for the amount of any tax benefit that exceeds the cumulative probability threshold in accordance with ASC 740-10. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits in income tax expense (benefit). Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on the Company’s consolidated financial position but could possibly be material to the Company’s consolidated results of operations or cash flow in any given quarter or annual period. As of December 31, 2018, the Company’s gross amount of unrecognized tax benefits is $1,330,713, excluding interest and penalties. If the Company were to prevail on all uncertain tax positions, $23,477 of the unrecognized tax benefits would affect the Company’s effective tax rate, exclusive of any benefits related to interest and penalties. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| 2018 |  | 2017
Balance as of January 1 | $ | 65,631 |  |  | 46,434 |
Additions based on tax positions related to the current year (a) | 1,304,447 |  |  | 28,663 |
Additions for tax positions of acquired companies | 1,413 |  |  | 1,776 |
Additions for tax positions of prior years | 5,098 |  |  | 876 |
Transition tax planning initiatives | (27,470 | ) |  | — |
Reductions resulting from the lapse of the statute of limitations | (8,110 | ) |  | (14,502 | )
Settlements with taxing authorities | (9,773 | ) |  | (655 | )
Effects of foreign currency translation | (523 | ) |  | 3,039 |
Balance as of December 31 | $ | 1,330,713 |  |  | 65,631 |
(a) Includes tax effected loss of $1,298,737 on Luxembourg hybrid instruments redemptions. This $1,298,737 of unrecognized benefit is presented as a reduction to the related deferred tax asset in the balance sheet. The Company will continue to recognize interest and penalties related to unrecognized tax benefits as a component of its income tax provision. As of December 31, 2018 and 2017, the Company has $7,184 and $8,252, respectively, accrued for the payment of interest and penalties, excluding the federal tax benefit of interest deductions where applicable. During the years ended December 31, 2018, 2017 and 2016, the Company accrued interest and penalties through the consolidated statements of operations of $(1,085), $165 and $2,170, respectively. The Company believes that its unrecognized tax benefits could decrease by $9,166 within the next twelve months. The Company is currently under examination by the Internal Revenue Service for tax years 2014 and 2015 but has effectively settled all Federal income tax matters related to years prior to 2014. Various other state and foreign income tax returns are open to examination for various years. Belgian Tax Matter Between 2012 and 2014, the Company received assessments from the Belgian tax authority for the calendar years 2005 through 2010 in the amount of €46,135, €38,817, €39,635, €30,131, €35,567 and €43,117 respectively, including penalties, but excluding interest. The Belgian tax authority denied the Company’s formal protests against these assessments and the Company brought all six years before the Court of First Appeal in Bruges. The Court of First Appeal in Bruges, ruled in favor of the Company on January 27, 2016, with respect to the calendar years ending December 31, 2005 and December 31, 2009; and on June 13, 2018, the Court of First Appeal in Bruges, ruled in favor of the Company with respect to the calendar years ending December 31, 2006, December 31, 2007, December 31, 2008 and December 31, 2010. The Belgian tax authority has lodged its Notification of Appeal for all six years with the Ghent Court of Appeal. In December 2018, the Belgian tax authority issued an assessment for the year ended December 31, 2011, in the amount of €37,991 including penalties, but excluding interest. In January of 2019, the Company received a “Notice of Change” from the Belgian tax authority for tax years 2012 through 2017 in the amount of €38,858, €11,108, €23,522, €30,610, €92,109 and €78,174 respectively, including penalties, but excluding interest. The Company intends to respond to these notices in a timely manner and will file formal protests should the tax authority issue assessments for these years. The Notices of Change are based on largely the same facts underlying the positive rulings, which the Belgian tax authority is appealing. The Company continues to disagree with the views of the Belgian tax authority on this matter and will persist in its vigorous defense. Nevertheless, on May 24, 2016, the tax collector representing the Belgian tax authorities imposed a lien on the Company’s properties in Wielsbeke (Ooigemstraat and Breestraat), Oostrozebeke (Ingelmunstersteenweg) and Desselgem (Waregemstraat) included in the Flooring ROW segment. The purpose of the lien is to provide security for payment should the Belgian tax authority prevail on its appeal. The lien does not interfere with the Company’s operations at these properties.

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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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