XML 33 R19.htm IDEA: XBRL DOCUMENT
v3.10.0.1

Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2018
Income Taxes |
Income Taxes | NOTE 9 – Income Taxes The components of income before income taxes and the provision for income taxes are shown below:
(in millions) |  | 2018 |  | 2017 |  | 2016 |
Income before income taxes: |  |  |  |  |  |  |  |  |  |
U.S. |  | $ | 121 |  | $ | 226 |  | $ | 176 |
Foreign |  |  | 500 |  |  | 543 |  |  | 566 |
Total income before income taxes |  |  | 621 |  |  | 769 |  |  | 742 |
Provision for income taxes: |  |  |  |  |  |  |  |  |  |
Current tax (benefit) expense: |  |  |  |  |  |  |  |  |  |
U.S. federal |  |  | 17 |  |  | (13) |  |  | 95 |
State and local |  |  | 1 |  |  | 4 |  |  | 8 |
Foreign |  |  | 172 |  |  | 179 |  |  | 148 |
Total current tax expense |  |  | 190 |  |  | 170 |  |  | 251 |
Deferred tax expense (benefit): |  |  |  |  |  |  |  |  |  |
U.S. federal |  |  | (14) |  |  | 77 |  |  | 13 |
State and local |  |  | (2) |  |  | 4 |  |  | 1 |
Foreign |  |  | (7) |  |  | (14) |  |  | (19) |
Total deferred tax expense (benefit) |  |  | (23) |  |  | 67 |  |  | (5) |
Total provision for income taxes |  | $ | 167 |  | $ | 237 |  | $ | 246 |
Deferred income taxes are provided for the tax effects of temporary differences between the financial reporting basis and tax basis of assets and liabilities. Significant temporary differences as of December 31, 2018 and 2017 are summarized as follows:
Deferred income taxes are provided for the tax effects of temporary differences between the financial reporting basis and tax basis of assets and liabilities. Significant temporary differences as of December 31, 2018 and 2017 are summarized as follows: |  |  |  |  |  |  |
(in millions) |  | 2018 |  | 2017 |
Deferred tax assets attributable to: |  |  |  |  |  |  |
Employee benefit accruals |  | $ | 20 |  | $ | 20 |
Pensions and postretirement plans |  |  | 23 |  |  | 20 |
Derivative contracts |  |  | 1 |  |  | 5 |
Net operating loss carryforwards |  |  | 26 |  |  | 32 |
Foreign tax credit carryforwards |  |  | 1 |  |  | — |
Other |  |  | — |  |  | — |
Gross deferred tax assets |  |  | 71 |  |  | 77 |
Valuation allowances |  |  | (31) |  |  | (34) |
Net deferred tax assets |  |  | 40 |  |  | 43 |
Deferred tax liabilities attributable to: |  |  |  |  |  |  |
Property, plant and equipment |  |  | 177 |  |  | 185 |
Identified intangibles |  |  | 39 |  |  | 37 |
Other |  |  | 3 |  |  | 11 |
Gross deferred tax liabilities |  |  | 219 |  |  | 233 |
Net deferred tax liabilities |  | $ | 179 |  | $ | 190 |
Of the $26 million of tax-effected net operating loss carryforwards as of December 31, 2018, approximately $11 million are for state loss carryforwards and approximately $15 million are for foreign loss carryforwards. Of the $32 million of tax-effected net operating loss carryforwards as of December 31, 2017, approximately $9 million are for state loss carryforwards and approximately $23 million are for foreign loss carryforwards. Income tax accounting requires that a valuation allowance be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In making this assessment, management considers the level of historical taxable income, scheduled reversal of deferred tax liabilities, tax planning strategies, tax carryovers and projected future taxable income. As of December 31, 2018, the Company maintains valuation allowances of $11 million for state loss carryforwards, $3 million for state credits and $14 million for foreign loss carryforwards that management has determined will more likely than not expire prior to realization. As of December 31, 2017, the Company maintained valuation allowances of $9 million for state loss carryforwards, $2 million for state credits and $21 million for foreign loss carryforwards that management has determined will more likely than not expire prior to realization. In addition, the Company maintains valuation allowances on foreign subsidiaries’ net deferred tax assets of $3 million and $2 million, respectively, for the years ended December 31, 2018 and 2017. A reconciliation of the U.S. federal statutory tax rate to the Company’s effective tax rate follows:
|  | 2018 |  | 2017 |  | 2016 |
Provision for tax at U.S. statutory rate |  | 21.0 | % | 35.0 | % | 35.0 | %
Tax rate difference on foreign income |  | 5.3 |  | (5.6) |  | (5.5) |
State and local taxes, net |  | — |  | 0.7 |  | 0.3 |
Tax impact of fluctuations in Mexican peso to U.S. dollar |  | — |  | (0.5) |  | 2.4 |
Net impact of U.S. foreign tax credits |  | 0.5 |  | 0.3 |  | (2.3) |
Net impact of U.S.-Canada tax settlement |  | 0.3 |  | (1.3) |  | 3.2 |
Net impact of valuation allowance in Argentina |  | 1.0 |  | 2.0 |  | 1.0 |
Net impact of transition tax |  | 0.6 |  | 2.7 |  | — |
Net impact of U.S. deferred tax remeasurement |  | — |  | (4.9) |  | — |
Net impact of provision for taxes on unremitted earnings |  | 0.3 |  | 4.3 |  | 0.5 |
Other items, net |  | (2.1) |  | (1.9) |  | (1.5) |
Provision at effective tax rate |  | 26.9 | % | 30.8 | % | 33.1 | %
The Company has significant operations in Mexico, Pakistan, and Colombia where the statutory tax rates are 30 percent, 29 percent and 37 percent in 2018, respectively. In addition, the Company's subsidiary in Brazil has a statutory tax rate of 34 percent before local incentives that vary each year. The Tax Cuts and Jobs Act (“TCJA”) was enacted on December 22, 2017. The TCJA introduced numerous changes in the U.S. federal tax laws. Changes that have a significant impact on the Company’s effective tax rate are a reduction in the U.S. corporate tax rate from 35 percent to 21 percent, the imposition of a U.S. tax on global intangible low-taxed income (“GILTI”) and the foreign-derived intangible income (“FDII”) deduction. The TCJA also provided for a one-time transition tax on the deemed repatriation of cumulative foreign earnings as of December 31, 2017, and eliminated the tax on dividends from foreign subsidiaries by allowing a 100 percent dividends received deduction. On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to provide guidance on the application of GAAP to situations in which the registrant does not have all the necessary information available, prepared or analyzed (including computations) in sufficient detail to complete the accounting for the income tax effects of the TCJA. In the fourth quarter of 2017, the Company calculated a provisional impact of the TCJA in accordance with SAB 118 and its understanding of the TCJA, including published guidance as of December 31, 2017. During the third and fourth quarter of 2018, the Company recorded $2 million and $1 million, respectively, of net incremental tax expense as the Company finalized its TCJA expense based on additional guidance from federal and state regulatory agencies. The following table summarizes the provisional and final impact of the TCJA:
|  | Provisional 2017 |  | Final 2017 |
(in millions) |  | TCJA Impact |  | TCJA Impact |
One-time transition tax |  | $ | 21 |  | $ | 25 |
Remeasurement of deferred tax assets and liabilities |  |  | (38) |  |  | (38) |
Net impact of provision for taxes on unremitted earnings |  |  | 33 |  |  | 35 |
Other items, net |  |  | 7 |  |  | 4 |
Net impact of the TCJA |  | $ | 23 |  | $ | 26 |
Pro-form results related to TCJA have not been presented, as the effect would not be material to the Company’s results for the periods presented. Under a provision in the TCJA, all of the undistributed earnings of the Company’s foreign subsidiaries were deemed to be repatriated at December 31, 2017, and were subjected to a transition tax. As a result, a provisional transition tax liability of $21 million, or 2.7 percentage points on the effective tax rate, was recorded in income from continuing operations in the fourth quarter of 2017. During the third quarter of 2018, the Company finalized the transition tax analysis and recorded an incremental $4 million liability, or 0.6 percentage points on the effective tax rate. As a result of the reduction in the U.S. corporate tax rate, the Company recorded a provisional tax benefit of $38 million, or 4.9 percentage points on the effective tax rate, due to the remeasurement of its U.S. net deferred tax liabilities, in the fourth quarter of 2017. Due to a change in the U.S. tax treatment of dividends received from foreign subsidiaries, in the fourth quarter of 2017, the Company recorded a provisional tax liability of $33 million, or 4.3 percentage points on the effective tax rate, for foreign dividend withholding and state income taxes payable upon the distribution of unremitted earnings from certain foreign subsidiaries from which it expects to receive cash distributions in 2018 and beyond. During the second half of 2018, the Company finalized the provision for taxes on unremitted earnings and recorded an additional $2 million liability, or 0.3 percentage points on the effective rate. The net impact of the TCJA on the Company’s 2017 tax expense included a provisional tax liability of $7 million, or 0.9 percentage points on the effective tax rate (included in other items, net), for the difference in its 2017 tax expense as calculated with and without the changes triggered by the TCJA. During the second half of 2018, the Company finalized other items, net and recorded a net $3 million benefit, or 0.4 percentage points on the effective tax rate. In the fourth quarter of 2018, the Company made an accounting election to treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) The Company had been pursuing relief from double taxation under the U.S.-Canada tax treaty for the years 2004 through 2013. During the fourth quarter of 2016, a tentative settlement was reached between the U.S. and Canada and, consequently, the Company established a net reserve of $24 million, including interest thereon, recorded as a $70 million cost and a $46 million benefit, or 3.2 percentage points on the effective tax rate. In addition, as a result of the settlement, for the years 2014 through 2016, the Company had established a net reserve of $7 million, or 1.0 percentage points on the effective tax rate in 2016. In the third quarter of 2017, the two countries finalized the agreement, which eliminated the double taxation, and the Company paid $63 million to the U.S. Internal Revenue Service to settle the liability. As a result of that agreement, the Company was entitled to a net tax benefit of $10 million primarily due to a foreign exchange loss deduction on its 2017 U.S. federal income tax return, or 1.3 percentage points on the effective tax rate. As a result of the final settlement, the Company received refunds totaling $42 million from Canadian revenue agencies and recorded $2 million, or 0.3 percentage points on the effective tax rate, of interest and penalties through tax expense in 2018. The Company uses the U.S. dollar as the functional currency for its subsidiaries in Mexico. In 2017 and 2016, a decline in value of the Mexican peso versus the U.S. dollar increased tax expense by $4 million and $18 million, or 0.5 percentage points and 2.4 percentage points on the effective tax rate, respectively. These impacts are largely associated with foreign currency translation gains and losses for local tax purposes on net-U.S.-dollar-monetary assets held in Mexico for which there was no corresponding gain or loss in pre-tax income. During 2018, the Company increased the valuation allowance on the net deferred tax assets in Argentina. As a result, the Company recorded a valuation allowance in the amount of $6 million, or 1.0 percentage points on the effective tax rate, compared to $16 million, or 2.0 percentage points on the effective tax rate, and $7 million, or 1.0 percentage points on the effective tax rate in 2017 and 2016, respectively. As of December 31, 2017, for U.S. tax purposes all of the undistributed earnings and profits of the Company’s foreign subsidiaries were deemed to be repatriated and subjected to a transition tax. In addition, during 2017 and 2018 the Company recorded a liability of $33 million and $2 million, respectively, for foreign withholding and state income taxes on certain unremitted earnings from foreign subsidiaries. However, the Company has not provided for foreign withholding taxes, state income taxes and federal and state taxes on foreign currency gains/losses on distributions of approximately $3.0 billion of unremitted earnings of our foreign subsidiaries; as such amounts are considered permanently reinvested. It is not practicable to estimate the additional income taxes, including applicable foreign withholding taxes that would be due upon the repatriation of these earnings. A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties, for 2018 and 2017 is as follows:
(in millions) |  | 2018 |  | 2017 |
Balance at January 1 |  | $ | 39 |  | $ | 86 |
Additions for tax positions related to prior years |  |  | — |  |  | — |
Reductions for tax positions related to prior years |  |  | (2) |  |  | — |
Additions based on tax positions related to the current year |  |  | — |  |  | 12 |
Settlements |  |  | — |  |  | (58) |
Reductions related to a lapse in the statute of limitations |  |  | (7) |  |  | (1) |
Balance at December 31 |  | $ | 30 |  | $ | 39 |
Of the $30 million of unrecognized tax benefits as of December 31, 2018, $10 million represents the amount that, if recognized, could affect the effective tax rate in future periods. The remaining $20 million includes an offset of $19 million for an income tax receivable and $1 million of federal benefit created as part of the U.S.-Canada tax settlement described previously. The Company accounts for interest and penalties related to income tax matters within the provision for income taxes. The Company has accrued $2 million of interest expense related to the unrecognized tax benefits as of December 31, 2018. The accrued interest expense was $2 million as of December 31, 2017. The Company is subject to U.S. federal income tax as well as income tax in multiple states and non-U.S. jurisdictions. The U.S. federal tax returns are subject to audit for the years 2015 to 2018. In general, the Company’s foreign subsidiaries remain subject to audit for years 2012 and later. It is also reasonably possible that the total amount of unrecognized tax benefits including interest and penalties will increase or decrease within 12 months of December 31, 2018. The Company believe it is reasonably possible approximately $8 million of unrecognized tax benefits may be recognized within 12 months of December 31, 2018 as a result of a lapse of the statute of limitations. Of which, $4 million, could affect the effective tax rate. The Company has classified none of the unrecognized tax benefits as current because they are not expected to be resolved within the next 12 months.

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration