Income Taxes

12 Months Ended

Dec. 31, 2018

INCOME TAXES

On December 22, 2017, the U.S. TCJA legislation, as defined herein, was enacted into law, which significantly revised the Internal Revenue Code of 1986, as amended. The U.S. TCJA included, among other items, (1) permanent reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%; (2) limitations on the tax deduction for net interest expense to 30% of adjusted earnings; (3) a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (4) a shift of the U.S. taxation of multinational corporations from a tax on worldwide income to a territorial system (along with certain rules designed to prevent erosion of the U.S. income tax base); and (5) modifying or repealing many other business deductions and credits (including modifications to annual foreign tax credit limitations).

For the year-ended December 31, 2017 we recorded a provisional non-cash net tax charge of $107.8 million related to the impacts of the U.S. TCJA. This provisional tax charge included a one-time $81.1 million remeasurement of the net U.S. deferred tax assets to the lower enacted U.S. corporate tax rate of 21%, the establishment of a valuation allowance of $26.1 million on certain interest and foreign tax credit carryforwards and $0.6 million of withholding tax on unremitted earnings. December 22, 2018 marked the end of the measurement period for purposes of SAB 118. As such, the Company has completed the analysis based on legislative updates relating to the U.S. TCJA currently available and recorded an additional tax benefit of $12.5 million for the year ended December 31, 2018. While we have completed our accounting of the income tax effects of the U.S. TCJA under SAB 118, the related tax impacts may differ, possibly materially, due to changes in interpretations and assumptions that we have made, additional guidance that may be issued by regulatory bodies, and actions and related accounting policy decisions we may take as a result of the new legislation.

Domestic and Foreign Components of Income Before Income Taxes



	Year Ended December 31,
	2018		2017		2016
Domestic	$	194.8	$	41.8	$	27.9
Foreign	72.7		147.8		54.8
Total	$	267.5	$	189.6	$	82.7

Provision (Benefit) for Income Taxes



	Year Ended December 31, 2018							Year Ended December 31, 2017							Year Ended December 31, 2016
	Current		Deferred			Total		Current		Deferred			Total		Current		Deferred			Total
U.S. federal	$	7.2	$	6.8		$	14.0	$	4.6	$	102.8		$	107.4	$	0.9	$	(1.3	)	$	(0.4	)
U.S. state and local	2.7		12.8			15.5		1.7		0.4			2.1		3.7		8.2			11.9
Foreign	38.2		(13.5		)	24.7		43.9		(11.5		)	32.4		49.4		(22.8		)	26.6
Total	$	48.1	$	6.1		$	54.2	$	50.2	$	91.7		$	141.9	$	54.0	$	(15.9	)	$	38.1

Reconciliation to U.S. Statutory Rate



	Year Ended December 31,
	2018					2017					2016
Statutory U.S. federal income tax rate ⁽¹⁾	$	56.2		21.0	%	$	66.4		35.0	%	$	29.0		35.0	%
Foreign income taxed at rates other than U.S. statutory rate	(24.8		)	(9.3	)	(56.2		)	(29.6	)	(45.6		)	(55.1	)
Changes in valuation allowances	(37.5		)	(14.0	)	45.3			23.9		9.6			11.6
Foreign exchange gain (loss), net	24.7			9.2		(17.7		)	(9.3	)	3.1			3.7
Unrecognized tax benefits	18.9			7.1		3.1			1.6		7.1			8.6
Foreign taxes	6.7			2.5		4.1			2.2		4.5			5.4
Non-deductible interest	4.8			1.8		9.8			5.2		6.7			8.1
Non-deductible expenses	3.8			1.4		4.6			2.4		4.7			5.7
Tax credits	(6.6		)	(2.4	)	(4.2		)	(2.2	)	(6.7		)	(8.1	)
Excess tax benefits relating to stock-based compensation	(6.6		)	(2.4	)	(13.1		)	(6.9	)	(13.4		)	(16.2	)
U.S. tax reform ⁽²⁾	(12.5		)	(4.7	)	107.8			56.8		—			—
Venezuela deconsolidation and impairment	—			—		(2.0		)	(1.0	)	23.8			28.8
U.S. state and local taxes, net	1.8			0.7		1.3			0.7		7.8			9.4
Other - net ⁽³⁾	25.3			9.4		(7.3		)	(4.0	)	7.5			9.2
Total income tax provision / effective tax rate	$	54.2		20.3	%	$	141.9		74.8	%	$	38.1		46.1	%


(1)	The U.S. statutory rate has been used as management believes it is more meaningful to the Company.


(2)	Tax effect of the U.S. TCJA recorded under SAB 118.


(3)	In 2018, the Company recorded a tax charge of $17.6 million related to the remeasurement of net deferred tax assets in Netherlands due to the corporate tax rate reduction enacted into law, which is fully offset by a tax benefit of $17.6 million for the decrease to the valuation allowance.

Deferred Tax Balances



	Year Ended December 31,
	2018			2017
Deferred tax asset
Tax loss, credit and interest carryforwards	$	238.5		$	265.3
Compensation and employee benefits	80.1			86.0
Accruals and other reserves	25.5			33.9
Research and development capitalization	7.7			8.9
Equity investment and other securities	20.1			26.4
Other	3.0			10.9
Total deferred tax assets	$	374.9		431.4
Less: valuation allowance	(159.0		)	$	(214.2	)
Total deferred tax assets, net of valuation allowance	$	215.9		$	217.2
Deferred tax liabilities
Goodwill and intangibles	(17.4		)	(15.2		)
Property, plant and equipment	(144.7		)	(146.9		)
Unremitted earnings	(7.4		)	(7.4		)
Long-term debt	(2.4		)	(2.2		)
Total deferred tax liabilities	$	(171.9	)	$	(171.7	)
Net deferred tax asset	$	44.0		$	45.5

Non-current assets	184.8			198.4
Non-current liability	(140.8		)	(152.9		)
Net deferred tax asset	$	44.0		$	45.5



Tax loss, tax credit and interest carryforwards	Year Ended December 31,
	2018		2017
Tax loss carryforwards (tax effected) ⁽¹⁾
Expire within 10 years	$	53.3	$	92.3
Expire after 10 years or indefinite carryforward	121.6		124.0
Tax credit carryforwards
Expire within 10 years	17.3		20.5
Expire after 10 years or indefinite carryforward	20.9		16.1
Interest carryforwards
Expire within 10 years	2.2		—
Expire after 10 years or indefinite carryforward	23.2		12.4
Total tax loss, tax credit and interest carryforwards	$	238.5	265.3


(1)	Net of unrecognized tax benefits

Utilization of our tax loss, tax credit and interest carryforwards may be subject to annual limitations due to the ownership change limitations provided by the Internal Revenue Code and similar state and foreign provisions. Such annual limitations could result in the expiration of the tax loss, tax credit and interest carryforwards before their utilization.



Valuation allowance	Year Ended December 31,
	2018	2017
Non-U.S.	133.8	188.1
U.S.	25.2	26.1
Total valuation allowance	159.0	214.2

Valuation allowances relate primarily to the tax loss and tax credit carryforwards, as well as equity investment in foreign jurisdictions, where the Company does not believe the associated net deferred tax assets will be realized, due to expiration, limitation or insufficient future taxable income. The non-U.S. valuation allowance primarily relates to tax loss carryforwards from operations in Luxembourg and Netherlands, of $113.6 million and $155.7 million at December 31, 2018 and 2017, respectively. The U.S. valuation allowance relates to certain U.S. foreign tax credit carryforwards that were impacted by the enactment of the U.S. TCJA and other state net deferred tax assets.

Total Gross Unrecognized Tax Benefits



	Year Ended December 31,
	2018		2017	2016
Total gross unrecognized tax benefits at January 1	$17.2		$12.3	$4.7
Increases related to positions taken on items from prior years	3.4		1.9	—
Decreases related to positions taken on items from prior years	(1.8	)	—	(0.2	)
Increases related to positions taken in the current year ⁽¹⁾	18.2		3.0	7.8
Total gross unrecognized tax benefits at December 31	$37.0		$17.2	$12.3
Total accrual for interest and penalties associated with unrecognized tax benefits ⁽²⁾	3.1		1.2	1.1
Total gross unrecognized tax benefits at December 31, including interest and penalties	$40.1		$18.4	$13.4

Total unrecognized tax benefits that, if recognized, would impact the effective tax rate	25.2		9.7	8.5
Interest and penalties included as components of the "Provision (benefit) for income taxes"	1.9		0.1	0.3


(1)	Of the $18.2 million 2018 increase related to positions taken in the current year, $10.6 million is the unrecognized tax benefit related to the announced closure of our manufacturing facility at our Mechelen, Belgium site.


(2)	Accrued interest and penalties are included within the related tax liability line in the balance sheet.

The Company is subject to income tax in approximately 45 jurisdictions outside the U.S. The Company’s significant operations outside the U.S. are located in Belgium, China, Germany, Mexico and Switzerland. The statute of limitations varies by jurisdiction with 2008 being the oldest tax year still open in the material jurisdictions. Certain of our German subsidiaries are under tax examination for calendar years 2010 to 2013. The Company is also under audit in other jurisdictions outside of Germany for tax years under responsibility of the predecessor, as well as tax periods under the Company's ownership. Pursuant to the acquisition agreement, all tax liabilities related to tax years prior to 2013 will be indemnified by DuPont. The result of all open examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or our net operating losses with respect to years under examination as well as subsequent periods that could be material.

Due to the high degree of uncertainty regarding future timing of cash flows associated with these liabilities, we are unable to estimate the years in which settlement will occur with the respective taxing authorities.