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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes In 2018, 2017 and 2016, we recorded net tax provisions of $307.5 million, $330.5 million and $95.6 million, respectively. Cash tax payments, net of refunds were $155.0 million, $161.7 million and $125.8 million for 2018, 2017 and 2016. Tax Cuts and Jobs Act On December 22, 2017, the President of the United States signed into law the TCJA. The legislation significantly changed U.S. tax law by, among other things, lowering the corporate income tax rate, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. ("Transition Tax"). The TCJA permanently reduced the U.S. corporate income tax rate from a maximum of 35% to 21%, effective January 1, 2018. While the TCJA provides for a territorial tax system, beginning in 2018, it includes the global intangible low-taxed income (“GILTI”) provision. The Company has elected to account for GILTI tax in the period in which it is incurred. The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. As a result of the GILTI provisions, the Company’s effective tax rate increased by 1.0% for 2018. Provisional Tax Impacts On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. SAB 118 provides that where reasonable estimates can be made, the provisional accounting should be based on such estimates and when no reasonable estimate can be made, the provisional accounting may be based on the tax law in effect before the TCJA. We applied the guidance in SAB 118 when accounting for the enactment-date effects of TCJA. Accordingly, we remeasured U.S. deferred tax assets and liabilities based on the income tax rates at which the deferred tax assets and liabilities are expected to reverse in the future in 2017 and recorded a provisional amount of $41.1 million of tax expense for the year ended December 31, 2017. Upon further analysis and refinement of our calculations, during the year ended December 31, 2018, we recorded an incremental expense of $1.6 million related to the remeasurement of the U.S. deferred tax assets. At December 31, 2017, we were not able to reasonably estimate the impact of Transition Tax and therefore our estimate of Transition Tax expense was recorded in the first quarter of 2018. Accordingly, we recognized a provisional tax expense of $290 million related to the tax on the deemed repatriated earnings in our consolidated financial statements for the quarter ended March 31, 2018. The one-time Transition Tax is based on our total post-1986 earnings and profits ("E&P"), which we had been deferred from U.S taxes under prior law. A final adjustment was made to the provisional amounts allowed under SAB 118 in the fourth quarter of 2018 based on additional guidance by the IRS and state taxing authorities, and the filing of the 2017 tax returns. After the adjustment, total Transition Tax recorded in 2018 was $222 million. The impact of the Transition Tax comprised 48.5% of the 2018 effective tax rate. As of December 31, 2018, we have completed our accounting for the tax effects of enactment of the TCJA. The components of earnings before income tax provision were as follows:
|  | Year Ended December 31,
(In millions) |  | 2018 |  | 2017 |  | 2016
Domestic |  | $ | 255.1 |  |  | $ | 192.1 |  |  | $ | 175.9 |
Foreign |  | 202.7 |  |  | 201.2 |  |  | 212.0 |
Total |  | $ | 457.8 |  |  | $ | 393.3 |  |  | $ | 387.9 |
The components of our income tax provision (benefit) were as follows:
|  | Year Ended December 31,
(In millions) |  | 2018 |  | 2017 |  | 2016
Current tax expense: |  |  |  |  |  |
Federal |  | $ | 228.2 |  |  | $ | 79.6 |  |  | $ | 57.6 |
State and local |  | 9.8 |  |  | 14.3 |  |  | 1.2 |
Foreign |  | 59.8 |  |  | 106.0 |  |  | 67.3 |
Total current expense |  | $ | 297.8 |  |  | $ | 199.9 |  |  | $ | 126.1 |
Deferred tax expense (benefit): |  |  |  |  |  |  |  |  |
Federal |  | $ | 56.8 |  |  | $ | 130.1 |  |  | $ | (15.8 | )
State and local |  | (21.2 | ) |  | 5.3 |  |  | 3.6 |
Foreign |  | (25.9 | ) |  | (4.8 | ) |  | (18.3 | )
Total deferred tax expense (benefit) |  | 9.7 |  |  | 130.6 |  |  | (30.5 | )
Total income tax provision |  | $ | 307.5 |  |  | $ | 330.5 |  |  | $ | 95.6 |
Deferred tax assets (liabilities) consist of the following:
|  | December 31,
(In millions) |  | 2018 |  | 2017
Restructuring reserves |  | $ | 8.4 |  |  | $ | 2.7 |
Accruals not yet deductible for tax purposes |  | 9.1 |  |  | 10.7 |
Net operating loss carryforwards |  | 265.5 |  |  | 199.4 |
Foreign, federal and state credits |  | 10.4 |  |  | 69.2 |
Employee benefit items |  | 77.0 |  |  | 69.6 |
Capitalized expenses |  | 8.9 |  |  | 10.8 |
Derivatives and other |  | 38.0 |  |  | 23.7 |
Sub-total deferred tax assets |  | 417.3 |  |  | 386.1 |
Valuation allowance |  | (218.4 | ) |  | (189.2 | )
Total deferred tax assets |  | $ | 198.9 |  |  | $ | 196.9 |
Depreciation and amortization |  | $ | (26.8 | ) |  | $ | (13.9 | )
Unremitted foreign earnings |  | — |  |  | (9.0 | )
Intangible assets |  | (21.7 | ) |  | (26.3 | )
Other |  | (0.4 | ) |  | — |
Total deferred tax liabilities |  | (48.9 | ) |  | (49.2 | )
Net deferred tax assets |  | $ | 150.0 |  |  | $ | 147.7 |
There was minimal change in net deferred tax assets from the prior year. The increase in net operating losses and valuation allowance is primarily attributable to foreign losses and the decrease in credits is related to full utilization of U.S foreign tax credits as of December 31, 2018. In assessing the need for a valuation allowance, we estimate future reversals of existing temporary differences, future taxable earnings, taxable income in carryback periods and tax planning strategies to determine which deferred tax assets are more likely than not to be realized in the future. Changes to tax laws, statutory tax rates and future taxable earnings can have an impact on valuation allowances related to deferred tax assets. A valuation allowance has been provided based on the uncertainty of utilizing the tax benefits primarily related to the following deferred tax assets:
• | $202.1 million of foreign items, primarily net operating losses;
• | $2.2 million of state net operating loss carryforwards; and
• | $9.8 million of state tax credits.
For the year ended December 31, 2018, the valuation allowance increased by $29.2 million. This is primarily driven by an increase in valuation allowance on foreign items offset by the implementation of tax initiatives to utilize state and certain foreign net operating losses. As of December 31, 2018, we have foreign net operating loss carryforwards of $915.6 million expiring in years beginning in 2019 with the majority of losses having an unlimited carryover. The state net operating loss carryforwards totaling $659.1 million expire in various amounts over one to 20 years. As of December 31, 2018, we have $0.6 million of foreign and federal tax credit carryforwards. We have $12.4 million of state credit carryovers expiring in 2019 – 2029. We have provided a full valuation allowance on the state credits. The Company is indefinitely reinvested on U.S. and foreign outside basis differences, principally unremitted foreign earnings. The total amount of unremitted foreign earnings is $4.7 billion on which the U.S. federal income tax effect has largely been recorded due to the transition tax and related changes of U.S. taxation of foreign earnings brought about by the TCJA. Remitting these earnings would result in additional foreign and U.S. income tax consequences. The net tax costs of such potential remittance is not practicable to determine. A reconciliation of the provision for income taxes, with the amount computed by applying the statutory federal income tax rate (21% in 2018 and 35% in 2016-2017) to income before provision for income taxes, is as follows (dollars in millions):
|  | Year Ended December 31,
|  | 2018 |  | 2017 |  | 2016
Computed expected tax |  | $ | 96.1 |  |  | 21.0 | % |  | $ | 137.7 |  |  | 35.0 | % |  | $ | 135.9 |  |  | 35.0 | %
State income taxes, net of federal tax benefit |  | 8.4 |  |  | 1.8 | % |  | 7.6 |  |  | 1.9 | % |  | 4.8 |  |  | 1.2 | %
Foreign earnings taxed at different rates |  | 8.3 |  |  | 1.8 | % |  | (22.3 | ) |  | (5.7 | )% |  | (22.4 | ) |  | (5.8 | )%
U.S. tax on foreign earnings |  | 13.5 |  |  | 2.9 | % |  | 72.3 |  |  | 18.4 | % |  | 10.7 |  |  | 2.8 | %
Tax credits |  | (20.7 | ) |  | (4.5 | )% |  | (16.8 | ) |  | (4.3 | )% |  | (31.5 | ) |  | (8.1 | )%
Unremitted foreign earnings |  | — |  |  | — | % |  | — |  |  | — | % |  | (9.4 | ) |  | (2.4 | )%
Reorganization and divestitures |  | — |  |  | — | % |  | 75.9 |  |  | 19.3 | % |  | — |  |  | — | %
Withholding tax |  | 21.7 |  |  | 4.7 | % |  | 7.4 |  |  | 1.9 | % |  | 10.1 |  |  | 2.6 | %
Net change in valuation allowance |  | (39.8 | ) |  | (8.7 | )% |  | (2.0 | ) |  | (0.5 | )% |  | (31.7 | ) |  | (8.2 | )%
Net change in unrecognized tax benefits |  | 95.0 |  |  | 20.8 | % |  | 33.4 |  |  | 8.5 | % |  | 16.0 |  |  | 4.1 | %
Tax Cuts and Jobs Act |  | 117.6 |  |  | 25.7 | % |  | 41.1 |  |  | 10.5 | % |  | — |  |  | — | %
Deferred tax adjustments |  | — |  |  | — | % |  | 14.1 |  |  | 3.6 | % |  | 31.0 |  |  | 8.0 | %
Other |  | 7.4 |  |  | 1.7 | % |  | (17.9 | ) |  | (4.6 | )% |  | (17.9 | ) |  | (4.6 | )%
Income tax expense and rate |  | $ | 307.5 |  |  | 67.2 | % |  | $ | 330.5 |  |  | 84.0 | % |  | $ | 95.6 |  |  | 24.6 | %
The primary adjustments to the statutory rate in 2018 were the following items:
• | one-time tax on unremitted cumulative non-U.S. earnings of foreign subsidiaries ("Transition Tax");
• | increase in tax expense for unrecognized tax benefits;
• | new minimum tax on certain non-U.S. earnings;
• | decrease in tax expense for release of valuation allowance attributable to tax initiatives; and
• | decrease in tax expense due to increase in U.S. tax credits
Unrecognized Tax Benefits We are providing the following disclosures related to our unrecognized tax benefits and the effect on our effective income tax rate if recognized:
|  | Year Ended December 31,
(in millions) |  | 2018 |  | 2017 |  | 2016
Beginning balance of unrecognized tax benefits |  | $ | 214.3 |  |  | $ | 162.6 |  |  | $ | 131.3 |
Additions for tax positions of current year |  | 106.0 |  |  | 7.3 |  |  | 11.1 |
Additions for tax positions of prior years |  | 59.5 |  |  | 49.3 |  |  | 23.4 |
Reductions for tax positions of prior years |  | (7.0 | ) |  | (4.3 | ) |  | (1.4 | )
Reductions for lapses of statutes of limitation and settlements |  | (16.4 | ) |  | (0.6 | ) |  | (1.8 | )
Ending balance of unrecognized tax benefits |  | $ | 356.4 |  |  | $ | 214.3 |  |  | $ | 162.6 |
In 2018, our unrecognized tax benefit increased by $142.1 million, related primarily to an increase in unrecognized tax benefits in North America. In 2017, we increased our unrecognized tax benefit by $51.7 million primarily related to an increase in unrecognized tax benefits in North America. If the unrecognized tax benefits at December 31, 2018 were recognized, our income tax provision would decrease by $332.5 million, resulting in a substantially lower effective tax rate. Based on the potential outcome of the Company’s global tax examinations and the expiration of the statute of limitations for specific jurisdictions, it is reasonably possible that the unrecognized tax benefits will change within the next 12 months. The associated impact on the reserve balance is estimated to be a decrease in the range of $0 to $2.5 million. We recognize interest and penalties related to unrecognized tax benefits in income tax provision in the Consolidated Statements of Operations. We had a liability of approximately of $18.2 million at December 31, 2018 for the payment of interest (before any tax benefit), a liability of $14.8 million (of which $4.5 million represents penalties) at December 31, 2017 and a liability of approximately $12.0 million (of which $3.7 million represents penalties) at December 31, 2016. In 2018, there was a negligible net change in interest and penalties in the tax accruals for uncertainties in prior years. In 2017, there was a $4.0 million increase in interest and penalties in the tax accruals for uncertainties in prior years. In 2016, there was a $5.6 million increase in interest and penalties in the tax accruals for uncertainties in prior years. Most of the unrecognized tax benefit amount of $356.4 million relates to North America. Income Tax Returns The Internal Revenue Service (the “Service”) has concluded its examination of the legacy Sealed Air U.S. federal income tax returns for all years through 2008, except 2007 which remains open to the extent of a capital loss carryback. The Service is currently auditing 2011 U.S. federal income tax returns of legacy Sealed Air. We are also under examination by the IRS for the years 2012-2014. The outcome of the negotiations for this exam period, which includes the Settlement Agreement payments described below, may affect the utilization of certain tax attributes and require us to make a significant payment. State income tax returns are generally subject to examination for a period of 3 to 5 years after their filing date. We have various state income tax returns in the process of examination, and are open to examination for periods after 2002. Our foreign income tax returns are under examination in various jurisdictions in which we conduct business. Income tax returns in foreign jurisdictions have statutes of limitations generally ranging from 3 to 5 years after their filing date. We have various foreign returns in the process of examination but have largely concluded all other income tax matters for the years prior to 2010. Management believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.

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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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