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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | 9. Income Taxes The domestic and foreign components of income (loss) before income taxes were as follows (in millions):
|  | December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
United States |  | $ | 39 |  |  | $ | (64 | ) |  | $ | (206 | )
Foreign |  |  | 19 |  |  |  | 12 |  |  |  | (24 | )
Income (loss) before income taxes |  | $ | 58 |  |  | $ | (52 | ) |  | $ | (230 | )
The provision (benefit) for income taxes for 2018, 2017 and 2016 consisted of the following (in millions):
|  | 2018 |  |  | 2017 |  |  | 2016 |
U.S. Federal: |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | — |  |  | $ | — |  |  | $ | 2 |
Deferred |  |  | — |  |  |  | — |  |  |  | (1 | )
|  |  | — |  |  |  | — |  |  |  | 1 |
U.S. State: |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | 1 |  |  |  | — |  |  |  | — |
Deferred |  |  | — |  |  |  | — |  |  |  | — |
|  |  | 1 |  |  |  | — |  |  |  | — |
Foreign |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | 6 |  |  |  | 1 |  |  |  | 3 |
Deferred |  |  | (1 | ) |  |  | (1 | ) |  |  | — |
|  |  | 5 |  |  |  | — |  |  |  | 3 |
Income tax provision (benefit) |  | $ | 6 |  |  | $ | — |  |  | $ | 4 |
The reconciliation between the Company’s effective tax rate on income (loss) from continuing operations and the statutory tax rate is as follows (in millions):
|  |  | December 31, |
|  |  | 2018 |  |  | 2017 |  |  | 2016 |
Income tax provision (benefit) at federal statutory rate |  |  | $ | 12 |  |  | $ | (18 | ) |  | $ | (81 | )
Foreign tax rate differential |  |  |  | 2 |  |  |  | (2 | ) |  |  | 2 |
State income tax provision (benefit), net of federal benefit |  |  |  | 3 |  |  |  | (5 | ) |  |  | (3 | )
Nondeductible expenses |  |  |  | 9 |  |  |  | 2 |  |  |  | 8 |
Foreign tax credits |  |  |  | 21 |  |  |  | (31 | ) |  |  | (2 | )
Benefit of net operating loss |  |  |  | (14 | ) |  |  | — |  |  |  | — |
One-time transition tax |  |  |  | 1 |  |  |  | 33 |  |  |  | — |
U.S. tax rate change |  |  |  | — |  |  |  | 69 |  |  |  | — |
Change in valuation allowance |  |  |  | (28 | ) |  |  | (45 | ) |  |  | 78 |
Change in contingency reserve and other |  |  |  | — |  |  |  | (3 | ) |  |  | 2 |
Income tax provision (benefit) |  |  | $ | 6 |  |  | $ | — |  |  | $ | 4 |
Effective tax rate |  |  |  | 10.7 | % |  |  | 0.0 | % |  |  | (1.6 | )%
For the year ended December 31, 2016, the effective tax rate was impacted by a valuation allowance recorded against the Company’s deferred tax assets in the United States, Canada and other foreign jurisdictions. The change in valuation allowance excludes intercompany transactions as they do not impact consolidated income (loss) from continuing operations. For the years ended December 31, 2018 and 2017, the effective tax rate continued to be impacted by a valuation allowance in the United States, Canada and other foreign jurisdictions and was impacted by the TCJA which includes the one-time transition tax, the U.S. tax rate change and foreign tax credits related to earnings of foreign subsidiaries that were previously tax deferred. The TCJA was enacted on December 22, 2017 and contains several tax law changes, including a reduction in the U.S. federal corporate tax rate to 21%, requiring companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, creating new taxes on certain foreign earnings and changing rules for deductions for executive compensation. For the year ended December 31, 2017, and the nine months ended September 30, 2018, the Company recorded provisional amounts for certain enactment-date effects of the TCJA by applying the guidance in SAB 118 since the Company had not yet completed its accounting for these effects. As of December 31, 2018, the Company has completed its accounting for the income tax effects of the TCJA. As further discussed below, during 2018, the Company recognized net adjustments to the provisional amounts recorded as of December 31, 2017, impacting the Company’s provision for income taxes by less than $1 million. As of December 31, 2017, the Company had remeasured its U.S. deferred tax assets and liabilities relating to the U.S. federal corporate income tax rate change and recorded a $69 million charge, with a corresponding decrease to its valuation allowance of $69 million. The Company recorded a $33 million charge for the transition tax which was fully offset by foreign tax credits and net operating losses. There was no net impact to the Company’s provision for income taxes for the year ended December 31, 2017. Upon further analysis of the TCJA, including interpretive guidance contained in notices and regulations issued by the U.S. Department of the Treasury and the Internal Revenue Service, the Company completed its accounting for the income tax effects of the TCJA during 2018. The Company refined its transition tax calculation including electing out of using its 2017 net operating losses and reduced the transition tax liability to $31 million, which was fully offset by available tax credits. The net adjustments to the transition tax resulted in the Company recognizing tax expense during 2018 of less than $1 million. In addition, the Company recorded a $3 million charge to write down deferred tax assets related to performance-based compensation with a corresponding decrease to its valuation allowance of $3 million, resulting in no net impact to the Company’s provision for income taxes for the year ended December 31, 2018. The TCJA subjects a U.S. shareholder to current tax on Global Intangible Low-Taxed Income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5 Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. As the Company was continuing to evaluate the provisions of GILTI as of December 31, 2017, the Company had not recorded any deferred tax amounts related to GILTI. The Company has since adopted an accounting policy to recognize the tax effects of GILTI in the year tax is incurred. Due to the Company’s net operating losses in certain foreign jurisdictions, the Company recognized no income tax related to GILTI in 2018. Significant components of the Company’s deferred tax assets and liabilities were as follows (in millions):
|  |  | December 31, |
|  |  | 2018 |  |  | 2017 |  |  | 2016 |
Deferred tax assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Allowances and operating liabilities |  |  | $ | 8 |  |  | $ | 8 |  |  | $ | 8 |
Net operating loss carryforwards |  |  |  | 56 |  |  |  | 52 |  |  |  | 78 |
Foreign tax credit carryforwards |  |  |  | 8 |  |  |  | 29 |  |  |  | 5 |
Trade credit |  |  |  | 1 |  |  |  | 1 |  |  |  | 3 |
Allowance for doubtful accounts |  |  |  | 6 |  |  |  | 6 |  |  |  | 10 |
Inventory reserve |  |  |  | 10 |  |  |  | 12 |  |  |  | 18 |
Stock-based compensation |  |  |  | 8 |  |  |  | 15 |  |  |  | 19 |
Intangible assets |  |  |  | 24 |  |  |  | 27 |  |  |  | 53 |
Other |  |  |  | 4 |  |  |  | 2 |  |  |  | 6 |
Total deferred tax assets |  |  |  | 125 |  |  |  | 152 |  |  |  | 200 |
Deferred tax liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |
Tax over book depreciation |  |  |  | — |  |  |  | — |  |  |  | (4 | )
Total deferred tax liabilities |  |  |  | — |  |  |  | — |  |  |  | (4 | )
Net deferred tax assets before valuation allowance |  |  |  | 125 |  |  |  | 152 |  |  |  | 196 |
Valuation allowance |  |  |  | (129 | ) |  |  | (157 | ) |  |  | (202 | )
Net deferred tax liabilities |  |  | $ | (4 | ) |  | $ | (5 | ) |  | $ | (6 | )
The Company records a valuation allowance when it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. If the Company was to determine that it would be able to realize the deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the valuation allowance, which would reduce the provision for income taxes. Due to the level of losses preceding 2018, and despite being in an income position in 2018, the Company remains in a three year cumulative loss position. As a result, management believes that it is not more-likely-than-not that the Company would be able to realize the benefits of its deferred tax assets in the U.S., Canada and other foreign jurisdictions and accordingly recognized a valuation allowance for the year ended December 31, 2018. The change during the year in the valuation allowance was $27 million in the U.S., $1 million in Canada, and less than $1 million in other foreign jurisdictions. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
|  | 2018 |  |  | 2017 |  |  | 2016 |
Unrecognized tax benefit at January 1 |  | $ | — |  |  | $ | 1 |  |  | $ | 1 |
Gross increases - tax positions in prior period |  |  | — |  |  |  | — |  |  |  | — |
Gross decreases - tax positions in prior period |  |  | — |  |  |  | — |  |  |  | — |
Gross increases - tax positions in current period |  |  | — |  |  |  | — |  |  |  | — |
Settlement |  |  | — |  |  |  | (1 | ) |  |  | — |
Lapse of statute of limitations |  |  | — |  |  |  | — |  |  |  | — |
Unrecognized tax benefit at December 31 |  | $ | — |  |  | $ | — |  |  | $ | 1 |
The unrecognized tax benefits are included as a reduction to deferred tax assets in the consolidated balance sheets as of December 31, 2016. To the extent penalties and interest would be assessed on any underpayment of income tax, such accrued amounts are classified as a component of income tax provision (benefit) in the financial statements consistent with the Company’s policy. For the year ended December 31, 2018, the Company did not record any income tax expense for interest and penalties related to uncertain tax positions. The Company is subject to taxation in the United States, various states and foreign jurisdictions. The Company has significant operations in the United States and Canada and to a lesser extent in various other international jurisdictions. Tax years that remain subject to examination vary by legal entity, but are generally open in the U.S. for the tax years ending after 2014 and outside the U.S. for the tax years ending after 2012. In the United States, the Company has $220 million of federal net operating loss carryforwards as of December 31, 2018, which will expire between 2035 through 2037. The potential tax benefit of $46 million has been reduced by a $46 million valuation allowance. In addition to a reduction in future income tax expense, future income tax payments will also be reduced in the event the Company ultimately realizes the benefit of these net operating losses. The Company has $125 million of state net operating loss carryforwards as of December 31, 2018, which will expire between 2020 through 2037, with the majority expiring after 2034. The potential benefit of $7 million has been reduced by a $7 million valuation allowance. Outside the United States, the Company has $16 million of net operating loss carryforwards as of December 31, 2018, of which $12 million have no expiration and $4 million will expire between 2020 and 2037. The potential tax benefit of $3 million has been reduced by a $3 million valuation allowance. As of December 31, 2018, the Company has $8 million of excess foreign tax credits in the U.S. The foreign tax credits will expire between 2024 and 2027. The potential benefit of $8 million has been reduced by a $8 million valuation allowance. In addition to future income tax expense, future income tax payments will also be reduced in the event the Company ultimately realizes the benefit of these foreign tax credits. As of December 31, 2018, the amount of undistributed earnings of foreign subsidiaries was approximately $130 million. Historically, it has been the practice and intention of the Company to indefinitely reinvest the earnings of its foreign subsidiaries in those operations. In light of the significant changes made by the TCJA, the Company will no longer be indefinitely reinvested with regard to its pre-2018 earnings in Canada and the United Kingdom. These earnings were subject to the transition tax and the future repatriation of these earnings will not result in additional income tax expense or foreign withholding taxes due to the Company’s available tax attributes. No additional income taxes have been provided for other foreign earnings or any additional outside basis differences inherent in the Company’s foreign subsidiaries, as these amounts continue to be indefinitely reinvested. Determining the amount of unrecognized deferred tax liability related to any additional outside basis differences in these entities is not practicable. Because of the number of tax jurisdictions in which the Company operates, its effective tax rate can fluctuate as operations and the local country tax rates fluctuate. The Company is also subject to audits by federal, state and foreign jurisdictions which may result in proposed assessments. The Company’s future tax provision will reflect any favorable or unfavorable adjustments to its estimated tax liabilities when resolved. The Company is unable to predict the outcome of these matters. However, the Company believes that none of these matters will have a material adverse effect on the results of operations or financial position of the Company.

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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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