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Income Taxes | 3 Months Ended
--- | ---
Mar. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | Note 13—Income taxes:
| Three months ended March 31, |
| 2016 |  |  | 2017 |
| (In millions)
Expected tax expense (benefit) at U.S. federal statutory income tax rate of 35% | $ | (10.7 | ) |  | $ | 13.9 |
Incremental net tax on earnings and losses of non-U.S. and U.S. subsidiaries |  | 2.4 |  |  |  | 11.2 |
Non-U.S. tax rates |  | .2 |  |  |  | (2.4 | )
Valuation allowance |  | — |  |  |  | (5.0 | )
Adjustment to the reserve for uncertain tax positions, net |  | .2 |  |  |  | .5 |
Nondeductible expenses |  | .1 |  |  |  | .5 |
Domestic production activities deduction |  | (.3 | ) |  |  | (.6 | )
U.S. state income taxes and other, net |  | (.5 | ) |  |  | (.1 | )
Income tax expense (benefit) | $ | (8.6 | ) |  | $ | 18.0 |
Comprehensive provision for income taxes allocable to: |  |
Net income (loss) | $ | (8.6 | ) |  | $ | 18.0 |
Other comprehensive income (loss): |  |  |  |  |  |  |
Marketable securities |  | (.2 | ) |  |  | (.2 | )
Currency translation |  | 2.8 |  |  |  | 1.7 |
Interest rate swap |  | (2.1 | ) |  |  | .4 |
Pension plans |  | .8 |  |  |  | .9 |
OPEB plans |  | (.2 | ) |  |  | (.1 | )
Total | $ | (7.5 | ) |  | $ | 20.7 |
The amount shown in the above table of our income tax rate reconciliation for non-U.S. tax rates represents the result determined by multiplying the pre-tax earnings or losses of each of our non-U.S. subsidiaries by the difference between the applicable statutory income tax rate for each non-U.S. jurisdiction and the U.S. federal statutory tax rate of 35%. The amount shown on such table for incremental net tax on earnings and losses on non-U.S. and U.S. subsidiaries includes, as applicable, (i) current income taxes (including withholding taxes, if applicable), if any, associated with any current-year earnings of our Chemicals Segment’s non-U.S. subsidiaries to the extent such current-year earnings were distributed to us in the current year, (ii) deferred income taxes (or deferred income tax benefit) associated with the current-year change in the aggregate amount of undistributed earnings of our Chemicals Segment’s Canadian subsidiary, which earnings are not subject to a permanent reinvestment plan, in an amount representing the current-year change in the aggregate current income tax that would be generated (including withholding taxes, if applicable) when such aggregate undistributed earnings are distributed to us, (iii) current U.S. income taxes (or current income tax benefit), including U.S. personal holding company tax, as applicable, attributable to current-year income (losses) of one of Kronos’ non-U.S. subsidiaries, which subsidiary is treated as a dual resident for U.S. income tax purposes, to the extent the current-year income (losses) of such subsidiary is subject to U.S. income tax under the U.S. dual-resident provisions of the Internal Revenue Code, (iv) deferred income taxes associated with our direct investment in Kronos (beginning in the second quarter of 2015) and (v) current and deferred income taxes associated with distributions and earnings from our investment in LandWell and BMI. Tax authorities are examining certain of our U.S. and non-U.S. tax returns and have or may propose tax deficiencies, including penalties and interest. Because of the inherent uncertainties involved in settlement initiatives and court and tax proceedings, we cannot guarantee that these matters will be resolved in our favor, and therefore our potential exposure, if any, is also uncertain. We believe we have adequate accruals for additional taxes and related interest expense which could ultimately result from tax examinations. We believe the ultimate disposition of tax examinations should not have a material adverse effect on our consolidated financial position, results of operations or liquidity. As a result of ongoing audits in certain jurisdictions, in 2008 Kronos filed Advance Pricing Agreement Requests with the tax authorities in the U.S., Canada and Germany. These requests have been under review with the respective tax authorities since 2008 and prior to 2016, it was uncertain whether an agreement would be reached between the tax authorities and whether we would agree to execute and finalize such agreements. During 2016, Contran, as the ultimate parent of our U.S. Consolidated income tax group, executed and finalized an Advance Pricing Agreement with the U.S. Internal Revenue Service and our Canadian subsidiary executed and finalized an Advance Pricing Agreement with the Competent Authority for Canada (collectively, the “U.S.-Canada APA”) effective for tax years 2005 - 2015. Pursuant to the terms of the U.S.-Canada APA, the U.S. and Canadian tax authorities agreed to certain prior year changes to taxable income of Kronos’ U.S. and Canadian subsidiaries. As a result of such agreed-upon changes, Kronos’ Canadian subsidiary will incur a cash income tax payment of approximately CAD $3 million (USD $2.3 million) related to the U.S.-Canada APA, but such payment was fully offset by previously provided accruals (such USD $2.3 million has not been paid as of March 31, 2017, and is classified as part of income taxes payable at such date). We currently expect the Advance Pricing Agreement between Canada and Germany (collectively, the “Canada-Germany APA”) to be executed and finalized within the next twelve months. We believe we have adequate accruals to cover any cash income tax payment which might result from the finalization of the Canada-Germany APA, and accordingly we do not expect the execution of such APA to have a material adverse effect on our consolidated financial position, results of operations or liquidity. Kronos has substantial net operating loss (“NOL”) carryforwards in Germany and Belgium, the benefit of which Kronos had previously recognized under the more-likely-than-not recognition criteria. In the second quarter of 2015, Kronos determined that such losses did not meet the more-likely-than-not recognition criteria, and as a result Kronos recognized a non-cash deferred income tax expense as a valuation allowance against Kronos’ net deferred income tax assets in such jurisdictions. We continued to conclude such losses did not meet the more-likely-than-not recognition criteria through March 31, 2017. During the first quarter of 2017, Kronos recognized an aggregate non-cash deferred income tax benefit of $5.0 million as a result of a net decrease in such deferred income tax asset valuation allowance, due to utilizing a portion of both the German and Belgium NOLs during the period. We believe we have adequate accruals for additional taxes and related interest expense which could ultimately result from tax examinations. We believe the ultimate disposition of tax examinations should not have a material adverse effect on our consolidated financial position, results of operations or liquidity. We currently estimate that our unrecognized tax benefits will decrease by approximately $14.4 million during the next twelve months primarily due to certain adjustments to our prior year returns and the expiration of certain statutes of limitations.

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