XML 36 R21.htm IDEA: XBRL DOCUMENT
v3.10.0.1

Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Prior to the Separation, Conduent’s operating results were included in Xerox Corporation's various consolidated U.S. federal and state income tax returns, as well as non-U.S. tax filings. For the purposes of the Company’s Consolidated Financial Statements for periods prior to the Separation, income tax expense and deferred tax balances have been recorded as if the Company filed tax returns on a standalone basis separate from Xerox. The Separate Return Method applies the accounting guidance for income taxes to the standalone financial statements as if the Company was a separate taxpayer and a standalone enterprise for fiscal 2016. On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (Tax Reform). The Tax Reform significantly changes the U.S. corporate income tax laws by, among other things, reducing the corporate income tax rate to 21% starting in 2018 and creating a territorial tax system with a one-time mandatory tax on previous deferred foreign earnings of U.S. subsidiaries. With respect to this legislation, the Company recorded a provisional tax benefit of $198 million in the fourth quarter of 2017, which included a $210 million tax benefit due to the re-measurement of deferred tax assets and liabilities resulting from the decrease in the corporate U.S. federal income tax rate from 35% to 21% and $12 million as a one-time-charge on the transition tax for Post-1986 undistributed and not previously taxed foreign earnings and profits. The Company finalized its accounting for this legislation in the fourth quarter of 2018 and recognized a $2 million additional benefit year to date, included as a component of income tax expense from continuing operations. The true-up of the provisional benefit includes $5 million additional benefit due to re-measurement of deferred tax assets and liabilities resulting from the decrease in the U.S. corporate federal income tax rate, a $1 million reduction in the one-time charge on the transition tax and a $4 million charge due to change in recognition of deferred tax assets related to deductibility of certain expenses. Income (loss) before income taxes (pre-tax income (loss)) was as follows:
|  | Year Ended December 31,
(in millions) |  | 2018 |  | 2017 |  | 2016
Domestic loss |  | $ | (411 | ) |  | $ | (91 | ) |  | $ | (1,329 | )
Foreign income |  | 16 |  |  | 75 |  |  | 102 |
Loss Before Income Taxes |  | $ | (395 | ) |  | $ | (16 | ) |  | $ | (1,227 | )
Provision (benefit) for income taxes were as follows:
|  | Year Ended December 31,
(in millions) |  | 2018 |  | 2017 |  | 2016
Federal Income Taxes |  |  |  |  |  |
Current |  | $ | 35 |  |  | $ | 4 |  |  | $ | (116 | )
Deferred |  | (62 | ) |  | (233 | ) |  | (132 | )
Foreign Income Taxes |  |  |  |  |  |
Current |  | 41 |  |  | 25 |  |  | 31 |
Deferred |  | (6 | ) |  | (3 | ) |  | (3 | )
State Income Taxes |  |  |  |  |  |
Current |  | 20 |  |  | 8 |  |  | 1 |
Deferred |  | (7 | ) |  | 6 |  |  | (25 | )
Total Benefit |  | $ | 21 |  |  | $ | (193 | ) |  | $ | (244 | )
A reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate was as follows:
|  | Year Ended December 31,
|  | 2018 |  | 2017 |  | 2016
U.S. federal statutory income tax rate |  | 21.0 | % |  | 35.0 | % |  | 35.0 | %
Nondeductible expenses(1) |  | (3.7 | )% |  | (104.0 | )% |  | (19.0 | )%
Effect of tax law changes |  | 0.5 | % |  | 1,282.4 | % |  | — | %
Change in valuation allowance for deferred tax assets |  | (1.7 | )% |  | (39.5 | )% |  | 0.1 | %
State taxes, net of federal benefit |  | (2.3 | )% |  | 1.2 | % |  | 1.8 | %
Audit and other tax return adjustments |  | — | % |  | — | % |  | 1.4 | %
Tax-exempt income, credits and incentives |  | 2.2 | % |  | 38.9 | % |  | 0.7 | %
Foreign rate differential adjusted for U.S. taxation of foreign profits(2) |  | 1.9 | % |  | 47.7 | % |  | 0.7 | %
Divestitures(3) |  | (20.3 | )% |  | (51.9 | )% |  | — | %
Unrecognized tax benefits and other |  | (2.9 | )% |  | (3.5 | )% |  | (0.8 | )%
Effective Income Tax Rate |  | (5.3 | )% |  | 1,206.3 | % |  | 19.9 | %
____________
(1) | In 2017, nondeductible expenses primarily related to officers life insurance.
(2) | The “U.S. taxation of foreign profits” represents the U.S. tax, net of foreign tax credits, associated with actual and deemed repatriations of earnings from our non-U.S. subsidiaries.
(3) | 2018 and 2017 divestitures include nondeductible goodwill allocated to divested businesses.
On a consolidated basis, we paid/(received) a total of $108 million, $29 million and $(123) million in income taxes to federal, foreign and state jurisdictions during the three years ended December 31, 2018, 2017 and 2016, respectively. Total income tax expense (benefit) was allocated as follows:
|  | Year Ended December 31,
(in millions) |  | 2018 |  | 2017 |  | 2016
Pre-tax income |  | $ | 21 |  |  | $ | (193 | ) |  | $ | (244 | )
Discontinued operations |  | — |  |  | 3 |  |  | — |
Common shareholders' equity: |  |  |  |  |  |  |  |
Changes in defined benefit plans |  | — |  |  | — |  |  | 8 |
Stock option and incentive plans, net |  | — |  |  | — |  |  | — |
Total Income Tax Expense (Benefit) |  | $ | 21 |  |  | $ | (190 | ) |  | $ | (236 | )
Unrecognized Tax Benefits and Audit Resolutions We recognize tax liabilities when, despite our belief that our tax return positions are supportable, we believe that certain positions may not be fully sustained upon review by tax authorities. Each period we assess uncertain tax positions for recognition, measurement and effective settlement. Benefits from uncertain tax positions are measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. Where we have determined that our tax return filing position does not satisfy the more-likely-than-not recognition threshold, we have recorded no tax benefits. We are also subject to ongoing tax examinations in numerous jurisdictions due to the extensive geographical scope of our operations. Our ongoing assessments of the more-likely-than-not outcomes of the examinations and related tax positions require judgment and can increase or decrease our effective tax rate, as well as impact our operating results. The specific timing of when the resolution of each tax position will be reached is uncertain. As of December 31, 2018, we do not believe that there are any positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months. A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:
(in millions) |  | 2018 |  | 2017 |  | 2016
Balance at January 1 |  | $ | 15 |  |  | $ | 14 |  |  | $ | 24 |
Additions related to current year |  | 3 |  |  | — |  |  | 1 |
Additions related to prior years positions |  | 5 |  |  | — |  |  | — |
Reductions related to prior years positions |  | — |  |  | — |  |  | (5 | )
Settlements with taxing authorities(1) |  | (1 | ) |  | — |  |  | (5 | )
Currency |  | (2 | ) |  | 1 |  |  | (1 | )
Balance at December 31 |  | $ | 20 |  |  | $ | 15 |  |  | $ | 14 |
_______________
(1) | 2018 and 2016 settlement resulted in $1 million and $5 million cash paid, respectively.
We maintain offsetting benefits from other jurisdictions of $15 million, $16 million and $16 million, at December 31, 2018, 2017 and 2016, respectively. We recognized interest and penalties accrued on unrecognized tax benefits, as well as interest received from favorable settlements within income tax expense. We had $10 million, $6 million and $4 million accrued for the payment of interest and penalties associated with unrecognized tax benefits at December 31, 2018, 2017 and 2016, respectively. In the U.S., we are no longer subject to U.S. federal income tax examinations for years before 2012. With respect to our major foreign jurisdictions, the years generally remain open back to 2006. Deferred Income Taxes The Company is indefinitely reinvested in the undistributed earnings of its foreign subsidiaries with respect to the U.S. These foreign subsidiaries have aggregate cumulative undistributed earnings of $164 million as of December 31, 2018. For years after 2017, the Tax Reform does allow for certain earnings to be repatriated free from U.S. Federal taxes. However, the repatriation of earnings could give rise to additional tax liabilities. We have also not provided for deferred taxes on outside basis differences in our investments in our foreign subsidiaries that are unrelated to unremitted earnings. These other basis differences will also be indefinitely reinvested. A determination of the unrecognized deferred taxes related to these other components of our outside basis differences is not practicable. We have provided for deferred taxes with respect to certain unremitted earnings of foreign subsidiaries that are not indefinitely reinvested between foreign subsidiaries outside of the U.S. The tax effects of temporary differences that give rise to significant portions of the deferred taxes were as follows:
|  | December 31,
(in millions) |  | 2018 |  | 2017
Deferred Tax Assets |  |  |  |
Net operating losses |  | $ | 46 |  |  | $ | 41 |
Operating reserves, accruals and deferrals |  | 68 |  |  | 85 |
Deferred compensation |  | 16 |  |  | 59 |
Pension |  | 2 |  |  | 15 |
Settlement reserves |  | 67 |  |  | 18 |
Other |  | 11 |  |  | 27 |
Subtotal |  | 210 |  |  | 245 |
Valuation allowance |  | (44 | ) |  | (35 | )
Total |  | $ | 166 |  |  | $ | 210 |
Deferred Tax Liabilities |  |  |  |
Unearned income |  | $ | 86 |  |  | $ | 134 |
Intangibles and goodwill |  | 341 |  |  | 413 |
Depreciation |  | 30 |  |  | 5 |
Other |  | 24 |  |  | 25 |
Total |  | $ | 481 |  |  | $ | 577 |
Total Deferred Taxes, Net |  | $ | (315 | ) |  | $ | (367 | )
The deferred tax assets for the respective periods were assessed for recoverability and, where applicable, a valuation allowance was recorded to reduce the total deferred tax asset to an amount that will, more-likely-than-not, be realized in the future. The net change in the total valuation allowance for the years ended December 31, 2018 and 2017 was an increase of $9 million and $11 million, respectively. The valuation allowance relates primarily to certain net operating loss carryforwards, tax credit carryforwards and deductible temporary differences for which we have concluded it is more-likely-than-not that these items will not be realized in the ordinary course of operations. Although realization is not assured, we have concluded that it is more-likely-than-not that the deferred tax assets, for which a valuation allowance was determined to be unnecessary, will be realized in the ordinary course of operations based on the available positive and negative evidence, including scheduling of deferred tax liabilities and projected income from operating activities. The amount of the net deferred tax assets considered realizable, however, could be reduced in the near term if actual future income or income tax rates are lower than estimated, or if there are differences in the timing or amount of future reversals of existing taxable or deductible temporary differences. At December 31, 2018, we had tax credit carryforwards of $9 million available to offset future income taxes which will expire between 2019 and 2038 if not utilized. We also had net operating loss carryforwards for income tax purposes of $417 million that will expire between 2019 and 2038, if not utilized; and $54 million available to offset future taxable income indefinitely.

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