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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
Income taxes | Note 14 - Income taxes: The provision for income taxes and the difference between such provision for income taxes and the amount that would be expected using the U.S. federal statutory income tax rate are presented below.
| Years ended December 31, |
| 2017 |  |  | 2018 |  |  | 2019 |
| (In millions) |
Expected tax expense (benefit), at U.S. federal statutory income tax rate of 35% in 2017 and 21% in 2018 and 2019 | $ | 39.3 |  |  | $ | (11.4 | ) |  | $ | 6.0 |
Rate differences on equity in earnings of Kronos |  | (7.4 | ) |  |  | (5.0 | ) |  |  | (5.3 | )
Change in federal tax rate, net |  | (37.5 | ) |  |  | .8 |  |  |  | - |
U.S. state income taxes and other, net |  | - |  |  |  | .2 |  |  |  | (.1 | )
Income tax expense (benefit) | $ | (5.6 | ) |  | $ | (15.4 | ) |  | $ | .6 |
Components of income tax expense (benefit): |  |  |  |  |  |  |  |  |  |  |
Currently payable (receivable): | $ | (.1 | ) |  | $ | (.2 | ) |  | $ | .2 |
Deferred income tax expense (benefit) |  | (5.5 | ) |  |  | (15.2 | ) |  |  | .4 |
Income tax expense (benefit) | $ | (5.6 | ) |  | $ | (15.4 | ) |  | $ | .6 |
Comprehensive provision for income taxes (benefit) allocable to: |  |  |  |  |  |  |  |  |  |  |
Income (loss) from continuing operations | $ | (5.6 | ) |  | $ | (15.4 | ) |  | $ | .6 |
Additional paid-in capital |  | - |  |  |  | - |  |  |  | (.2 | )
Other comprehensive income (loss): |  |  |  |  |  |  |  |  |  |  |
Currency translation |  | 6.1 |  |  |  | (2.1 | ) |  |  | (.1 | )
Pension plans |  | 1.9 |  |  |  | (.6 | ) |  |  | (.8 | )
OPEB plans |  | (.1 | ) |  |  | - |  |  |  | - |
Marketable securities |  | 14.3 |  |  |  | - |  |  |  | - |
Interest rate swap |  | .2 |  |  |  | - |  |  |  | - |
Total | $ | 16.8 |  |  | $ | (18.1 | ) |  | $ | (.5 | )
The components of the net deferred tax liability at December 31, 2018 and 2019 are summarized in the following table.
| December 31, |
| 2018 |  |  | 2019 |
| Assets |  |  | Liabilities |  |  | Assets |  |  | Liabilities |
| (In millions) |
Tax effect of temporary differences related to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Inventories | $ | .4 |  |  | $ | - |  |  | $ | .4 |  |  | $ | - |
Marketable securities |  | - |  |  |  | (5.6 | ) |  |  | - |  |  |  | (5.4 | )
Property and equipment |  | - |  |  |  | (2.6 | ) |  |  | - |  |  |  | (2.8 | )
Accrued OPEB costs |  | .4 |  |  |  | - |  |  |  | .3 |  |  |  | - |
Accrued pension costs |  | 1.7 |  |  |  | - |  |  |  | .7 |  |  |  | - |
Accrued employee benefits |  | 1.1 |  |  |  | - |  |  |  | 1.2 |  |  |  | - |
Accrued environmental liabilities |  | 33.6 |  |  |  | - |  |  |  | 31.7 |  |  |  | - |
Goodwill |  | - |  |  |  | (1.7 | ) |  |  | - |  |  |  | (1.7 | )
Other accrued liabilities and deductible differences |  | .3 |  |  |  | - |  |  |  | .2 |  |  |  | - |
Tax loss and credit carryforwards |  | 1.2 |  |  |  | - |  |  |  | - |  |  |  | - |
Other taxable differences |  | - |  |  |  | (2.4 | ) |  |  | - |  |  |  | (2.3 | )
Investment in Kronos Worldwide, Inc. |  | - |  |  |  | (57.8 | ) |  |  | - |  |  |  | (56.3 | )
Adjusted gross deferred tax assets (liabilities) |  | 38.7 |  |  |  | (70.1 | ) |  |  | 34.5 |  |  |  | (68.5 | )
Netting of items by tax jurisdiction |  | (38.7 | ) |  |  | 38.7 |  |  |  | (34.5 | ) |  |  | 34.5 |
Net noncurrent deferred tax asset (liability) | $ | - |  |  | $ | (31.4 | ) |  | $ | - |  |  | $ | (34.0 | )
In accordance with GAAP, we recognize deferred income taxes on our undistributed equity in earnings (losses) of Kronos. Because we and Kronos are part of the same U.S. federal income tax group, any dividends we receive from Kronos are nontaxable to us. Accordingly, we do not recognize and we are not required to pay income taxes on dividends from Kronos. We received aggregate dividends from Kronos of $21.1 million in 2017, $23.9 million in 2018 and $25.4 million in 2019. See Note 6. The amounts shown in the table above of our income tax rate reconciliation for rate differences on equity in earnings (losses) of Kronos represent the benefit associated with the nontaxable dividends we receive from Kronos compared to the amount of deferred income taxes we recognize on our undistributed equity in earnings (losses) of Kronos. At December 31, 2019, we had NOL carryforwards for federal income tax purposes of approximately $15.5 million all of which have an indefinite carryforward period subject to an 80% annual usage limitation. Our deferred tax asset for such NOL carryforward is net of a portion of our uncertain tax positions as discussed below. We believe that 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. If our uncertain tax position at December 31, 2019 was recognized, a benefit of $7.3 million would affect our effective income tax rate. We currently estimate that our unrecognized tax benefits will not change materially during the next twelve months. The following table shows the changes in the amount of our uncertain tax positions (exclusive of the effect of interest and penalties) during 2017, 2018 and 2019:
| December 31, |
| 2017 |  |  | 2018 |  |  | 2019 |
| (In millions) |
Unrecognized liabilities: |  |  |  |  |  |  |  |  |  |  |
Balance at the beginning of the period | $ | 12.2 |  |  | $ | 7.3 |  |  | $ | 7.3 |
Change in federal tax rate |  | (4.9 | ) |  |  | - |  |  |  | - |
Balance at the end of the period | $ | 7.3 |  |  | $ | 7.3 |  |  | $ | 7.3 |
Prior to 2007, we made certain pro-rata distributions to our stockholders in the form of Kronos common stock and we recognized a taxable gain related to such distributions. Our uncertain tax positions are attributable to such prior period distribution of Kronos common stock. As discussed in Note 1, we are part of the Contran Tax Group and we have not paid this liability because Contran has not paid the liability to the applicable tax authority. This liability would be payable by Contran to the applicable tax authority if the shares of Kronos common stock were to be sold or otherwise disposed outside of the Contran Tax Group. At December 31, 2019, $3.3 million of our uncertain tax position is classified as a component of our noncurrent deferred tax liability. We and Contran file income tax returns in U.S. federal and various state and local jurisdictions. Our U.S. income tax returns prior to 2016 are generally considered closed to examination by applicable tax authorities. On December 22, 2017, H.R.1, formally known as the “Tax Cuts and Jobs Act” (2017 Tax Act) was enacted into law. This new tax legislation, among other changes, reduced the Federal corporate income tax rate from 35% to 21% effective January 1, 2018, eliminated the domestic production activities deduction and allows for the expensing of certain capital expenditures. Following the enactment of the 2017 Tax Act, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) 118 to provide guidance on the accounting and reporting impacts of the 2017 Tax Act. SAB 118 states that companies should account for changes related to the 2017 Tax Act in the period of enactment if all information is available and the accounting can be completed. In situations where companies do not have enough information to complete the accounting in the period of enactment, a company must either 1) record an estimated provisional amount if the impact of the change can be reasonably estimated; or 2) continue to apply the accounting guidance that was in effect immediately prior to the 2017 Tax Act if the impact of the change cannot be reasonably estimated. If estimated provisional amounts are recorded, SAB 118 provided a measurement period of no longer than one year during which companies adjusted those amounts as additional information became available. Under GAAP, we were required to revalue our net deferred tax liability associated with our net taxable temporary differences in the period in which the new tax legislation was enacted based on deferred tax balances as of the enactment date, to reflect the effect of such reduction in the corporate income tax rate. Other than with respect to temporary differences related to our marketable securities, and certain year-end actuarial valuations associated with our defined benefit pension and OPEB plans, our temporary differences as of December 31, 2017 were not materially different from our temporary differences as of the enactment date. Accordingly, revaluation of our temporary differences is based on our net deferred tax liabilities as of December 31, 2017 (except for our temporary differences related to our marketable securities, and certain year-end actuarial valuations associated with our defined benefit pension and OPEB plans, for which such revaluation is based on the deferred income tax asset/liability as of the enactment date). Such revaluation resulted in a non-cash deferred income tax benefit of $37.5 million recognized in continuing operations in the fourth quarter of 2017, reducing our net deferred tax liability. During the third quarter of 2018, in conjunction with finalizing our federal income tax return, we were able to obtain, prepare and analyze the necessary information to complete the accounting related to the revaluation of our net deferred tax liability associated with our U.S. net taxable temporary differences as of December 31, 2017, which resulted in the recognition of an immaterial adjustment to the provisional amount recognized at December 31, 2017. Accordingly, we completed our analysis related to such revaluation as of September 30, 2018. Income tax matters related to Kronos Kronos has substantial net operating loss (NOL) carryforwards in Germany (the equivalent of $501 million for German corporate purposes at December 31, 2019) and in Belgium (the equivalent of $8 million for Belgian corporate tax purposes at December 31, 2019), all of which have an indefinite carryforward period. As a result, Kronos has and has had net deferred income tax assets with respect to these two jurisdictions, primarily related to these NOL carryforwards. The German corporate tax is similar to the U.S. federal income tax, and the German trade tax is similar to the U.S. state income tax (Kronos’ German trade tax NOLs were fully utilized as of December 31, 2018). Prior to 2017, Kronos concluded that it was required to recognize a non-cash deferred income tax asset valuation allowance under the more-likely-than-not recognition criteria with respect to its German and Belgian net deferred income tax assets. At December 31, 2016 such valuation allowance aggregated $173 million ($153 million with respect to Germany and $20 million with respect to Belgium). During the first six months of 2017, Kronos recognized an aggregate non-cash deferred income tax benefit of $12.7 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 Belgian NOL during the period. At June 30, 2017, Kronos concluded it had sufficient positive evidence under the more-likely-than-not recognition criteria to support reversal of the entire valuation allowance related to its German and Belgian operations. In accordance with the ASC 740-270 guidance regarding accounting for income taxes at interim dates, the amount of the valuation allowance reversed at June 30, 2017 ($149.9 million, of which $141.9 million related to Germany and $8.0 million related to Belgium) was associated with its change in judgment at that date regarding the realizability of the related deferred income tax asset as it relates to future years (i.e. 2018 and after). A change in judgment regarding the realizability of deferred tax assets as it relates to the current year is considered in determining the estimated annual effective tax rate for the year and is recognized throughout the year, including interim periods subsequent to the date of the change in judgment. Accordingly, Kronos’ income tax benefit in calendar year 2017 included an aggregate non-cash deferred income tax benefit of $186.7 million associated with the reversal of the German and Belgian valuation allowance, comprised of $12.7 million recognized in the first half of 2017 (noted above) associated with the utilization of a portion of both the German and Belgian NOLs during such period, $149.9 million related to the portion of the valuation allowance reversed as of June 30, 2017 and $24.1 million recognized in the second half of 2017 associated with the utilization of a portion of both the German and Belgian NOLs during such period. Kronos’ deferred income tax asset valuation allowance increased $13.7 million in 2017 as a result of changes in currency exchange rates, which increase was recognized as part of other comprehensive income (loss). Under GAAP, Kronos was required to revalue its net deferred tax asset associated with its U.S. net deductible temporary differences in the period in which the new tax legislation is enacted based on deferred tax balances as of the enactment date, to reflect the effect of such reduction in the corporate income tax rate. Kronos’ net deductible temporary differences as of December 31, 2017 were not materially different from its net deductible temporary differences as of the enactment date, accordingly revaluation of its net deductible temporary differences was based on its net deferred tax asset as of December 31, 2017. Such revaluation was recognized in continuing operations and was not material to Kronos. Prior to the enactment of the 2017 Tax Act, the undistributed earnings of Kronos’ European subsidiaries were deemed to be permanently reinvested (Kronos had not made a similar determination with respect to the undistributed earnings of its Canadian subsidiary). Pursuant to the Transition Tax provisions imposing a one-time repatriation tax on post-1986 undistributed earnings, Kronos recognized a provisional current income tax expense of $76.2 million in the fourth quarter of 2017. The amounts recorded as of December 31, 2017 as a result of the 2017 Tax Act represented estimates based on information available at such date. Kronos elected to pay such tax over an eight year period beginning in 2018. During the third quarter of 2018, in conjunction with finalizing its federal income tax return and based on additional information that became available (including proposed regulations issued by the IRS in August 2018 with respect to the Transition Tax), Kronos recognized a provisional income tax benefit of $1.7 million which amount is recorded as a measurement-period adjustment, reducing the provisional income tax expense of $76.2 million recognized in the fourth quarter of 2017. Pursuant to IRS guidance issued in 2019, Kronos’ Transitional Tax installment for the 2019 tax year is due in April of 2020. Prior to the issuance of the new guidance, Kronos anticipated paying such installment in 2019. Consequently, at December 31, 2019, taking into account Kronos’ prior Transition Tax installments payments, the balance of its unpaid Transition Tax has not changed from the balance at December 31, 2018 and aggregates $62.6 million, which will be paid in annual installments over the remainder of the eight year period. Of such $62.6 million, $56.6 million is recorded as a noncurrent payable to affiliate (income taxes payable to Valhi) classified as a noncurrent liability in its Consolidated Balance Sheet at December 31, 2019, and $6.0 million is included with its current payable to affiliate (income taxes payable to Valhi) classified as a current liability (a portion of its noncurrent income tax payable to affiliate was reclassified to its current payable to affiliate for the portion of its 2019 Transition Tax installment due within the next twelve months). Kronos completed its analysis of the Transition Tax provisions within the prescribed measurement period ending December 22, 2018 pursuant to the guidance under SAB 118. As a result of the implementation of a territorial tax system under the 2017 Tax Act, effective January 1, 2018, and the Transition Tax which in effect taxes the post-1986 undistributed earnings of its non-U.S. subsidiaries accumulated up through December 31, 2017, Kronos determined effective December 31, 2017 that all of the post-1986 undistributed earnings of its European subsidiaries are not permanently reinvested. Accordingly, in the fourth quarter of 2017 Kronos recognized an aggregate provisional non-cash deferred income tax expense of $4.5 million based on its reasonable estimates of the U.S. state and non-U.S. income tax and withholding tax liability attributable to all of such previously-considered permanently reinvested undistributed earnings through December 31, 2017. The amounts recorded as of December 31, 2017 as a result of the 2017 Tax Act represented estimates based on information currently available. Kronos did not make any measurement-period adjustments to the provisional amounts recorded at December 31, 2017 for this item during 2018 because no new information became available during the period that required an adjustment. However, Kronos recorded a non-cash deferred income tax expense of $2.4 million for the U.S. state and non-U.S. income tax and withholding tax liability attributable to the 2018 undistributed earnings of its non-U.S. subsidiaries in 2018, including withholding taxes related to the undistributed earnings of its Canadian subsidiary. Kronos completed its analysis as it relates to the implementation of a territorial tax system under the 2017 Tax Act within the prescribed measurement period ending December 22, 2018 pursuant to the guidance under SAB 118. Kronos records global intangible low-tax income (GILTI) tax as a current-period expense when incurred under the period cost method. Kronos has evaluated the tax impact of GILTI and the base erosion anti abuse tax (BEAT) provisions and related U.S. tax credit provisions applicable to tax years beginning in 2018 based on the relevant statues. Kronos recognized a current cash income tax expense of $3.7 million and $2.4 million for GILTI in 2018 and 2019, respectively. While its future global operations depend on a number of different factors, Kronos does expect to have future U.S. inclusion in taxable income related to GILTI. Similarly, Kronos has evaluated the tax impact of BEAT and determined that the tax law imposed under BEAT has no material impact to Kronos as it has historically not entered into international payments between related parties that are unrelated to cost of goods sold. Kronos’ determinations under the GILTI, BEAT and related U.S. tax credit provisions are based on the relevant statutes and guidance provided under the regulations. Certain U.S. deferred tax attributes of one of Kronos’ non-U.S. subsidiaries, which subsidiary is treated as a dual resident for U.S. income tax purposes, were subject to various limitations. As a result, Kronos had previously concluded that a deferred income tax asset valuation allowance was required to be recognized with respect to such subsidiary’s U.S. net deferred income tax asset because such assets did not meet the more-likely-than-not recognition criteria primarily due to (i) the various limitations regarding use of such attributes due to the dual residency; (ii) the dual resident subsidiary had a history of losses and absent distributions from its non-U.S. subsidiaries, which were previously not determinable, such subsidiary was expected to continue to generate losses; and (iii) a limited NOL carryforward period for U.S. tax purposes. Because Kronos had concluded the likelihood of realization of such subsidiary’s net deferred income tax asset was remote, Kronos had not previously disclosed such valuation allowance or the associated amount of the subsidiary’s net deferred income tax assets (exclusive of such valuation allowance). Primarily due to changes enacted under the 2017 Tax Act, Kronos concluded it had sufficient positive evidence under the more-likely-than-not recognition criteria to support reversal of the entire valuation allowance related to such subsidiary’s net deferred income tax asset, which evidence included, among other things, (i) the inclusion under Transition Tax provisions of significant earnings for U.S. income tax purposes which significantly and positively impacts the ability of such deferred tax attributes to be utilized by Kronos; (ii) the indefinite carryforward period for U.S. net operating losses incurred after December 31, 2017; (iii) an expectation of continued future profitability for its U.S. operations; and (iv) a positive taxable income basket for U.S. tax purposes in excess of the U.S. deferred tax asset related to the U.S. attributes of such subsidiary. Accordingly, in the fourth quarter of 2017 Kronos recognized an $18.7 million non-cash deferred income tax benefit as a result of the reversal of such valuation allowance. In the fourth quarter of 2019, Kronos recognized a net income tax benefit of $3.0 million primarily related to the favorable settlement of a prior year tax matter in Germany, with $1.5 million recognized as a current cash tax benefit and $1.5 million recognized as a non-cash deferred income tax benefit related to an increase to its German net operating loss carryforward. In addition, Kronos recognized a non-cash deferred income tax expense of $5.5 million primarily related to the revaluation of its net deferred income tax asset in Germany resulting from a decrease in the German trade tax rate. At December 31, 2019, none of our or Kronos’ U.S. and non-U.S. tax returns were under examination. As a result of prior audits in certain jurisdictions which are now settled, 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 Kronos would agree to execute and finalize such agreements.
| • | During the third quarter of 2017, Kronos’ Canadian subsidiary executed and finalized an Advance Pricing Agreement with the Competent Authority for Canada (the “Canada-Germany APA”) effective for tax years 2005 - 2017. Pursuant to the terms of the Canada-Germany APA, the Canadian and German tax authorities agreed to certain prior year changes to taxable income of its Canadian and German subsidiaries. As a result of such agreed-upon changes, Kronos reversed a significant portion of its reserve for uncertain tax positions and recognized a non-cash income tax benefit of $8.6 million related to such reversal ($8.1 million recognized in the third quarter of 2017). In addition, Kronos recognized a $2.6 million non-cash income tax benefit related to an increase in its German NOLs and a $.6 million German cash tax refund related to the Canada-Germany APA in the third quarter of 2017.
| • | During the first quarter of 2018, Kronos’ German subsidiary executed and finalized the related Advance Pricing Agreement with the Competent Authority for Germany (the “Germany-Canada APA”) effective for tax years 2005 - 2017. In the first quarter of 2018, Kronos recognized a net $1.4 million non-cash income tax benefit related to an APA tax settlement payment between its German and Canadian subsidiaries.

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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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