XML 38 R18.htm IDEA: XBRL DOCUMENT

Income Taxes

12 Months Ended

Dec. 31, 2018

On December 22, 2017, H.R.1, commonly referred to as the Tax Cuts and Jobs Act (Tax Act) was enacted into law in the United States. This new tax legislation represents one of the most significant overhauls to the U.S. federal tax code since 1986. The Tax Act lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. The Tax Act also includes numerous provisions, including, but not limited to, (1) imposing a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that had not been previously taxed in the U.S.; (2) creating a new provision designed to tax global intangible low-tax income (GILTI); (3) generally eliminating U.S. federal taxes on dividends from foreign subsidiaries; (4) eliminating the corporate alternative minimum tax (AMT); (5) creating the base erosion anti-abuse tax (BEAT); (6) establishing the deduction for foreign derived intangible income (FDII); (7) repealing the domestic production activity deduction; and (8) establishing new limitations on deductible interest expense and certain executive compensation.

On December 22, 2017, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 118 (SAB 118) which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company's accounting for certain income tax effects of the Tax Act is incomplete but is able to determine a reasonable estimate, it must recognize a provisional estimate in the financial statements. Pursuant to SAB 118, we recognized provisional estimates for the impact of the Tax Act in 2017. This included a one-time tax charge of $30.4 million to remeasure our deferred tax assets as a result of these legislative changes. We have completed our accounting for the Tax Act, and we did not make any material adjustments to these provisional amounts for the year ended December 31, 2018.

The following table summarizes the provision (benefit) for U.S. federal, state, and foreign taxes on income from continuing operations:



	Year Ended December 31,
	2018			2017			2016

	(in thousands)
Current:
Federal	$	(7,695	)	$	7,679		$	20,490
State and local	(362		)	3,841			2,708
Foreign	14,618			12,139			12,586
Total current	6,561			23,659			35,784

Deferred:
Federal	(17,463		)	40,340			10,805
State and local	(4,492		)	(1,144		)	1,160
Foreign	(22,906		)	3,480			(24,815		)
Total deferred	(44,861		)	42,676			(12,850		)

Change in valuation allowance	25,730			7,991			26,640
Total provision (benefit) for income taxes	$	(12,570	)	$	74,326		$	49,574

The change in the valuation allowance does not include the impacts of currency translation adjustments, acquisitions, or significant intercompany transactions.

Our tax provision (benefit) as a percentage of income before tax was 12%, 55%, and 59% for 2018, 2017, and 2016, respectively. Our actual tax rate differed from the 21% or 35% U.S. federal statutory tax rate due to various items. A reconciliation of income taxes at the U.S. federal statutory rate of 21% for 2018 and 35% for 2017 and 2016 to the consolidated actual tax rate is as follows:



	Year Ended December 31,
	2018			2017			2016

	(in thousands)
Income (loss) before income taxes
Domestic	$	(50,463	)	$	220,342		$	196,750
Foreign	(58,688		)	(85,767		)	(112,123		)
Total income before income taxes	$	(109,151	)	$	134,575		$	84,627

Expected federal income tax provision	$	(22,922	)	$	47,101		$	29,619
Change in valuation allowance	25,730			7,991			26,640
Stock-based compensation	(104		)	(1,225		)	2,762
Foreign earnings	(15,799		)	(22,045		)	(12,584		)
Tax credits	(10,502		)	(777		)	(7,471		)
Uncertain tax positions, including interest and penalties	7,727			(7,637		)	3,817
Change in tax rates	335			41,125			67
State income tax provision (benefit), net of federal effect	(4,524		)	4,986			2,806
U.S. tax provision on foreign earnings	25			33			997
Domestic production activities deduction	—			(2,534		)	(2,424		)
Local foreign taxes	2,540			2,324			2,914
Transaction costs	974			2,643			—
Other, net	3,950			2,341			2,431
Total provision (benefit) from income taxes	$	(12,570	)	$	74,326		$	49,574

Change in tax rates line above includes the deferred tax impact of material rate changes in 2017 to the U.S., France, and Luxembourg, among others.

Deferred tax assets and liabilities consist of the following:



	At December 31,
	2018			2017

	(in thousands)
Deferred tax assets
Loss carryforwards⁽¹⁾	$	370,120		$	218,420
Tax credits⁽²⁾	94,359			58,616
Accrued expenses	43,213			23,752
Pension plan benefits expense	18,086			18,262
Warranty reserves	13,470			11,170
Depreciation and amortization	5,709			5,736
Equity compensation	5,390			5,352
Inventory valuation	1,415			2,554
Deferred revenue	9,062			2,431
Other deferred tax assets, net	11,319			16,606
Total deferred tax assets	572,143			362,899
Valuation allowance	(323,822		)	(285,784		)
Total deferred tax assets, net of valuation allowance	248,321			77,115

Deferred tax liabilities
Depreciation and amortization	(178,358		)	(23,135		)
Tax effect of accumulated translation	—			(303		)
Other deferred tax liabilities, net	(6,676		)	(5,231		)
Total deferred tax liabilities	(185,034		)	(28,669		)
Net deferred tax assets	$	63,287		$	48,446

⁽¹⁾

For tax return purposes at December 31, 2018, we had U.S. federal loss carryforwards of $350.7 million which begin to expire in the year 2019. At December 31, 2018, we have net operating loss carryforwards in Luxembourg of $936.7 million, the majority of which can be carried forward indefinitely, offset by a full valuation allowance. The remaining portion of the loss carryforwards are composed primarily of losses in various other state and foreign jurisdictions. The majority of these losses can be carried forward indefinitely. At December 31, 2018, there was a valuation allowance of $323.8 million primarily associated with foreign loss carryforwards and foreign tax credit carryforwards (discussed below).


⁽²⁾	For tax return purposes at December 31, 2018, we had: (1) U.S. general business credits of $31.2 million, which begin to expire in 2022; (2) U.S. alternative minimum tax credits of $1.6 million that can be carried forward indefinitely; (3) U.S. foreign tax credits of $50.4 million, which begin to expire in 2024; and (4) state tax credits of $35.1 million, which begin to expire in 2019.

Changes in the valuation allowance for deferred tax assets are summarized as follows:



Description	Balance at Beginning of Period		Other Adjustments			Additions Charged to Costs and Expenses		Balance at End of Period, Noncurrent

	(in thousands)
Year ended December 31, 2018:
Deferred tax assets valuation allowance	$	285,784	$	12,308		$	25,730	$	323,822
Year ended December 31, 2017:
Deferred tax assets valuation allowance	$	249,560	$	28,233		$	7,991	$	285,784
Year ended December 31, 2016:
Deferred tax assets valuation allowance	$	235,339	$	(12,419	)	$	26,640	$	249,560

We recognize valuation allowances to reduce deferred tax assets to the extent we believe it is more likely than not that a portion of such assets will not be realized. In making such determinations, we consider all available favorable and unfavorable evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and our ability to carry back losses to prior years. We are required to make assumptions and judgments about potential outcomes that lie outside management's control. Our most sensitive and critical factors are the projection, source, and character of future taxable income. Although realization is not assured, management believes it is more likely than not that deferred tax assets, net of valuation allowance, will be realized. The amount of deferred tax assets considered realizable, however, could be reduced in the near term

if estimates of future taxable income during the carryforward periods are reduced or current tax planning strategies are not implemented.

We do not provide U.S. deferred taxes on temporary differences related to our foreign investments that are considered permanent in duration. These temporary differences include undistributed foreign earnings of $5.1 million and $5.2 million at December 31, 2018 and 2017, respectively. Foreign taxes have been provided on these undistributed foreign earnings. As a result of recent changes in U.S. tax legislation, any repatriation of these earnings would not result in additional U.S. federal income tax.

We are subject to income tax in the United States and numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The provision for income taxes includes the impact of reserve positions and changes to reserves that are considered appropriate.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	Total
	(in thousands)
Unrecognized tax benefits at January 1, 2016	$	54,880
Gross increase to positions in prior years	1,164
Gross decrease to positions in prior years	(612		)
Gross increases to current period tax positions	5,071
Audit settlements	(1,116		)
Decrease related to lapsing of statute of limitations	(860		)
Effect of change in exchange rates	(901		)
Unrecognized tax benefits at December 31, 2016	$	57,626

Gross increase to positions in prior years	3,367
Gross decrease to positions in prior years	(5,559		)
Gross increases to current period tax positions	6,453
Audit settlements	(5,169		)
Decrease related to lapsing of statute of limitations	(3,445		)
Effect of change in exchange rates	3,429
Unrecognized tax benefits at December 31, 2017	$	56,702

Gross increase to positions in prior years	22,943
Gross decrease to positions in prior years	(24,949		)
Gross increases to current period tax positions	63,869
Audit settlements	(2,977		)
Decrease related to lapsing of statute of limitations	(1,368		)
Effect of change in exchange rates	(1,662		)
Unrecognized tax benefits at December 31, 2018	$	112,558



	At December 31,
	2018		2017		2016

	(in thousands)
The amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate	$	111,224	$	55,312	$	56,411

If certain unrecognized tax benefits are recognized they would create additional deferred tax assets. These assets would require a full valuation allowance in certain locations based upon present circumstances.

We classify interest expense and penalties related to unrecognized tax benefits and interest income on tax overpayments as components of income tax expense. The net interest and penalties expense recognized is as follows:



	Year Ended December 31,
	2018			2017			2016

	(in thousands)
Net interest and penalties expense (benefit)	$	(990	)	$	(543	)	$	193



	At December 31,
	2018		2017

	(in thousands)
Accrued interest	$	2,127	$	2,706
Accrued penalties	1,758		2,426

At December 31, 2018, we are under examination by certain tax authorities for the 2010 to 2017 tax years. The material jurisdictions where we are subject to examination for the 2010 to 2017 tax years include, among others, the U.S., France, Germany, Italy, Brazil and the United Kingdom. During December 2018 we settled our tax audit with the Internal Revenue Service for the 2014-2015 years and we settled our tax audit with Germany for the 2011-2013 years. We believe we have appropriately accrued for the expected outcome of all tax matters and do not currently anticipate that the ultimate resolution of these examinations will have a material adverse effect on our financial condition, future results of operations, or cash flows.

Based upon the timing and outcome of examinations, litigation, the impact of legislative, regulatory, and judicial developments, and the impact of these items on the statute of limitations, it is reasonably possible that the related unrecognized tax benefits could change from those recognized within the next twelve months. However, at this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.

We file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. We are subject to income tax examination by tax authorities in our major tax jurisdictions as follows:



Tax Jurisdiction		Years Subject to Audit
U.S. federal		Subsequent to 2001
France		Subsequent to 2012
Germany		Subsequent to 2013
Brazil		Subsequent to 2012
United Kingdom		Subsequent to 2013
Italy		Subsequent to 2013