NOTE 9—INCOME TAXES

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was enacted.  Among the significant changes to the U.S. Internal Revenue Code, the Tax Act reduced the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018 and created a new dividend-exemption territorial system with a one-time transition tax on foreign earnings which were previously not taxed in the U.S. 

In December 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which addresses how a company recognizes provisional amounts when a company does not have all the necessary information available in reasonable detail to complete its accounting for the effect of the changes in the Tax Act. Under SAB 118, a company recognizes provisional amounts for income tax effects of the Tax Act for which the accounting is incomplete but a reasonable estimate can be determined. The measurement period for adjusting provisional amounts ends when a company has analyzed the information necessary to finalize its accounting, but cannot extend beyond one year.

We have determined a reasonable estimate for the re-measurement of our deferred tax assets and liabilities as of December 31, 2017 due to the reduction in the corporate tax rate.  The provisional amount recorded for this re-measurement is a $57 million tax benefit.  We have also recorded a reasonable estimate of the transition tax on undistributed foreign earnings of $7 million.  These provisional estimates are subject to change as additional necessary information becomes available and the final analysis is prepared and analyzed in reasonable detail to complete the accounting. The additional information that needs to be gathered, analyzed and used to complete the accounting for the provisional $7 million transition tax includes the historical earnings and profit information of each foreign subsidiary.  In addition, the finalization of the 2017 federal income tax return will impact the underlying temporary differences existing at the end of 2017 used to determine the provisional tax benefit of $57 million. 

The components of our income (loss) before income taxes were (in millions):





Income taxes included in the consolidated statements of operations consist of (in millions):

 



Our effective tax rate varied from the statutory federal income tax rate for the following reasons (in millions):

 





Significant components of our deferred tax assets and liabilities are as follows (in millions):





We record a valuation allowance when it is more likely than not that some portion or all of our 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 we were to determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.

In the United States, we had approximately $21 million of state net operating loss (“NOL”) carryforwards as of December 31, 2017, which will expire in future years through 2032 and foreign tax credit (“FTC”) carryforwards of $7  million, which will expire in future years through 2028. In certain non-U.S. jurisdictions, we had $172 million of NOL carryforwards, of which $159 million have no expiration and $13 million will expire in future years through 2027.  We believe that it is more likely than not that the benefit from U.S. state NOL and FTC carryforwards and non-U.S. jurisdiction NOL carryforwards will not be realized.  As such, we have recorded full valuation allowance on the deferred tax assets related to these NOL and FTC carryforwards. 

Our tax filings for various periods are subject to audit by the tax authorities in most jurisdictions where we conduct business. We are no longer subject to U.S. federal income tax examination for all years through 2013 and the statute of limitations at our international locations is generally six or seven years. 

As a result of the Tax Act, we intend to repatriate to the U.S. all available unremitted earnings of our foreign subsidiaries that were subject to the transition tax or will otherwise not result in additional income tax expense.  Based on analysis completed to date, this includes the unremitted earnings of our Canadian subsidiaries.  We currently have the intent and ability to indefinitely reinvest the cash held by our non-Canadian foreign subsidiaries and, pending further analysis of the impact of the Tax Act, there are currently no plans for the repatriation of those amounts.  As such, no deferred income taxes have been provided for differences between the financial reporting and income tax basis inherent in these foreign subsidiaries.  Determining the amount associated with these outside basis differences is not practicable at this time.

At December 31, 2017 and 2016, our unrecognized tax benefits were immaterial to our consolidated financial statements.