INCOME TAXES

12 Months Ended

Dec. 31, 2019

The source of earnings before income taxes consisted of the following (in millions):



	2019		2018		2017
U.S. operations	$	50.9	$	67.3	$	62.6
Foreign operations	40.0		30.9		16.0
Total	$	90.9	$	98.2	$	78.6

Income tax expense (benefit) is comprised of the following (in millions):



	2019			2018			2017
Current:
Federal	$	8.5		$	4.3		$	11.7
State	5.3			2.1			2.4
Foreign	10.9			13.7			3.9
Total current	$	24.7		$	20.1		$	18.0
Deferred:
Federal	(0.7		)	6.3			(20.6		)
State	(0.4		)	0.9			2.5
Foreign	(0.2		)	(2.4		)	(1.5		)
Total deferred	(1.3		)	4.8			(19.6		)
Income tax expense (benefit)	$	23.4		$	24.9		$	(1.6	)

The Tax Cuts and Jobs Act of 2017 (the “Tax Act”), as enacted December 22, 2017, significantly revised U.S. tax law. The law included significant changes to the U.S. corporate income tax system, including a Federal corporate rate reduction from 35% to 21%, limitations on the deductibility of interest expense and executive compensation, and the transition of U.S. international taxation from a worldwide tax system to a territorial tax system.

During the fourth quarter of 2017, the Company recorded an estimated tax benefit derived from the enactment of the Tax Act of $26.6 million, which primarily related to the remeasurement of the Company's net deferred tax liabilities in the U.S. and the one-time transition tax on deemed repatriation of foreign earnings. During 2018, the Company completed its accounting for the provisional amounts recognized in December 2017 and recorded an additional tax benefit of $1.7 million related to the rate differential on the deferred provision to return.

The following table sets forth the tax effects of temporary differences that give rise to the Company's deferred tax assets and liabilities (in millions):



	December 31, 2019			December 31, 2018
Deferred tax assets
Accounts receivable, principally due to allowance for doubtful accounts	$	1.4		$	—
Inventories	5.9			5.9
NOL carryforwards	5.0			6.9
Accrued pension	5.8			2.1
Stock-based compensation	4.8			3.7
Compensation-related accruals	1.2			0.7
Warranty	2.7			2.1
OPEB obligation	1.0			0.9
Accrued liabilities and other items	8.3			8.4
Gross deferred tax assets	$	36.1		$	30.7
Valuation allowance	(4.3		)	(4.8		)
Net deferred tax assets	31.8			25.9
Deferred tax liabilities:
Intangibles	(92.3		)	(85.6		)
Plant and equipment	(24.5		)	(26.8		)
Gross deferred tax liabilities	(116.8		)	(112.4		)
Net deferred tax liabilities	$	(85.0	)	$	(86.5	)

As of December 31, 2019, the Company had NOL carryforwards of approximately $18.7 million between the United Kingdom ("U.K."), Germany and Brazil. These NOL carryforwards do not expire. The Company regularly evaluates positive and negative evidence as it relates to realizability of deferred tax assets in each jurisdiction. During 2017, the Company determined that the valuation allowance placed against the deferred tax asset associated with the UK NOL should be reversed, as a history of positive earnings and anticipated future taxable income supported the conclusion that it is more likely than not that the related tax benefit will be realized. This reversal resulted in the recognition of an income tax benefit of $2.6 million. The Company still provides valuation allowances against the deferred tax assets associated with the NOL carryovers from operations in Germany and Brazil due to the uncertainty of their realization, either in whole or in part.

The following table summarizes the activity related to the Company's deferred tax asset valuation allowance and the changes therein during the periods presented (in millions):



	Balance at Beginning of Year		Releases (tax benefit recognized) ⁽¹⁾			Other⁽²⁾			Balance at End of Year
Year ended December 31, 2017	$	6.2	$	(2.6	)	$	1.2		$	4.8
Year ended December 31, 2018	4.8		—			—			4.8
Year ended December 31, 2019	4.8		(0.2		)	(0.3		)	4.3


(1)	During 2017, the valuation allowance related to the NOL carryover from operations in the UK was fully released. During 2019, the valuation allowance related to the NOL carryover from operations in Germany was partially released.


(2)	Primarily foreign exchange impact

The following table sets forth a reconciliation of the statutory federal income tax rate to the effective income tax rate:



	2019		2018		2017
Federal statutory tax rate	21.0	%	21.0	%	35.0	%
Increase (decrease) in the tax rate resulting from:
State taxes, net of federal effect	4.2	%	2.4	%	5.2	%
Foreign operations, net ⁽¹⁾	2.5	%	0.7	%	(0.9	)%
Research and development tax credits	(1.1	)%	(1.1	)%	(1.3	)%
Tax Act ⁽²⁾	—	%	(3.2	)%	(33.9	)%
Return to provision adjustments	(3.7	)%	1.1	%	(0.5	)%
Change in valuation allowance against deferred tax assets	(0.3	)%	—	%	(3.3	)%
Other	3.2	%	4.5	%	(2.3	)%
Effective tax rate	25.8	%	25.4	%	(2.0	)%

(1)

Includes the tax effects of income tax rate differentials, deductions and credits applicable to the operations of the Company's foreign subsidiaries. Certain provisions of the Tax Act were newly effective for the Company in 2019, including provisions related to inclusions of foreign-sourced earnings in excess of an allowable return on foreign subsidiaries' tangible assets. These provisions are designed to tax global intangible low-taxed income ("GILTI"). The Company has elected to account for any GILTI tax in the period in which it is incurred.


(2)	Primarily attributable to the impact of the remeasurement of domestic net deferred tax liabilities (at the lower statutory rate of 21.0%) and the one-time transition tax on unremitted foreign earnings (See Note 2).

As of December 31, 2019, to the extent the Company’s earnings attributable to its foreign subsidiaries are not considered permanently reinvested, a deferred tax liability for the tax consequences of remitting the accumulated earnings has been provided in the financial statements.

The following table presents a reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the periods presented (in millions):



	2019			2018			2017
Balance, beginning of the year	$	0.9		$	0.9		$	0.9
Additions for tax position related to the current year	—			0.1			0.1
Lapse of statute of limitations	(0.1		)	(0.1		)	(0.1		)
Balance, end of the year	$	0.8		$	0.9		$	0.9

All of the unrecognized tax benefits as of December 31, 2019, if recognized, would affect the Company's effective tax rate. The amounts of income tax-related interest and penalties recognized in the Consolidated Statements of Operations were not significant for the years ended December 31, 2019 and 2018, and 2017. There were no amounts accrued for the payment of income tax-related interest and penalties in the Consolidated Balance Sheets as of December 31, 2019 and 2018.

As of December 31, 2019, the Company is subject to U.S. Federal Income Tax examination for the tax years 2016 through 2019, and to non-U.S. income tax examination for the tax years 2012 to 2019. In addition, the Company is subject to state and local income tax examinations for the tax years 2015 through 2019.