Income Taxes

12 Months Ended

Dec. 31, 2019

Note 12 — INCOME TAXES

Income from continuing operations, before income taxes is summarized below based on the geographic location of the operation to which such earnings are attributable.

Income from continuing operations, before income taxes consists of the following:


(In millions)	2019		2018		2017
Domestic	$	41.2	$	4.1	$	18.0
Foreign	68.2		97.7		93.9
Income from continuing operations, before income taxes	$	109.4	$	101.8	$	111.9

A summary of income tax expense from continuing operations is as follows:


(In millions)	2019		2018		2017
Current income tax expense (benefit):
Domestic - GILTI, FDII, and U.S. tax reform transition tax	$	0.1	$	5.0	$	19.9
Domestic - other	24.7		(5.4)		(41.4)
Foreign	21.9		22.0		23.9
Total current income tax expense	$	46.7	$	21.6	$	2.4
Deferred income tax (benefit) expense:
Domestic - U.S. tax reform, tax effect on net deferred tax liabilities	$	—	$	(6.8)	$	(20.1)
Domestic - other	(12.5)		17.9		26.4
Foreign	(0.5)		(18.3)		(7.9)
Total deferred income tax (benefit) expense	$	(13.0)	$	(7.2)	$	(1.6)
Total income tax expense	$	33.7	$	14.4	$	0.8

The Tax Cuts and Jobs Act (TCJA) was enacted on December 22, 2017. Among other things, effective in 2018, the TCJA reduced the US federal corporate tax rate from 35% to 21%, exempts from U.S. federal income taxation dividends from certain foreign corporations to their U.S. shareholders, eliminates or reduces the effect of various federal tax deductions and creates new taxes on certain outbound payments and future foreign earnings generated after 2017. The TCJA required U.S. companies to pay a one-time transition tax on earnings of foreign corporate subsidiaries that were at least ten-percent owned by such U.S. companies and that were previously deferred from U.S. taxation.

As of December 31, 2018, we completed our accounting for the tax effects of the enactment of the TCJA. In compliance with the one-year measurement period of the SEC's Staff Accounting Bulletin 118 (SAB 118) (issued December 22, 2017), we have finalized the effects of the TCJA on our existing deferred income tax balances, the one-time transition tax and, as discussed below, the impact the TCJA had on our indefinite reinvestment assertion pursuant to Accounting Principles Board 23 (APB 23). These finalized effects are included as components of income tax expense from continuing operations and are noted in the following tabular reconciliation.

As of December 31, 2018, we completed our analysis with respect to the impact of the TCJA on our continuing assertion that our foreign earnings are indefinitely reinvested pursuant to APB 23 of Accounting Standards Codification 740-30 (ASC 740-30). APB 23 provides guidance that US companies do not need to recognize tax effects on foreign earnings that are indefinitely reinvested. Our assertion has changed with respect to certain earnings of foreign affiliates in certain countries, which resulted in a recognition of tax liabilities. As of December 31, 2018, and noted in the following tabular reconciliation, Repatriation of certain foreign earnings from prior and current periods line totaled 9.4%. This consisted of an impact of 7.5% to our provision from a decision to repatriate prior year earnings after completing our analysis with respect to the TCJA and 1.9% pertaining to our decision to repatriate certain current year earnings. For the year ended December 31, 2019, the rate impact was 1.6% pertaining to our decision to repatriate certain current year earnings. The rest of our foreign earnings are indefinitely reinvested pursuant to APB 23 and our policy. No deferred income taxes were recorded on outside basis differences as it was not practicable to determine the provision impact, if any, due to the complexities associated with this calculation.

We elected to recognize the resulting tax on GILTI and FDII as a period expense in the period the tax is incurred.

A reconciliation of the applicable U.S. federal statutory tax rate to the consolidated effective income tax rate from continuing operations along with a description of significant or unusual reconciling items is included below.


	Twelve Months Ended December 31,
	2019		2018		2017
Federal statutory income tax rate	21.0	%	21.0	%	35.0	%

Foreign tax rate differential:
Asia	0.7		0.4		(2.2)
Europe	(10.3)		(11.6)		(16.2)
Canada and Mexico	0.7		(0.9)		(1.6)
Total foreign tax rate differential	(8.9)		(12.1)		(20.0)

Tax on GILTI	1.9		3.3		—
Repatriation on certain foreign earnings from prior and current periods	1.6		9.4		0.8
Net impact of non-deductible acquisition earnouts	2.8		0.2		—
Tax on one-time gain from sale of other assets	6.0		—		—
U.S. tax reform, transition tax	0.2		2.1		17.8
U.S. tax reform, tax effect on net deferred tax liabilities	—		(5.4)		(18.0)
Tax impact of FDII deduction	(2.0)		(0.4)		—
Research and development credit	(2.8)		(0.8)		(1.4)
Domestic production activities deduction	—		(1.1)		(2.4)
Amended prior period tax returns and corresponding favorable audit adjustments	(0.7)		—		(6.8)
Tax benefits on certain foreign investments	—		—		(12.8)
State and local tax, net	4.2		2.3		0.2
Foreign permanent items	7.5		(1.6)		2.4
Net impact of uncertain tax positions	(2.4)		(0.6)		4.8
Changes in valuation allowances	1.7		(3.4)		1.4
Other	0.7		1.2		(0.3)
Effective income tax rate	30.8	%	14.1	%	0.7	%

The effective tax rates for all periods differed from the applicable U.S. federal statutory tax rate as a result of permanent items, state and local income taxes, differences in foreign tax rates and certain unusual items. Permanent items primarily consist of income or expense not taxable or deductible. Significant or unusual items impacting the effective income tax rate are described below.

2019 Significant items

The State and local tax, net line included the result from an unfavorable state tax audit decision combined with higher domestic earnings in 2019.

Foreign permanent items line included the tax effect of non-deductibility of interest expense related to the receipt of tax-exempt dividends, which caused an unfavorable tax effect of $10.3 million (9.4%) partially offset by the tax impact of other net favorable permanent items of $2.0 million (1.9%).

Net impact of uncertain tax positions line resulted from the expiration of statute of limitations and favorable tax settlements.

Changes in valuation allowances line in 2019 resulted from foreign operational losses.

2018 Significant items

Repatriation of certain foreign earnings from prior and current periods line had an unfavorable tax impact of $10.3 million (9.4%). This consisted of an impact of 7.5% to our provision from a decision to repatriate prior year earnings after completing our analysis with respect to the TCJA and 1.9% pertaining to our decision to repatriate certain current year earnings.

State and local tax, net line was unfavorably impacted by a state tax audit decision.

Foreign permanent items line included a favorable tax treatment of a foreign intellectual property transaction.

The benefit reflected in the Changes in valuation allowances line resulted from the realizability of a deferred tax asset for one of our foreign entities.

2017 Significant items

The Foreign tax rate differential line item primarily related to a European legal entity realignment.

Tax benefits on certain foreign investments was a result of distributions from foreign subsidiaries with net foreign tax credits.

Components of our deferred tax assets (liabilities) as of December 31, 2019 and 2018 were as follows:


(In millions)	2019		2018
Deferred tax assets:
Pension and other post-retirement benefits	$	2.7	$	7.6
Employment costs	20.5		20.1
Environmental reserves	27.9		28.2
Net operating loss carryforwards	45.3		48.8
Operating leases	18.0		—
Other, net	42.4		39.8
Gross deferred tax assets	$	156.8	$	144.5
Valuation allowances	(16.2)		(15.2)
Total deferred tax assets, net of valuation allowances	$	140.6	$	129.3

Deferred tax liabilities:
Property, plant and equipment	$	(25.9)	$	(33.9)
Goodwill and intangibles	(95.1)		(101.5)
Operating leases	(18.0)		—
Other, net	(14.2)		(14.2)
Total deferred tax liablities	$	(153.2)	$	(149.6)

Net deferred tax (liabilities) assets	$	(12.6)	$	(20.3)

Consolidated Balance Sheets:
Non-current deferred income tax assets	$	50.9	$	48.8
Non-current deferred income tax liabilities	$	(63.5)	$	(69.1)

As of December 31, 2019, we had gross state net operating loss carryforwards of $32.5 million that expire between 2020 and 2038. Various foreign subsidiaries have gross net operating loss carryforwards totaling $155.6 million that expire between 2020 and 2036 or that have indefinite carryforward periods. Total tax valuation allowances increased $1.0 million from the prior year primarily due to additional losses from certain foreign entities. We have provided valuation allowances of $14.3 million against certain foreign and state net operating loss carryforwards that are expected to expire prior to utilization.

We decided to repatriate certain current year foreign earnings which we expect to receive in 2020 for which the provision impact was 1.6% in the current year and 9.4% in 2018, included in the tabular rate reconciliation above. The balance of the related accrual is included in the above Other, net deferred tax liabilities line ($6.7 million and $8.2 million, respectively) above. As of December 31, 2019, no provision has been made for income taxes on the undistributed earnings of certain non-U.S. subsidiaries of approximately $395 million as these amounts continue to be indefinitely reinvested as consistent with our policy.

We made worldwide income tax payments of $45.7 million and received refunds of $20.0 million in 2019. We made worldwide income tax payments of $40.5 million and $51.1 million in 2018 and 2017, respectively, and received refunds of $29.9 million and $6.7 million in 2018 and 2017, respectively.

The Company records provisions for uncertain tax positions in accordance with ASC Topic 740, Income Taxes. A reconciliation of unrecognized tax benefits is as follows:


	Unrecognized Tax Benefits
(In millions)	2019		2018		2017
Balance as of January 1,	$	16.4	$	17.8	$	7.1
Increases as a result of positions taken during current year	1.1		1.3		9.2
Increases as a result of positions taken for prior years	0.4		1.1		1.8

Reductions for tax positions of prior years	(0.7)		(2.6)		(0.3)
Decreases as a result of lapse of statute of limitations	(5.0)		(0.2)		—
Decreases relating to settlements with taxing authorities	—		(0.5)		—
Other, net	(1.0)		(0.5)		—
Balance as of December 31,	$	11.2	$	16.4	$	17.8

We recognize interest and penalties related to uncertain tax positions in the provision for income taxes. As of December 31, 2019 and 2018, we had $1.4 million and $2.5 million accrued for interest and penalties, respectively.

Although the timing and outcome of tax settlements are uncertain, it is reasonably possible that during the next twelve months a reduction in unrecognized tax benefits may occur up to $0.2 million based on the outcome of tax examinations and the expiration of statutes of limitations.

If all unrecognized tax benefits were recognized, the net impact on the provision for income tax expense would be a benefit of $4.9 million.

The Company is currently being audited by federal, state and foreign taxing jurisdictions. We are no longer subject to U.S. federal income tax examinations for periods preceding 2016. With limited exceptions, we are no longer subject to state tax and foreign tax examinations for periods preceding 2015.

For the income tax impact associated with PP&S and DSS, refer to Note 3, Discontinued Operations.