Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Components of the Company’s (loss) income before income taxes and adjustment for noncontrolling interests were as follows:

	Year Ended December 31,
	2022		2021		2020
Domestic	$	(154,779)	$	(142,883)	$	(235,574)
Foreign	(45,721)		(146,569)		(94,647)
	$	(200,500)	$	(289,452)	$	(330,221)

The Company’s income tax expense (benefit) consists of the following:

	Year Ended December 31,
	2022		2021		2020
Current
Federal	$	(2,280)	$	5,158	$	(65,565)
State	154		68		(196)
Foreign	13,764		(1,590)		13,636
Deferred
Federal	74		12,217		(15,060)
State	106		(484)		1,297
Foreign	5,473		24,023		5,041
	$	17,291	$	39,392	$	(60,847)

A reconciliation of the U.S. statutory federal rate to the income tax provision was as follows:  

	Year Ended December 31,
	2022			2021			2020
Tax at U.S. statutory rate	$	(42,105)		$	(60,785)		$	(69,346)
State and local taxes	(2,700)			(3,276)			(4,933)
Tax credits and incentives	(8,413)			(7,634)			(5,750)
Changes in tax law, other	(17)			(361)			352
U.S. tax reform/Global Intangible Low-Taxed Income ("GILTI")/foreign derived intangible income	1,382			—			(1,046)
Effect of foreign tax rates	(1,614)			(13,525)			(15,432)
Nonrecurring permanent items	(2,189)			(3,710)			(3,069)
CARES Act	—			—			(27,844)
Foreign branch	279			1,641			(1,215)
Stock compensation (ASU 2016-09)	1,258			1,257			1,640
Non deductible expenses	7,192			6,618			9,335
Tax reserves/audit settlements	3,854			(5,043)			1,071
Valuation allowance	65,559			124,228			51,609
Other, net	(5,195)			(18)			3,781
Income tax expense (benefit)	$	17,291		$	39,392		$	(60,847)
Effective income tax rate	(8.6)		%	(13.6)		%	18.4		%

For the year ended December 31, 2022, the Company received $54,273 in cash payments from the United States Internal Revenue Service (“IRS”) for tax refunds related to net operating loss carrybacks.

On August 16, 2022, the U.S. enacted the Inflation Reduction Action of 2022, which, among other things, implements a 15% minimum tax on financial statement income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. Based on its current analysis of the provisions, the Company does not believe this

legislation will have a material impact on its consolidated financial statements, but the Company is continuing to evaluate the implications.

Nonrecurring permanent item in 2022 relates to a withholding tax refund related to prior periods. In 2021, the nonrecurring permanent item relates to an intercompany legal entity sale, and in 2020, nonrecurring permanent items were the result of the divestiture of the Company’s European rubber, fluid transfer, and specialty sealing businesses.

Deferred tax assets and liabilities reflect the estimated tax effect of accumulated temporary differences between the basis of assets and liabilities for tax and financial reporting purposes, as well as net operating losses, tax credit and other carryforwards. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2022 and 2021 were as follows:

	2022		2021
Deferred tax assets:
Pension, postretirement and other benefits	$	40,060	$	40,026
Capitalized expenditures	31,746		12,521
Net operating loss and tax credit carryforwards	279,755		275,222
Operating lease liabilities	24,059		27,934
Interest expense carryforwards	28,610		14,341
All other items	37,392		47,444
Total deferred tax assets	441,622		417,488
Deferred tax liabilities:
Property, plant and equipment	(9,896)		(21,745)
Operating lease right-of-use	(23,106)		(26,863)
All other items	(11,028)		(14,506)
Total deferred tax liabilities	(44,030)		(63,114)
Valuation allowances	(384,792)		(334,983)
Net deferred tax assets	$	12,800	$	19,391

As of December 31, 2022, the Company’s U.S. and foreign subsidiaries, primarily in France, Brazil, Italy and Germany, had operating loss carryforwards aggregating $646,000, with indefinite expiration periods. Other foreign subsidiaries in China, Mexico, Netherlands, Spain, Czech Republic and Korea had operating loss carryforwards aggregating $298,000, with expiration dates beginning in 2023. The Company has research tax credit carryforwards and foreign tax credit carryforwards totaling $44,000 in the U.S. with expiration dates beginning in 2029. The Company and its domestic subsidiaries have anticipated tax benefits of state net operating losses and credit carryforwards of $12,000 with expiration dates beginning in 2023.

As of December 31, 2022, the Company has consolidated deferred tax assets of $441,622 with valuation allowances of $384,792 related to tax losses, credit carryforwards, and other deferred tax assets in the U.S. and certain foreign jurisdictions. The Company’s valuation allowance increased in 2022 primarily from current year losses generated in the U.S. and certain foreign jurisdictions as well as new valuation allowances established during 2022 in Poland. Current and future provision for income taxes is significantly impacted by the initial recognition of and changes in valuation allowances in certain countries. The Company intends to maintain these allowances until it is more likely than not that the deferred tax assets will be realized. In the future, provision for income taxes will include no tax benefit with respect to losses incurred and no tax expense with respect to income generated in these countries until the respective valuation allowance is eliminated.

As of December 31, 2022, no material deferred income taxes have been recorded on the undistributed earnings of foreign subsidiaries, since a majority of these earnings will not be taxable upon repatriation to the United States. These earnings will be primarily treated as previously taxed income from either the one time transition tax or GILTI, or they will be offset with a 100% dividends received deduction. The Company has not recorded a deferred tax liability for foreign withholding taxes or state income taxes that may be incurred upon repatriation in the future as such undistributed foreign earnings are considered permanently reinvested or could be remitted with no tax implications.

As of December 31, 2022, the Company had $5,930 ($6,100 including interest and penalties) of total unrecognized tax benefits, of which $3,753 represents the amount of unrecognized tax benefits that, if recognized, would impact the effective income tax rate.

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

	2022		2021
Balance at beginning of period	$	3,571	$	11,272
Tax positions related to the current period
Gross additions	336		337
Tax positions related to prior years
Gross additions	2,692		10
Gross reductions	(669)		(5,143)
Settlements	—		(2,905)
Balance at end of period	$	5,930	$	3,571

The Company, or one of its subsidiaries, files income tax returns in the United States and other foreign jurisdictions. During the examination of our 2015 and 2016 U.S. federal income tax filings, the IRS asserted that income earned by a Netherlands subsidiary from its Mexican branch operations should be categorized as foreign based company sales income under Section 954(d) of the Internal Revenue Code and should be recognized currently as taxable income on our 2015 and 2016 U.S. federal income tax filings. As a result of this assertion, the IRS issued a Notice of Proposed Adjustment (“NOPA”). The Company believes the proposed adjustment is without merit and we have begun the process of contesting the matter. Currently, our protest for the 2015 and 2016 tax years has been submitted to the IRS’s administrative appeals office. We believe, after consultation with tax and legal counsel, that it is more likely than not that we will ultimately be successful in defending our position. As such, we have not recorded any impact of the IRS’s proposed adjustment in our consolidated financial statements as of and for the year ended December 31, 2022. In the event the Company is not successful in defending its position, the potential income tax expense impact, including interest, related to tax years 2015 through 2022 is less than $15 million. We intend to vigorously contest the conclusions reached in the NOPA through the IRS’s administrative appeals process, and, if necessary, through litigation.

The statute of limitations for U.S. state and local jurisdictions is closed for taxable years ending prior to 2015. The Company’s major foreign jurisdictions are Brazil, Canada, China, France, Germany, Italy, Mexico, and Poland. The Company is no longer subject to income tax examinations in major foreign jurisdictions for years prior to 2017.

During the next twelve months, it is reasonably possible that, as a result of audit settlements and the completion of current examinations, the Company may decrease the amount of its gross unrecognized tax benefits by approximately $3,141, all of which, if recognized, would impact the effective tax rate.

The Company classifies all income tax related interest and penalties as income tax expense. The Company has liabilities of $170 and $710 recorded as of December 31, 2022 and 2021, respectively, for tax related interest and penalties on its consolidated balance sheet.