Income Taxes

12 Months Ended

Dec. 31, 2019

Components of income (loss) from continuing operations before income taxes and noncontrolling shareholders’ interests were as follows:



	2019			2018		2017
United States	$	(4,720	)	$	108,838	$	211,225
Foreign	114,392			5,220		32,700
Total	$	109,672		$	114,058	$	243,925

The provision (benefit) for income tax for continuing operations consisted of the following:



	2019			2018			2017
Current:
Federal	$	2,659		$	56		$	69,463
State and local	5,386			5,350			6,304
Foreign	9,733			7,214			9,842
	17,778			12,620			85,609
Deferred:
Federal	1,356			18,293			48,866
State and local	(4,027		)	3,266			4,915
Foreign	(3,752		)	(684		)	7,790
	(6,423		)	20,875			61,571
	$	11,355		$	33,495		$	147,180

On December 22, 2017, the U.S. enacted comprehensive tax legislation ("Tax Act"), which made broad and complex changes to the tax code. In conjunction with guidance set forth under SAB 118 pertaining to the Tax Act, the Company recorded provisional amounts both for the impact of remeasurement on its U.S. deferred tax assets to the new U.S. statutory rate of 21 percent and for the mandatory Transition Tax on unrepatriated foreign earnings. During the year ended December 31, 2018, the Company concluded its accounting under the Tax Act and updated its SAB 118 provisional estimates with respect to remeasurement of U.S. deferred tax assets and the Transition Tax on unrepatriated foreign earnings and recorded a tax benefit of $3,576 and tax expense of $5,026, respectively. During the year ended December 31, 2019, final Transition Tax regulations were issued resulting in the Company recording an additional Transition Tax liability of $1,661. The Company's outstanding Transition Tax payable as a result of the enactment of the Tax Act, subsequent SAB 118 revisions, and adjustments related to the final regulations was $20,434 and $18,773 at December 31, 2019 and 2018, respectively.

The Tax Act also subjects a U.S. parent shareholder to current tax on its global intangible low-taxed income ("GILTI"). At December 31, 2017, a provisional estimate under SAB 118 could not be made and the Company had not yet elected an accounting policy to either recognize deferred taxes for basis differences expected to reverse as GILTI or to record GILTI as a period cost when incurred. For the year ended December 31, 2018, the Company determined that its accounting policy is to record GILTI as a period cost only in the period it is incurred. For the years ended December 31, 2019 and 2018, the Company recognized additional tax expense associated with GILTI, exclusive of GILTI foreign tax credits, which is reflected in the rate reconciliation below.

Prior to enactment of the Tax Act, the Company did not recognize a deferred tax liability related to the U.S. federal and state income taxes and foreign withholding taxes on unremitted foreign earnings because it overcame the presumption of the repatriation of those earnings. Upon enactment of the Tax Act, the Transition Tax was recorded based on approximately $495 million of unremitted foreign earnings. During 2018 and 2019, the Company re-evaluated its position on potential earnings repatriation and has concluded that repatriation implications of the Tax Act had no impact on its indefinite reinvestment assertion. As such, no change has been made with respect to the Company's indefinite reinvestment assertion for the year ended December 31, 2019 and foreign income, foreign withholding, and state income tax liabilities have not been recorded on approximately $727 million of undistributed foreign earnings. Determination of the amount of any deferred income or withholding tax liability on these earnings is not practicable because of the complexities of the hypothetical calculation.

During the year ended December 31, 2019, the Company's rate was primarily driven by a change in the mix of earnings between the U.S. and non-U.S. jurisdictions compared to 2018 and 2017. The change in the mix of earnings resulted from a business realignment strategy executed during 2019, as further described in Note 2, to improve the Company's market share for its European light vehicle tire business. The resulting tax effects are reflected as the difference in effective tax rates of international operations in the rate reconciliation below.

The Company's Serbian operations are benefiting from a ten-year tax holiday that is based largely on historical investments in property, plant, and equipment which has the impact of reducing the effective tax rate in Serbia to approximately 1.5%. The Company utilized remaining loss carryforwards during 2019 and recognized a tax holiday benefit of $15,030 inclusive of the impact of the business realignment strategy. The tax holiday will expire in 2026.

A reconciliation of income tax expense (benefit) for continuing operations to the tax based on the U.S. statutory rate is as follows:



	2019			2018			2017
Income tax provision at 35 percent	$	—		$	—		$	85,375
Income tax provision at 21 percent	23,031			23,952			—
Difference in effective tax rates of international operations	(21,399		)	(1,124		)	(4,667		)
State and local income tax, net of federal income tax effect	(2,366		)	2,983			7,867
Net U.S. GILTI inclusion	8,419			1,455			—
Valuation allowance	6,306			(2,433		)	11,593
Income tax contingencies, net of federal income tax effect	4,246			1,263			(551		)
Domestic manufacturing deduction	—			—			(2,940		)
U.S. tax credits	(6,292		)	(4,401		)	(2,474		)
Goodwill impairment	—			8,432			—
Mexico inflationary deferred tax adjustments	(1,790		)	259			(1,383		)
U.S. tax reform - transition tax	1,661			5,026			35,378
U.S. tax reform - remeasurement of deferred taxes	—			(3,576		)	20,413
Other - net	(461		)	1,659			(1,431		)
Provision for income taxes	$	11,355		$	33,495		$	147,180

Payments for income taxes in 2019, 2018 and 2017, net of refunds, were $10,244, $19,763 and $67,782, respectively.

Deferred tax assets and liabilities result from differences in the basis of assets and liabilities for tax and financial reporting purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31 were as follows:



	2019			2018
Deferred tax assets:
Postretirement and other employee benefits	$	94,581		$	97,269
Product liability	30,791			27,922
Net operating loss, capital loss, and tax credit carryforwards	14,291			11,064
All other items	37,296			29,375
Total deferred tax assets	176,959			165,630
Deferred tax liabilities:
Property, plant and equipment	(117,148		)	(108,668		)
All other items	(6,141		)	(6,196		)
Total deferred tax liabilities	(123,289		)	(114,864		)
	53,670			50,766
Valuation allowances	(27,270		)	(22,620		)
Net deferred tax asset	$	26,400		$	28,146

At December 31, 2019, the Company has gross U.S. federal and foreign tax losses available for carryforward of $6,560 and $76,748, respectively. U.S. federal and foreign tax attributes will expire from 2020 through 2026. For these jurisdictions, valuation allowances have been recorded against those attributes for which, based upon an assessment, it is more likely than not that some portion may not be realized.

The Company considers, on a quarterly basis, all available positive and negative evidence in assessing whether it is more likely than not that some portion or all of its deferred tax assets are realizable. The Company considers the historical and projected financial results of the tax paying component recording the deferred tax asset as well as all other positive and negative evidence including cumulative losses in recent years, a history of potential tax benefits expiring unused and whether a period of

sustainable earnings has been demonstrated. During the year ended December 31, 2019, the Company has assessed all available positive and negative evidence and, based on the weight of significant negative evidence, including cumulative losses, the Company has maintained valuation allowances totaling $27,270 against deferred tax assets primarily in China and the U.K.

The Company applies the rules under ASC 740-10 in its Accounting for Uncertainty in Income Taxes for uncertain tax positions using a “more likely than not” recognition threshold. Pursuant to these rules, the Company will initially recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits of the tax position, that such a position will be sustained upon examination by the relevant tax authorities. If the tax benefit meets the “more likely than not” threshold, the measurement of the tax benefit will be based on the Company’s estimate of the largest amount that meets the more likely than not recognition threshold. The Company’s unrecognized tax benefits, exclusive of interest, totaled approximately $9,934 at December 31, 2019, as itemized in the tabular roll forward below. The unrecognized tax benefits at December 31, 2019 relate to uncertain tax positions in tax years 2012 through 2017. Based upon the outcome of tax examinations, judicial proceedings, or expiration of statutes of limitations, it is reasonably possible that the ultimate resolution of these unrecognized tax benefits may result in a payment that is materially different from the current estimate of the tax liabilities.



	Unrecognized Tax Benefits
Balance at December 31, 2016	$	3,197
Settlements for tax positions of prior years	(139		)
Additions for tax positions of current year	47
Additions for tax positions of prior years	438
Statute lapses	(1,260		)
Balance at December 31, 2017	2,283
Settlements for tax positions of prior years	(364		)
Additions for tax positions of the current year	2,555
Additions for tax positions of prior years	2,881
Statute lapses	(830		)
Balance at December 31, 2018	6,525
Settlements for tax positions of prior years	(1,567		)
Additions for tax positions of the prior year	5,644
Statute lapses	(668		)
Balance at December 31, 2019	$	9,934

Of this amount, the effective rate would change upon the recognition of approximately $8,468 of these unrecognized tax benefits, net of federal income tax effect. The Company recorded, through the tax provision, approximately $1,262 of net interest expense for 2019, and immaterial amounts of benefit on interest reductions for 2018 and 2017. At December 31, 2019, the Company has $1,353 of interest accrued as an ASC 740-10 reserve.

The Company operates in multiple jurisdictions throughout the world. The Company has effectively settled U.S. federal tax examinations for tax years before 2016 and state and local examinations for tax years before 2014, with limited exceptions. Furthermore, the Company’s non-U.S. subsidiaries are generally no longer subject to income tax examinations in major foreign taxing jurisdictions for tax years prior to 2014. Income tax returns of certain of our subsidiaries in various jurisdictions are currently under examination and it is possible that these examinations could conclude within the next twelve months; however, the Company does not anticipate any significant increases or decreases in its total amount of unrecognized tax benefits within that period.