INCOME TAXES

For the years ended December 31, 2019, 2018 and 2017, our income tax benefit on the loss from continuing operations resulted in an effective tax rate of 1%, 33% and 39%, respectively. Our income tax benefit on continuing operations for the years ended December 31, 2019, 2018 and 2017 was $0.4 million, $31.1 million and $53.1 million, respectively, and includes federal, state and foreign taxes. The components of our tax benefit on continuing operations were as follows (in thousands):



	Current			Deferred			Total
Twelve months ended December 31, 2019:
U.S. Federal	$	(105	)	$	(4,349	)	$	(4,454	)
State & local	519			(1,230		)	(711		)
Foreign jurisdictions	2,340			2,389			4,729
	$	2,754		$	(3,190	)	$	(436	)
Twelve months ended December 31, 2018:
U.S. Federal	$	(3,295	)	$	(27,670	)	$	(30,965	)
State & local	509			(2,360		)	(1,851		)
Foreign jurisdictions	3,457			(1,704		)	1,753
	$	671		$	(31,734	)	$	(31,063	)
Twelve months ended December 31, 2017:
U.S. Federal	$	6,177		$	(62,222	)	$	(56,045	)
State & local	170			(4,819		)	(4,649		)
Foreign jurisdictions	6,821			795			7,616
	$	13,168		$	(66,246	)	$	(53,078	)

The components of pre-tax income (loss) from continuing operations for the years ended December 31, 2019, 2018 and 2017 were as follows (in thousands):



	Twelve Months Ended December 31,
	2019			2018			2017
Domestic	$	(34,720	)	$	(90,822	)	$	(149,045	)
Foreign	1,867			(3,387		)	11,512
	$	(32,853	)	$	(94,209	)	$	(137,533	)

The income tax benefit attributable to the loss from continuing operations differed from the amounts computed by applying the U.S. Federal income tax rate (21% in 2019 and 2018, and 35% in 2017) to pre-tax loss from continuing operations as a result of the following (in thousands):



	Twelve Months Ended December 31,
	2019			2018			2017
Pre-tax loss from continuing operations	$	(32,853	)	$	(94,209	)	$	(137,533	)
Computed income taxes at statutory rate	(6,899		)	(19,784		)	(48,136		)
State income taxes, net of federal benefit¹	(820		)	(974		)	(4,709		)
Foreign tax rate differential	(300		)	(52		)	(642		)
Deferred taxes on investment in foreign subsidiaries	18			(7,284		)	(17,079		)
Non-deductible expenses	658			686			1,030
Non-deductible compensation¹	559			829			—
Foreign withholding ¹	670			1,615			1,407
Foreign tax credits	—			—			(17,445		)
Other tax credits	—			(1,995		)	(631		)
Deemed repatriation tax	—			(1,751		)	24,374
Goodwill impairment	—			—			19,442
Valuation allowance	3,682			2,923			1,249
Rate change	684			81			(17,360		)
Other¹	1,312			(5,357		)	5,422
Total benefit for income tax on continuing operations	$	(436	)	$	(31,063	)	$	(53,078	)

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1	Compared to our previously filed 2018 Annual Report on Form 10-K, $1.4 million was reclassified from “Other” to “State income taxes, net of federal benefit” for the twelve months ended December 31, 2018. Additionally, “Non-deductible compensation” and “Foreign withholding tax” were moved from “Other” to separate line disclosures.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands):



	December 31,
	2019			2018
Deferred tax assets:
Accrued compensation and benefits	$	8,909		$	10,463
Receivables	1,644			3,096
Inventory	397			422
Stock options	768			1,101
Other accrued liabilities	1,247			2,058
Tax credit carry forward	312			1,920
Net operating loss carry forwards	50,447			48,732
Other	9,517			5,925
Deferred tax assets	73,241			73,717
Less: Valuation allowance	(14,912		)	(10,549		)
Deferred tax assets, net	58,329			63,168
Deferred tax liabilities:
Property, plant and equipment	(17,921		)	(22,429		)
Goodwill and intangible costs	(28,655		)	(23,210		)
Unremitted earnings of foreign subsidiaries	(5,393		)	(5,375		)
Convertible debt	(5,767		)	(7,055		)
Other	(2,400		)	(3,553		)
Deferred tax liabilities	(60,136		)	(61,622		)
Net deferred tax asset (liability)	$	(1,807	)	$	1,546

Management evaluates all available evidence, both positive and negative, to determine whether sufficient future taxable income will be generated to allow for the realization of the existing deferred tax assets. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. A significant factor of negative evidence evaluated was the cumulative pre-tax loss incurred over the three-year period ended December 31, 2019. This objective evidence limits the ability to consider other subjective positive evidence, such as the Company’s projections for future pre-tax income.

On the basis of this evaluation, as of December 31, 2019, a valuation allowance of $14.9 million has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized. This valuation allowance relates primarily to the deferred tax assets for federal, foreign and state tax net operating loss carryforwards. The amount of deferred tax asset considered realizable could be adjusted if there are changes to net operating loss carryforward periods or there is a change to the weight assessed on various sources of positive and negative evidence.

The deferred tax asset presented for net operating loss carryforwards is net of any unrecognized tax benefits that has been established related to income tax returns filed.

At December 31, 2019, we had net operating loss carry forwards for U.S. federal income tax purposes of $151.3 million. Of this amount, $93.5 million expires in various dates through 2037 and $57.8 million has an indefinite carry forward period. These carryforwards are available, subject to certain limitations, to offset future taxable income. Further, we have state net operating loss carryforwards of $122.0 million with $114.3 million expiring on various dates through 2039 and $7.7 million with an indefinite carryforward period.

In addition, as of December 31, 2019, we have alternative minimum tax credits of approximately $2.1 million which can be used to offset regular income tax or is refundable in 2019, 2020, and 2021.

As of December 31, 2019, we had foreign net operating loss carry forwards totaling $9.2 million that are expected to be utilized in the future periods. A total of $8.4 million has an unlimited carry forward period and will not expire.

At December 31, 2019, none of our undistributed earnings of foreign operations were considered to be permanently reinvested overseas. As of December 31, 2019, the deferred tax liability related to undistributed earnings of foreign subsidiaries was $5.4 million.

At December 31, 2019, we have established liabilities for uncertain tax positions of $1.9 million, inclusive of interest and penalties. To the extent these unrecognized tax benefits are recognized, they would affect our effective tax rate. Our policy is to recognize interest and penalties related to unrecognized tax benefits in income tax expense.

We file income tax returns in the U.S. with federal and state jurisdictions as well as various foreign jurisdictions. With few exceptions, we are no longer subject to U.S. Federal, state and local or non-U.S. income tax examinations by tax authorities for years prior to 2015. We are currently under federal audit for the tax year ended December 31, 2017. We do not anticipate any material adjustments related to this examination.

Periodic examinations of our tax filings occur by the taxing authorities for the jurisdictions in which we conduct business. These examinations review the significant positions taken on our returns, including the timing and amount of income and deductions reported, as well as the allocation of income among multiple taxing jurisdictions. The Company does not expect any material adjustments to result from positions taken on its income tax returns.

The following table summarizes the Company’s reconciliation of gross unrecognized tax benefits, excluding penalties and interest, for the year ended December 31, 2019, 2018 and 2017 (in thousands):



	Twelve Months Ended December 31,
	2019			2018¹			2017¹
Unrecognized tax benefits - January 1	$	1,749		$	991		$	716
Additions based on tax positions related to prior years	227			1,004			275
Reductions based on tax positions related to prior years	(415		)	—			—
Settlements	—			—			—
Reductions resulting from a lapse of the applicable statute of limitations	(14		)	(246		)	—
Unrecognized tax benefits - December 31	$	1,547		$	1,749		$	991

_____________


1	2018 and 2017 revised figures were not considered material. Penalties and interest were excluded in 2019, therefore 2018 and 2017 amounts were revised for consistency.

The Company has recorded the unrecognized tax benefits in other long-term liabilities in the consolidated balance sheets. As of December 31, 2019 and December 31, 2018, there were approximately $0.3 million and $0.5 million, respectively, of interest and penalties related to unrecognized tax benefits that are recorded in income tax expense. The estimated amount of liabilities recorded for uncertain tax positions that we believe will be effectively settled within the next twelve months is immaterial.

The 2017 Tax Act and SAB 118 Provisional Estimates

Due to the complexities involved in accounting for the 2017 Tax Act, the SEC issued SAB 118, which requires that companies include in their financial statements estimates of the impact of the 2017 Tax Act to the extent such estimates have been determined.

Pursuant to the SAB 118, the company was allowed a measurement period of up to one year after the enactment date of the 2017 Tax Act to finalize the recording of the related tax impacts. During the year ended December 31, 2018, the Company finalized the recording of the impacts of the 2017 Tax Act and recorded an income tax benefit of $1.8 million, reflecting an adjustment to the provisional estimate of the deemed repatriation transition tax. As a result of the final calculation of the transition tax liability, the Company also recorded an adjustment to the deferred tax liability associated with investments in foreign subsidiaries.