Income Taxes

12 Months Ended

Dec. 31, 2020

Current income tax expense or benefit represents the amounts expected to be reported on the Company's income tax returns, and deferred income tax expense or benefit represents the change in net deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted income tax rates that will be in effect when these differences reverse. Valuation allowances are recorded as appropriate to reduce deferred tax assets to the amount considered more likely than not to be realized.

On December 22, 2017, the Tax Act was signed into law. The Tax Act significantly changed U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Tax Act permanently reduced the U.S. corporate income tax rate from a maximum of 35% to a 21% rate, effective January 1, 2018.

Included in the Tax Act were the global intangible low-taxed income ("GILTI") provisions. The Company elected to account for GILTI tax in the period in which it is incurred. The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary's tangible assets.

Income (loss) from continuing operations before income taxes and equity income as reported on the Consolidated Statements of Operations consists of the following:


(In thousands)	2020		2019		2018
U.S.	$	(67,276)	$	(13,934)	$	28,281
International	36,151		70,405		85,368
Total income (loss) from continuing operations before income taxes and equity income	$	(31,125)	$	56,471	$	113,649

Income tax expense (benefit) as reported on the Consolidated Statements of Operations consists of the following:


(In thousands)	2020		2019		2018
Income tax expense (benefit):
Currently payable:
U.S. federal	$	(12,116)	$	903	$	(7)
U.S. state	575		233		177
International	19,216		23,775		17,127
Total income taxes currently payable	7,675		24,911		17,297
Deferred U.S. federal	(7,452)		(5,924)		1,854
Deferred U.S. state	(2,646)		(1,303)		(10,911)
Deferred international	(356)		2,530		(2,741)
Total income tax expense (benefit) from continuing operations	$	(2,779)	$	20,214	$	5,499

Cash payments for income taxes were $34.9 million, $115.6 million and $26.8 million for 2020, 2019 and 2018, respectively. The decrease in cash payments for 2020 is principally due to payments associated with the gain on the sale of AXC in 2019 not recurring in 2020.

A reconciliation of the normal expected statutory U.S. federal income tax expense (benefit) to the actual Income tax expense (benefit) from continuing operations as reported on the Consolidated Statements of Operations is as follows:


(In thousands)	2020		2019		2018
U.S. federal income tax expense (benefit)	$	(6,536)	$	11,859	$	23,866
U.S. state income taxes, net of federal income tax benefit	(1,589)		(274)		566
U.S. other domestic deductions and credits	(3,435)		(1,322)		(2,407)
Difference in effective tax rates on international earnings and remittances	9,450		9,550		5,394
Uncertain tax position contingencies and settlements	289		310		(1,180)
Changes in realization on beginning of the year deferred tax assets	(370)		2,343		(6,937)
U.S. non-deductible expenses	2,363		2,554		1,128
Impact of U.S. tax reform	—		1,643		(11,686)
Net operating loss carryback	(2,696)		—		—
State deferred tax rate change	(41)		(3,353)		—
Foreign derived intangible income deduction	—		—		(2,366)
Employee share-based payments	(214)		(3,064)		(736)
Other, net	—		(32)		(143)
Total income tax expense (benefit) from continuing operations	$	(2,779)	$	20,214	$	5,499

At December 31, 2020, 2019 and 2018, the Company's annual effective income tax rate on income (loss) from continuing operations was 8.9%, 35.8% and 4.8%, respectively.

The Company’s international income from continuing operations before income taxes and equity income was $36.2 million and $70.4 million for 2020 and 2019, respectively. The Company's total international income tax expense decreased from $26.3 million in 2019 to $18.9 million in 2020 primarily due to reduction in profit from the impact of COVID 19, the change in mix of income, and a valuation allowance increase on a deferred tax asset due to lower projected income in a certain jurisdiction in 2019 not recurring in 2020.

The Company’s differences in effective income tax rates for 2020 and 2019 on international earnings and remittances was $9.5 million and $9.6 million, respectively, which included U.S income tax expense on international deemed remittances of $0.1 million and $1.0 million respectively.

The Company's U.S. loss from continuing operations before income taxes and equity income was $67.3 million and $13.9 million for 2020 and 2019, respectively. The Company's total U.S. income tax benefit increased from $6.1 million in 2019 to $21.6 million in 2020 primarily due to increased expenses from corporate strategic spending and net operating loss carrybacks.

The income tax effects of the temporary differences giving rise to the Company's deferred tax assets and liabilities at December 31, 2020 and 2019 are as follows:


	2020 (b)				2019 (b)
(In thousands)	Asset		Liability		Asset		Liability
Depreciation and amortization (a)	$	—	$	78,029	$	—	$	57,591
Right-of-use assets (a)			23,507				15,567
Operating lease liabilities (a)	22,968				14,929
Expense accruals	20,844		—		18,421		—
Inventories	2,884		—		4,568		—
Provision for receivables	4,903		—		1,109		—
Deferred revenue	—		4,425		—		3,222
Operating loss carryforwards	101,022		—		85,378		—
Foreign tax credit carryforwards	11,445		—		24,219		—

Pensions	49,641		—		38,766		—
Currency adjustments	797		—		462		—
Deferred financing costs	—		269		—		566

Post-retirement benefits	340		—		411		—
Stock based compensation	6,696		—		6,572		—
Other	—		74		—		769
Subtotal	221,540		106,304		194,835		77,715
Valuation allowance	(140,615)		—		(127,074)		—
Total deferred income taxes	$	80,925	$	106,304	$	67,761	$	77,715

(a)The increase in 2020 is primarily related to the ESOL acquisition. See Note 3, Acquisitions and Dispositions, for additional information. The 2019 disclosure has been adjusted to reflect the gross deferred tax right-of-use asset and related gross deferred lease liability.

(b) Does not include approximately $1.2 billion of statutory loss carryforwards within Luxembourg for which the Company considers the utilization of these attributes remote and as such no deferred tax asset or corresponding valuation allowance has been recorded.

At December 31, 2020, the tax-effected amount of NOLs totaled $101.0 million. Tax-effected NOLs from international operations are $75.8 million. Of that amount, $65.3 million can be carried forward indefinitely and $10.5 million will expire at various times between 2021 and 2040. Tax-effected U.S. state NOLs are $17.1 million. Of that amount, $3.7 million expire at various times between 2021 and 2025, $4.0 million expire at various times between 2026 and 2030, $3.2 million expire at various times between 2031 and 2035 and $6.2 million expire at various times between 2036 and 2040. At December 31, 2020, the tax-effected amount of U.S. Federal NOLs totaled $8.1 million. Of that amount, $6.3 million can be carried forward indefinitely and $1.8 million will expire at various times between 2033 and 2034.

Valuation allowances of $140.6 million, $127.1 million and $137.5 million at December 31, 2020, 2019 and 2018, respectively, related principally to deferred tax assets for pension liabilities, NOLs, foreign tax credit carryforwards, capital loss carryforwards and foreign currency translation that are uncertain as to realizability. In 2020, the Company recorded a valuation allowance reduction of $15.5 million related to foreign tax credit carryforwards due to statutory limitation expiration. The Company recorded a valuation allowance increase of $13.0 million related to pension liabilities, a net valuation allowance increase of $9.8 million related to losses in certain jurisdictions where the Company determined that it is more likely than not that these assets will not be realized, and a valuation allowance increase of $3.3 million from the effects of foreign currency translation adjustments. In 2019, the Company recorded a valuation allowance reduction of $12.5 million related to capital loss carryforwards, foreign tax credit carryforwards and state net operating loss carryforwards due to the losses and foreign tax credit carryforwards being utilized to reduce the tax liabilities on the capital gain realized as a result of the sale of AXC and PK. In addition, the Company recorded a valuation allowance reduction (and corresponding reduction to deferred tax assets) of $5.6 million due to the merger and liquidation of certain foreign dormant entities resulting in the loss of certain tax attributes, offset by a net increase of $7.9 million related to losses in certain jurisdictions where the Company determined that it is more likely than not that these assets will not be realized.

The Tax Act introduced a transition tax and a territorial tax system, which was effective beginning in 2018. The territorial tax system impacts the Company's overall global capital and legal entity structure, working capital, and repatriation plan on a go-forward basis. The Company asserts that all foreign earnings will be indefinitely reinvested to the extent of local needs and earnings that would be distributed in a taxable manner. The Company therefore intends to limit distributions to earnings previously taxed in the U.S., or earnings that would qualify for the 100 percent dividends received deduction provided for in the Tax Act, and earnings that would not result in any significant foreign taxes. Therefore, the Company has not recognized a deferred tax liability on its investment in foreign subsidiaries.

The Company recognizes accrued interest and penalty expense related to unrecognized income tax benefits in income tax expense or benefit. The Company recognized an income tax expense of $0.2 million and $0.3 million during 2020 and 2019,

respectively, for interest and penalty, and an income tax benefit of $0.2 million during 2018 for interest and penalties primarily due to the expiration of statutes of limitation and resolution of examinations. The Company has accrued $1.4 million, $1.2 million and $0.9 million for the payment of interest and penalties at December 31, 2020, 2019 and 2018, respectively.

A reconciliation of the change in the unrecognized income tax benefits balance from January 1, 2018 to December 31, 2020 is as follows:


(In thousands)	Unrecognized Income Tax Benefits		Deferred Income Tax Benefits		Unrecognized Income Tax Benefits, Net of Deferred Income Tax Benefits
Balances, January 1, 2018	$	3,623	$	(31)	$	3,592
Additions for tax positions related to the current year (includes currency translation adjustment)	196		(1)		195


Statutes of limitation expirations	(1,397)		6		(1,391)

Balance at December 31, 2018	2,422		(26)		2,396
Additions for tax positions related to the current year (includes currency translation adjustment)	414		(7)		407
Additions for tax positions related to prior years (includes currency translation adjustment)	681		—		681

Statutes of limitation expirations	(326)		2		(324)
Settlements	(62)		9		(53)
Balance at December 31, 2019	3,129		(22)		3,107

Additions for tax positions related to the current year (includes currency translation adjustment)	596		(2)		594

Other reductions for tax positions related to prior years	(771)		—		(771)
Statutes of limitation expirations	(58)		2		(56)

Total unrecognized income tax benefits that, if recognized, would impact the effective income tax rate at December 31, 2020	$	2,896	$	(22)	$	2,874

Within the next twelve months, it is reasonably possible that up to $0.6 million of unrecognized income tax benefits will be recognized upon settlement of income tax examinations and the expiration of various statutes of limitations.

The Company files income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. With few exceptions, the Company is no longer subject to U.S and international income tax examinations by tax authorities through 2014.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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