Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

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.

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)	2021		2020		2019
U.S.	$	(34,462)	$	(87,315)	$	(38,969)
International	71,968		33,095		70,034
Total income (loss) from continuing operations before income taxes and equity income	$	37,506	$	(54,220)	$	31,065

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

(In thousands)	2021		2020		2019
Income tax expense (benefit):
Currently payable:
U.S. federal	$	—	$	(12,116)	$	902
U.S. state	507		468		220
International	22,295		16,518		21,132
Total income taxes currently payable	22,802		4,870		22,254
Deferred U.S. federal	(4,594)		(10,558)		(9,367)
Deferred U.S. state	(18)		(3,078)		(2,575)
Deferred international	(9,101)		93		2,416
Total income tax expense (benefit) from continuing operations	$	9,089	$	(8,673)	$	12,728

Cash payments for income taxes were $21.7 million, $34.9 million and $115.6 million for 2021, 2020 and 2019, respectively. The decrease in cash payments for 2021 is principally due to payments associated with the gain on the sale of IKG in 2020 and the gain on the sale of AXC and PK in 2019 not recurring in 2021.

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)	2021		2020		2019
U.S. federal income tax expense (benefit), at statutory tax rate of 21%	$	7,877	$	(11,386)	$	6,523
U.S. state income taxes, net of federal income tax benefit	(310)		(2,015)		(1,290)
U.S. other domestic deductions and credits	(415)		(1,312)		(596)
Difference in effective tax rates on international earnings and remittances	4,488		7,872		7,536
Uncertain tax position contingencies and settlements	783		289		310
Changes in realization on beginning of the year deferred tax assets	(5,035)		(1,501)		2,343
U.S. non-deductible expenses	936		2,300		2,461
Impact of U.S. tax reform	—		—		1,644
Net operating loss carryback			(2,696)		—
State deferred tax rate changes	592		(40)		(3,354)
Employee share-based payments	173		(184)		(2,817)
Other, net	—		—		(32)
Total income tax expense (benefit) from continuing operations	$	9,089	$	(8,673)	$	12,728

At December 31, 2021, 2020 and 2019, the Company's annual effective income tax rate on income (loss) from continuing operations was 24.2%, 16.0% and 41.0%, respectively.

The Company’s international income from continuing operations before income taxes and equity income was $72 million and $33.1 million for 2021 and 2020, respectively. In 2021, the Company recorded $6.8 million income tax benefit arising from the recognition of deferred tax assets in Harsco Environmental Brazil. Brazil has 3 years of cumulative income and expects to utilize the deferred tax assets against future income. The Company's total international income tax expense decreased from $16.6 million in 2020 to $13.2 million in 2021 primarily due to the Brazil income tax benefit in 2021, partially offset by improvement of operating income.

The Company’s differences in income tax expense for 2021 and 2020 on international earnings and remittances was $4.5 million and $7.9 million, respectively, which included U.S income tax expense on international deemed remittances of $0.1 million and $0.1 million respectively. The decrease is primarily due to the change in mix of income.

The Company's U.S. loss from continuing operations before income taxes and equity income was $34.5 million and $87.3 million for 2021 and 2020, respectively. The Company's total U.S. income tax benefit decreased from $25.3 million in

2020 to $4.1 million in 2021 primarily due to decreased expenses from corporate strategic spending, recognition of net operating loss carrybacks not recurring in 2021, as well as disallowed interest expense.

The income tax effects of the temporary differences giving rise to the Company's deferred tax assets and liabilities at December 31, 2021 and 2020 are as follows:

	2021 (a)				2020 (a)
(In thousands)	Asset		Liability		Asset		Liability
Depreciation and amortization	$	—	$	80,278	$	—	$	87,681
Right-of-use assets			25,759				23,406
Operating lease liabilities	25,431				22,868
Expense accruals	24,949		—		22,136		—
Inventories	3,400		—		2,721		—
Provision for receivables	5,504		—		4,903		—
Deferred revenue	—		4,124		—		4,425
Operating loss carryforwards	65,935		—		66,703		—
Tax credit carryforwards	18,608		—		15,630		—
Pensions	23,298		—		49,740		—
Currency adjustments	5,075		—		4,829		—
Deferred financing costs	359		—		—		269
Section 163(j) disallowed interest expense	4,843		—		—		—
Post-retirement benefits	335		—		340		—
Stock based compensation	7,396		—		6,696		—
Other	1,470		—		1,954		—
Subtotal	186,603		110,161		198,520		115,781
Valuation allowance	(92,385)		—		(108,563)		—
Total deferred income taxes	$	94,218	$	110,161	$	89,957	$	115,781

(a) Does not include approximately $1.1 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, 2021, the tax-effected amount of NOLs totaled $65.9 million. Tax-effected NOLs from international operations are $40.9 million. Of that amount, $32.0 million can be carried forward indefinitely and $8.9 million will expire at various times between 2022 and 2041. Tax-effected U.S. state NOLs are $16.0 million. Of that amount, $3.6 million expire at various times between 2022 and 2026, $3.2 million expire at various times between 2027 and 2031, $4.7 million expire at various times between 2032 and 2036 and $4.5 million expire at various times between 2037 and 2041. At December 31, 2021, the tax-effected amount of U.S. Federal NOLs totaled $9.0 million. Of that amount, $7.2 million can be carried forward indefinitely and $1.8 million will expire at various times between 2033 and 2034.

Valuation allowances of $92.4 million and $108.6 million at December 31, 2021 and 2020, respectively, related principally to deferred tax assets for pension liabilities, NOLs, foreign tax credit carryforwards and foreign currency translation that are uncertain as to realizability. In 2021, the Company recorded a valuation allowance reduction of $19.3 million related to current year pension adjustment recorded through AOCI, a valuation allowance reduction of $6.8 million in Brazil where the Company determined that it is more likely than not that these assets will be realized, and a valuation allowance reduction of $3.5 million from the effects of foreign currency translation adjustments, partially offset by a $14.4 million valuation allowance increase related to the UK tax rate change, and $4.8 million valuation allowance increase related to disallowed interest expense.

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 meet local cash needs. 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 $0.4 million, $0.2 million and $0.3 million during 2021, 2020 and 2019, respectively, for interest and penalties. The Company has accrued $1.7 million, $1.4 million and $1.2 million for the payment of interest and penalties at December 31, 2021, 2020 and 2019, respectively.

A reconciliation of the change in the unrecognized income tax benefits balance from January 1, 2019 to December 31, 2021 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, 2019	$	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)
Balance at December 31, 2020	2,896		(22)		2,874
Additions for tax positions related to the current year (includes currency translation adjustment)	316		(1)		315
Additions for tax positions related to prior years (includes currency translation adjustment)	500		—		500
Statutes of limitation expirations	(585)		1		(584)
Total unrecognized income tax benefits that, if recognized, would impact the effective income tax rate at December 31, 2021	$	3,127	$	(22)	$	3,105

Within the next twelve months, it is reasonably possible that up to $0.4 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 2015.