Income Taxes

12 Months Ended

Dec. 31, 2019

The provision for income taxes consists of the following:



	For the years ended December 31,
In thousands	2019			2018			2017
Current:
Federal	$	3,505		$	3,739		$	11,526
State	381			498			956
Foreign	4,479			3,788			2,425
Total Current	$	8,365		$	8,025		$	14,907
Deferred:
Federal	$	(12,481	)	$	2,646		$	(2,472	)
State	(1,442		)	380			256
Foreign	(858		)	(2,598		)	(717		)
Total Deferred	(14,781		)	428			(2,933		)
Provision (Benefit) for income taxes	$	(6,416	)	$	8,453		$	11,974

The following is a reconciliation of the difference between the actual provision for income taxes and the provision computed by applying the federal statutory tax rate on earnings:



	For the years ended December 31,
	2019		2018		2017
Statutory federal income tax rate	21.0	%	21.0	%	35.0	%
State income taxes, net of federal benefit	2.7		1.6		1.6
Valuation allowances for deferred tax assets, including state	(4.4	)	(1.3	)	0.1
Research and development credits	0.7		(1.3	)	(1.0	)
Capitalized transaction costs	—		0.6		—
Domestic production activities deduction	—		—		(1.8	)
Stock based compensation	(0.1	)	(0.7	)	(4.4	)
Goodwill Impairment	(19.6	)	—		—
Foreign income taxed at lower rates	2.4		(1.6	)	(2.8	)
Reserves for uncertain tax positions	0.3		—		(1.7	)
Repatriation of foreign undistributed earnings	—		1.6		1.3
Revaluation of deferred tax liabilities due to federal rate change	—		—		(7.3	)
Pension plan settlement	5.9		—		—
Other	(0.6	)	(0.4	)	0.5
Effective income tax rate	8.3	%	19.5	%	19.5	%

In 2019, the Company had a pre-tax loss primarily resulting from a goodwill impairment charge of $63.0 million, recorded in the fourth quarter of 2019. The impairment significantly impacted the Company's effective tax rate because goodwill impairment expense is not deductible for income taxes purposes, resulting in a low effective tax rate in 2019 when in a pre-tax loss position. Partially offsetting the impairment was a tax benefit of $4.5 million recorded in the second quarter of 2019 related to the reclassification of stranded tax effects from accumulated other comprehensive income. Also, the Company's effective tax rate in 2019 was negatively impacted by losses in jurisdictions in which no tax benefit can be recognized.

In 2018, the effective tax rate of 19.5% was below the federal statutory rate and included valuation allowance activity of $0.6 million. This was primarily a result of the fourth quarter partial release of valuation allowance on the Netherlands

net operating losses offset by a valuation allowance addition in Germany. Compared to 2017, the tax benefit from stock compensation expense had a lesser impact on the 2018 rate because of less windfall benefits recognized. Also, foreign income taxed at lower rates had a lesser impact on the 2018 rate because of new U.S. regulations that were released in the fourth quarter 2018 that limit the amount of the tax benefit recorded compared to 2017.

In 2017, in addition to the Tax Reform Act, which favorably impacted the effective tax rate by a net $3.7 million, the effective tax rate of 19.5% was impacted by a favorable mix of taxable income generated from foreign income taxed at lower rates, resulting in a tax benefit of $1.7 million, net of $0.7 million of expense to correct a foreign tax error in prior years. The Company also recorded a tax benefit of $1.1 million attributable to the Domestic Production Activities Deduction, a tax benefit of $2.7 million related to stock based compensation and a tax benefit of $1.5 million attributable to the release of certain reserves for uncertain tax positions from the settlement of the IRS tax audit that closed in the third quarter of 2017. These favorable adjustments were partially offset by tax expense of $0.3 million against certain deferred tax assets in China, as future realization of the assets is not reasonably assured.

The Company maintains valuation allowances against certain deferred tax assets where realization is not reasonably assured. The Company evaluates the likelihood of the realization of deferred tax assets and reduces the carrying amount to the extent it believes a portion will not be realized. The Company’s effective tax rates in future periods could be affected by increases or decreases in anticipated earnings in countries where tax rates differ from the United States federal rate, the relative impact of permanent tax adjustments on higher or lower earnings from domestic operations, changes in net deferred tax asset valuation allowances, completion of acquisitions or divestitures, changes in tax rates or tax laws, and the outcome of tax audits.

The following schedule presents net current and net long-term deferred tax assets and liabilities by tax jurisdiction as of December 31, 2019 and 2018:



	2019				2018
	Deferred Tax Assets				Deferred Tax Assets
In thousands	Current		Long-term		Current		Long-term
Federal	$	—	$	—	$	—	$	—
State	—		—		—		—
Foreign	—		1,933		—		2,055
Totals	$	—	$	1,933	$	—	$	2,055



	2019				2018
	Deferred Tax Liabilities				Deferred Tax Liabilities
In thousands	Current		Long-term		Current		Long-term
Federal	$	—	$	26,992	$	—	$	30,193
State	—		2,902		—		3,728
Foreign	—		4,667		—		5,344
Totals	$	—	$	34,561	$	—	$	39,265

Net deferred tax assets (liabilities) consisted of the following as of December 31, 2019 and 2018:



	December 31,
In thousands	2019			2018
Deferred tax assets:
Accounts receivable	$	377		$	172
Financial Hedging Instruments	1,491			585
Interest Expense Carryovers	2,371			463
Inventories	1,845			520
Net operating loss carryforwards	8,478			6,095
Operating lease	6,001			—
Other accrued liabilities	5,905			2,378
Pension	4,274			5,181
Tax Credits	2,015			1,846
Total deferred tax assets	32,757			17,240
Deferred tax liabilities:
Intangible assets	21,990			25,133
Right of use assets	6,001			—
Property, plant and equipment	28,177			23,353
Total deferred tax liabilities	56,168			48,486
Valuation allowance	9,217			5,964
Net deferred tax liabilities	$	(32,628	)	$	(37,210	)

For the years ended December 31, 2019, 2018 and 2017, (loss) income before income taxes was derived from the following sources:



	For the years ended December 31,
In thousands	2019			2018		2017
United States	$	(73,539	)	$	33,928	$	54,212
Foreign	(3,538		)	9,337		7,107
Total income before income taxes	$	(77,077	)	$	43,265	$	61,319

At December 31, 2019, the Company had approximately $4.0 million of state net operating loss carryforwards which will expire between 2027 and 2036. The Company has not recorded a deferred tax asset for $4.0 million of this carryforward as the Company anticipates paying a non-income based franchise tax for the foreseeable future in the applicable jurisdiction. In addition, at December 31, 2019, the Company had $2.1 million of state tax credit carryforwards that expire between 2020 and 2028. As of December 31, 2019, the Company has recorded a valuation allowance against the full amount of its state tax credit carryforwards. The Company also has $7.6 million of foreign net operating loss carryforwards in China, $13.7 million of net operating loss carryforwards in Germany, $3.4 million of net operating loss carryforwards in the Netherlands, and $0.7 million of net operating loss carryforwards in India. The Netherlands’ net operating losses expire between the years 2021 and 2025 and the China net operating losses expire between the years 2020 and 2024. A valuation allowance is recorded against the net operating losses in all four jurisdictions for the portion of its net operating losses that future realization is not reasonably assured. The Company evaluates and weighs the positive and negative evidence present at each period. The Company will continue to monitor the realization criteria based on future operating results.

As of December 31, 2019, the Company maintains its intention to distribute certain earnings of its foreign subsidiaries that have been previously taxed in the U.S. and has recorded taxes associated with this position. For the remainder of the undistributed foreign earnings, unless tax effective to repatriate, the Company will continue to permanently reinvest these earnings. As of December 31, 2019, such undistributed earnings were approximately $3.4 million. The Company estimates that the amount of tax that would be payable on the undistributed earnings if repatriated to the United States could be up to $0.9 million. This amount may vary in the future due to a variety of factors including

future tax law changes, future earnings and statutory taxes paid by foreign subsidiaries, and ongoing tax planning strategies by the Company.

The Company and its subsidiaries file a consolidated federal income tax return, as well as returns required by various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities, including such major jurisdictions as the United States, China, France, Germany, Hong Kong, the Netherlands, Canada and the United Kingdom. Within the next fiscal year, the Company expects to conclude certain income tax matters through the year ended December 31, 2016 and it is reasonably expected that net unrecognized

benefits of $1.6 million may be recognized. The total amount of unrecognized tax benefits that would affect the effective tax rate if recognized is $3.2 million as of December 31, 2019. However, $1.3 million of the unrecognized tax benefits, if recognized, would be offset in pre-tax income by the reversal of indemnification assets due to the Company. The Company is no longer subject to U.S. federal examinations for years before 2016, state and local examinations for years before 2013, and non-U.S. income tax examinations for years before 2003.

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



In thousands	2019			2018
Unrecognized tax benefits at beginning of year	$	3,563		$	2,526
Decreases relating to positions taken in prior periods	(36		)	(298		)
Increases relating to positions taken in prior periods	—			—
Increases relating to current period	—			1,584
Decreases due to settlements with tax authorities	—			(233		)
Decreases due to lapse of statute of limitations	(315		)	(16		)
Unrecognized tax benefits at end of year	$	3,212		$	3,563

The Company recognizes the interest accrued and the penalties related to unrecognized tax benefits as a component of tax expense. The Company accrued interest and penalties of $0.2 million and $0.1 million as of December 31, 2019 and 2018, respecitvely.