Income Taxes

12 Months Ended

Dec. 31, 2019



(In thousands)	2019			2018			2017
Components of income (loss) before income taxes
U.S. income (loss)	$	126,552		$	85,234		$	(20,555	)
Non-U.S. income	57,183			77,101			50,330
Income before income taxes	183,735			162,335			29,775
Provision for income taxes
Current
Federal	$	13,770		$	13,574		$	22,272
State	5,436			4,265			813
Non-U.S.	25,608			23,446			11,054
Total current provision	44,814			41,285			34,139
Deferred
Federal	$	5,744		$	291		$	(26,931	)
State	1,346			(1,604		)	(3,630		)
Non-U.S.	(5,818		)	(2,752		)	(759		)
Total deferred provision (benefit)	1,272			(4,065		)	(31,320		)
Provision for income taxes	$	46,086		$	37,220		$	2,819

The Company elected to treat Global Intangible Low Taxed Income, which was effective in 2018 for the Company, as a period cost.

The Tax Cuts and Jobs Act of 2017 ("the Act"), which was signed into law on December 22, 2017, has resulted in significant changes to the U.S. corporate income tax system including reducing the U.S. corporate rate to 21% starting in 2018. The Act also creates a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of U.S. subsidiaries.

On December 22, 2017, SAB 118 was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Company calculated its best estimate of the impact of the Act and recorded income tax expense of $19.8 million during the fourth quarter of 2017, the period in which the legislation was enacted. Of this amount, $18.0 million related to the one-time transition tax and the remaining $1.8 million was related to the revaluation of U.S. deferred tax assets and liabilities. The Company previously considered the earnings in non-U.S. subsidiaries to be indefinitely reinvested and, accordingly, recorded no deferred income taxes. As as result of the Act, among other things, the Company determined it will repatriate earnings for all non-U.S. subsidiaries with cash in excess of working capital needs. The Company has estimated the associated tax to be $1.9 million, offset partially by $0.7 million of foreign tax credits. As of December 31, 2018, the Company had completed its accounting for all of the enactment-date income tax effects of the Act. Accordingly, we reduced our estimate for the one-time transition tax by $2.0 million and increased our estimate for the revaluation of U.S. deferred tax assets and liabilities by $2.5 million and a $2.0 million increase associated with prepaid taxes for updated regulations related to the Act.

During 2017, the Company recognized a benefit of $2.5 million associated with the reduction of exit taxes related to our European reorganization.

During 2018, the Company recorded $1.8 million of foreign income tax reserves related to the legal and operational realignment of our U.S., Canadian and European operations.

Reconciliation of the U.S. federal income tax rates to our effective tax rate:



	2019		2018		2017
U.S. federal income tax rate	21.0	%	21.0	%	35.0	%
State income taxes—U.S.	2.9	%	1.3	%	(6.2	)%
Nondeductible Compensation	1.9	%	1.0	%	—	%
Foreign exchange on entity closures	1.8	%	—	%	—	%
Valuation allowances	0.4	%	0.5	%	(3.3	)%
Taxes on non-U.S. income - U.S., Canadian & European reorganization	0.3	%	1.1	%	(8.4	)%
U.S. tax reform	—	%	1.6	%	66.6	%
Manufacturing deduction credit	—	%	(1.0	)%	(15.3	)%
Employee share-based payments	(2.6	)%	(1.6	)%	(28.0	)%
Research and development credit	(0.6	)%	(0.9	)%	(4.7	)%
Taxes on non-U.S. income	(0.5	)%	0.4	%	(24.6	)%
Other	0.5	%	(0.5	)%	(1.6	)%
Effective income tax rate	25.1	%	22.9	%	9.5	%

Components of deferred tax assets and liabilities:



	December 31,
(In thousands)	2019			2018
Deferred tax assets
Product liability	$	29,405		$	31,169
Capitalized research and development	17,886			10,938
Employee benefits	12,009			9,641
Net operating losses and tax credit carryforwards	6,026			7,845
Share-based compensation	5,396			5,561
Accrued expenses and other reserves	4,384			4,385
Other	3,828			4,056
Total deferred tax assets	78,934			73,595
Valuation allowances	(5,937		)	(5,039		)
Net deferred tax assets	72,997			68,556
Deferred tax liabilities
Goodwill and intangibles	(35,999		)	(31,290		)
Property, plant and equipment	(11,714		)	(9,555		)
Other	(2,475		)	(2,353		)
Total deferred tax liabilities	(50,188		)	(43,198		)
Net deferred taxes	$	22,809		$	25,358

At December 31, 2019, we had net operating loss carryforwards of approximately $30.2 million, all of which are in non-U.S. tax jurisdictions. All net operating loss carryforwards without a valuation allowance may be carried forward for a period of at least six years. The change in valuation allowance for the year of $0.8 million is primarily due to our inability to recognize deferred tax assets on certain foreign entities that continue to generate losses partially offset by the release of a valuation allowance on certain losses.

A reconciliation of the change in the tax liability for unrecognized tax benefits for the years ended December 31, 2019 and 2018 is as follows:



(In thousands)	2019			2018
Beginning balance	$	16,155		$	15,055
Adjustments for tax positions related to the current year	—			1,869
Adjustments for tax positions related to prior years	(7,740		)	(32		)
Statute expiration	(3,296		)	(737		)
Ending balance	$	5,119		$	16,155

The total amount of unrecognized tax benefits, if recognized, would reduce our future effective tax rate. We have recognized tax benefits associated with these liabilities in the amount of $2.2 million and $5.2 million at December 31, 2019 and 2018, respectively.

We recognize interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. Our liability for accrued interest and penalties related to uncertain tax positions was $0.5 million and $3.3 million at December 31, 2019 and 2018, respectively.

We are subject to regular review and audit by both foreign and domestic tax authorities. While we believe our tax positions will be sustained, the final outcome of tax audits and related litigation may differ materially from the tax amounts recorded in our consolidated financial statements.

We file a U.S. federal income tax return along with various state and foreign income tax returns. Examinations of our U.S. federal returns have been completed through 2013, with the 2014 and 2015 tax years closed by statute. Various state and foreign income tax returns may be subject to tax audits for periods after 2013.