Income Taxes

12 Months Ended

Dec. 31, 2019

The components of loss before income taxes consist of the following:



Year ended December 31,	2019			2018
Income (loss) before income taxes:
U.S.	$	(32,953	)	$	(419,964	)
Foreign	4,234			(7,130		)
Loss before income taxes	$	(28,719	)	$	(427,094	)

The income tax provision (benefit) consists of the following:



Year ended December 31,	2019				2018
Current tax provision (benefit):
Federal		$	2,501			$	(7,991	)
State	197				1,901
Foreign	8,569				8,798
Total current tax provision	11,267				2,708
Deferred tax benefit:
Federal	(6,150			)	(23,956			)
State	(1,575			)	(7,640			)
Foreign	(9,677			)	(3,541			)
Total deferred tax benefit	(17,402			)	(35,137			)
Total income tax benefit		$	(6,135	)		$	(32,429	)

A reconciliation of the federal statutory rate to our effective income tax rate is shown below:



Year ended December 31,	2019		2018
Federal statutory rate	21.0	%	21.0	%
Increases (decreases) in the rate resulting from:
State income taxes, net of federal income tax impact	6.6	%	1.5	%
Foreign income taxes	(3.7	)%	(0.1	)%
Valuation allowance	(1.4	)%	—	%
Research and development credit	9.8	%	0.2	%
Uncertain tax positions	(5.0	)%	0.2	%
Tax Reform and other prior period adjustments	—	%	0.4	%
Restricted stock vestings	(6.7	)%	(0.2	)%
Goodwill and intangible asset impairment charges	—	%	(14.2	)%
Other	0.8	%	(1.2	)%
Effective income tax rate	21.4	%	7.6	%

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



December 31,	2019			2018
Deferred tax assets:
Employee benefit plans	$	26,401		$	24,733
Accrued liabilities not currently deductible	24,441			25,659
Finance charges	2,678			2,661
Lease liabilities	42,077			3,694
Allowance for losses on accounts receivable	4,157			3,890
Net operating loss carryforwards	8,394			9,098
Goodwill	—			1,048
Outside basis difference	12,408			—
Interest limitation	12,905			4,473
Derivatives	5,057			1,788
Other	10,611			7,797
Total deferred tax assets	149,129			84,841
Less: valuation allowances	(14,282		)	(1,473		)
Net deferred tax assets	134,847			83,368
Deferred tax liabilities:
Merchandise inventories	42,872			44,015
Goodwill	296			—
Property and equipment	32,689			37,443
Right-of-use assets	39,043			—
Computer software	9,032			10,177
Insurance	1,082			767
Intangible assets	35,451			29,414
Withholding tax liabilities	6,965			7,963
Other	697			342
Total deferred tax liabilities	168,127			130,121
Net deferred tax liability	$	(33,280	)	$	(46,753	)

The valuation allowances relate to deferred tax assets in various state and non-U.S. jurisdictions. Based on management’s judgments using available evidence about historical and expected future taxable earnings, management believes it is more likely than not that we will realize the benefit of the existing deferred tax assets, net of valuation allowances, at December 31, 2019.

The valuation allowances primarily relate to deferred tax assets recorded on an outside basis difference, representing the difference between the book and tax bases of our Movianto foreign subsidiaries. The valuation allowances also relate to net operating loss carryforwards in state jurisdictions which have various expiration dates ranging from five years to an unlimited carryforward period. As of December 31, 2019, the U.S. federal net operating loss was $17.4 million, which has an unlimited carryforward period.

Cash payments for income taxes, including interest, for 2019 and 2018 were $18.1 million and $28.9 million, respectively. Cash tax refunds received for 2019 and 2018 were $24.3 million and $9.8 million, respectively.

At December 31, 2019 and 2018, the liability for unrecognized tax benefits was $11.5 million and $9.6 million, respectively. A reconciliation of the changes in unrecognized tax benefits from the beginning to the end of the reporting period is as follows:



	2019				2018
Unrecognized tax benefits at January 1,		$	9,568			$	13,585
Increases for positions taken during current period	394				1,035
Increases for positions taken during prior periods	1,629				29
Decreases for positions taken during prior periods	—				(142			)
Lapse of statute of limitations	(71			)	(4,939			)
Unrecognized tax benefits at December 31,		$	11,520			$	9,568

Included in the liability for unrecognized tax benefits at December 31, 2019 and 2018, were $3.1 million and $1.9 million, respectively, of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. These tax positions are temporary differences which do not impact the annual effective tax rate under deferred tax accounting. Any change in the deductibility period of these tax positions would impact the timing of cash payments to taxing jurisdictions. Unrecognized tax benefits of $8.4 million and $7.7 million at December 31, 2019 and 2018, respectively, would impact our effective tax rate if recognized.

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. Accrued interest at December 31, 2019 and 2018 was $1.3 million and $0.6 million, respectively. The amounts recognized in interest expense for the years ended December 31, 2019 and 2018 were $0.7 million and less than $0.1 million, respectively. There were no penalties accrued at December 31, 2019 and 2018 or recognized in 2019 and 2018.

We file income tax returns in the U.S. federal and various state and foreign jurisdictions. Our U.S. federal income tax returns for the years 2015, 2016, 2017 and 2018 are subject to examination. Our income tax returns for U.S. state and local jurisdictions are generally open for the years 2016 through 2018; however, certain returns may be subject to examination for differing periods. The former owners are contractually obligated to indemnify us for all income tax liabilities incurred by Byram entities prior to its acquisition on August 1, 2017, and for all income tax liabilities incurred by the Halyard foreign entities located in Thailand, Mexico, and Honduras prior to its acquisition on April 30, 2018.