INCOME TAXES

12 Months Ended

Dec. 31, 2019

INCOME TAXES

INCOME TAXES

NOTE 6 INCOME TAXES

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (“TCJA”), which significantly changed U.S. tax law.  The TCJA lowered the Company’s U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018, while imposing a deemed repatriation tax on previously deferred foreign income. The Company completed its accounting for the income tax effects of the TCJA during 2018, in accordance with the U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118.

Income before income taxes consists of:

Years Ended December 31,	2019		2018		2017
United States	$	94,612	$	34,404	$	36,139
International		247,457		231,616		258,686
Total	$	342,069	$	266,020	$	294,825

The provision (benefit) for income taxes is composed of:

Years Ended December 31,	2019		2018		2017
Current:
U.S. Federal	$	2,129	$	10,273	$	(342)
State/Local		883		877		230
International		88,084		83,456		72,670
	$	91,096	$	94,606	$	72,558
Deferred:
U.S. Federal/State	$	4,670	$	(17,019)	$	2,570
International		4,076		(6,333)		(332)
	$	8,746	$	(23,352)	$	2,238
Total	$	99,842	$	71,254	$	74,796

The difference between the actual income tax provision and the tax provision computed by applying the statutory federal income tax rate of 21.0% in 2019 and 2018, and 35.0% in 2017 to income before income taxes is as follows:

Years Ended December 31,	2019			2018			2017
Income tax at statutory rate	$	71,835		$	55,864		$	103,189
State income taxes (benefits), net of federal (tax) benefit		2,622			(1,516)			(2,620)
Investment incentives		(2,530)			(1,900)			(1,900)
Tax resolutions		(1,915)			(3,400)			(5,188)
Excess tax benefits from share-based compensation		(12,520)			(10,800)			(10,383)
Deferred benefits from tax rate changes		—			(2,800)			(5,055)
U.S. GILTI and BEAT		(1,485)			5,625			—
U.S. tax reform - transition tax		—			(2,570)			31,575
Results of forward contract		—			—			(23,883)
Valuation allowance		10,623			3,170			1,344
Rate differential on earnings of foreign operations		29,807			26,424			(16,097)
Other items, net		3,405			3,157			3,814
Actual income tax provision	$	99,842		$	71,254		$	74,796
Effective income tax rate		29.2	%		26.8	%		25.4	%

The 2019 tax provision was favorably impacted by excess tax benefits on deductible share-based compensation. The tax provision for 2019 reflects a $12.5 million benefit from this item. The mix of pretax income has an unfavorable impact, because the majority of our income is earned in higher tax jurisdictions. Additionally, we have incurred losses in jurisdictions where we cannot tax effect the loss. We have elected to account for the tax on the U.S. GILTI as a period cost and not as a measure of deferred taxes.

The 2018 tax provision was favorably impacted by excess tax benefits on deductible stock compensation. The tax provision for 2018 reflects a $10.8 million benefit from this item. The mix of pretax income has an unfavorable impact, reflecting that the majority of our income is earned in higher tax jurisdictions. The U.S. GILTI tax and Base Erosion Anti-Abuse Tax (“BEAT”) also had a $5.6 million unfavorable impact.

The 2017 tax provision was favorably impacted by the mix of pretax income in various non-U.S. tax jurisdictions. The tax provision for 2017 reflects $10.4 million related to the excess tax benefits on deductible stock compensation, which is new for 2017. The deferred tax benefit of $5.1 million is net of a provisional benefit of $6.8 million recorded for the change in the U.S. tax rate and a charge of $1.7 million for tax rate changes in France and Argentina. The $5.2 million related to tax resolutions includes an amount of $3.2 million related to uncertain tax positions in Europe. The remaining $2.0 million is a refund from a distribution tax paid in France. Furthermore, the tax provision for 2017 reflects a provisional charge of $31.6 million from the transition tax enacted as part of the U.S. tax reform. This was partially offset by a benefit of $23.9 million from the forward contracts discussed in Note 11 – Derivative Instruments and Hedging Activities.

Significant deferred tax assets and liabilities as of December 31, 2019 and 2018 are composed of the following temporary differences:

	2019		2018
Deferred Tax Assets:
Net operating loss carryforwards	$	24,941	$	22,462
Operating and finance leases		25,440		—
Pension liabilities		24,925		15,405
Share-based compensation		6,082		10,130
U.S. federal tax credits		8,575		12,045
U.S. state tax credits		7,881		10,186
Vacation and bonus		7,645		6,891
Research and development		7,539		6,945
Inventory		5,993		6,038
Workers compensation		3,835		3,373
Other		16,496		13,985
Total gross deferred tax assets		139,352		107,460
Less valuation allowance		(23,320)		(11,189)
Net deferred tax assets		116,032		96,271
Deferred Tax Liabilities:
Acquisition related intangibles		62,851		59,004
Depreciation and amortization		28,284		31,140
Operating and finance leases		27,555		2,034
Other		6,215		10,351
Total gross deferred tax liabilities		124,905		102,529
Net deferred tax (liabilities) assets	$	(8,873)	$	(6,258)

The $12.1 million increase in our valuation allowance in 2019 is primarily due to losses in foreign jurisdictions where we cannot record the benefit of the losses.

We evaluate the deferred tax assets and record a valuation allowance when it is believed it is more likely than not that the benefit will not be realized. We have established a valuation allowance for $20.2 million of the $24.9 million of tax effected net operating loss carryforwards. These losses are generally in locations that have not produced cumulative three year operating profit. A valuation allowance of $3.1 million has also been established against the $7.9 million of U.S. state tax credit carryforwards.

The U.S. federal tax credits will expire in the years 2026 and 2027. There is no expiration date on $20.8 million of the tax-effected net operating loss carryforwards and $4.1 million (tax effected) will expire in the years 2020 to 2038. The U.S. state tax credit carryforwards of $7.9 million (tax effected) will expire in the years 2020 to 2034.

As a result of U.S. tax reform and the U.S. GILTI provisions, none of the non-U.S. unremitted earnings will be subject to U.S. taxation. We maintain our assertion that all other cash and distributable reserves at our non-U.S. affiliates will continue to be indefinitely reinvested. We estimate the amount of additional local and withholding tax that would be payable on distributions to be in the range of $20 million to $30 million.

We have not provided for taxes on certain tax-deferred income of a foreign operation. The income arose predominately from government grants. Taxes of approximately $1.6 million would become payable in the event the terms of the grant are not fulfilled.

Income Tax Uncertainties

We provide a liability for the amount of tax benefits realized from uncertain tax positions. A reconciliation of the beginning and ending amount of income tax uncertainties is as follows:

	2019		2018		2017
Balance at January 1	$	3,559	$	3,080	$	6,356
Increases based on tax positions for the current year		412		360		370
Increases based on tax positions of prior years		663		610		1,562
Settlements		(558)		(491)		(4,874)
Lapse of statute of limitations		(429)		—		(334)
Balance at December 31	$	3,647	$	3,559	$	3,080

The amount of income tax uncertainties that, if recognized, would impact the effective tax rate is approximately $3.6 million. We estimate that it is reasonably possible that the liability for uncertain tax positions will decrease no more than $1.8 million in the next twelve months from the resolution of various uncertain positions as a result of the completion of tax audits, litigation and the expiration of the statute of limitations in various jurisdictions.

We recognize interest and penalties accrued related to unrecognized tax benefits as a component of income taxes. As of December 31, 2019, 2018 and 2017, we had approximately $1.7 million, $1.9 million and $1.6 million, respectively, accrued for the payment of interest and penalties, of which approximately $0.2 million was recognized as a tax benefit for the year ended 2019 and $0.4 million and $0.1 million was recognized in income tax expense in the years ended December 31, 2018 and 2017, respectively.

Aptar or its subsidiaries file income tax returns in the U.S. Federal jurisdiction and various state and foreign jurisdictions. The major tax jurisdictions we file in, with the years still subject to income tax examinations, are listed below:

	Tax Years
Major Tax	Subject to
Jurisdiction	Examination
United States — Federal	2014-2019
United States — State	2010-2019
France	2016-2019
Germany	2015-2019
Italy	2014-2019
China	2010-2019