Income Taxes

12 Months Ended

Dec. 31, 2019



	Years ended December 31,
	2019			2018			2017
				(In thousands)
Income before taxes:
United States operations	$	42,833		$	115,500		$	80,048
Foreign operations	109,577			114,580			17,940
Income before taxes	$	152,410		$	230,080		$	97,988
Income tax expense (benefit):
Currently payable
United States federal	$	21,893		$	31,730		$	(2,751	)
United States state and local	3,090			3,912			336
Foreign	13,859			16,968			26,807
	38,842			52,610			24,392
Deferred
United States federal	7,567			7,220			(17,741		)
United States state and local	(1,205		)	(31		)	(7,115		)
Foreign	(2,685		)	3,137			(4,155		)
	3,677			10,326			(29,011		)
Income tax expense (benefit)	$	42,519		$	62,936		$	(4,619	)



	Years Ended December 31,
	2019		2018		2017
Effective income tax rate reconciliation from continuing operations:
United States federal statutory rate	21.0	%	21.0	%	35.0	%
State and local income taxes	1.2	%	1.5	%	0.7	%
Impact of change in tax contingencies	—	%	(0.7	)%	1.1	%
Foreign income tax rate differences	(8.6	)%	(1.0	)%	15.1	%
Impact of change in deferred tax asset valuation allowance	9.2	%	0.3	%	0.7	%
Impact of non-taxable translation gain	—	%	—	%	(27.7	)%
Impact of non-taxable interest income	—	%	—	%	(5.6	)%
Domestic permanent differences and tax credits	5.1	%	1.9	%	(49.0	)%
Impact of tax reform	—	%	4.4	%	25.0	%
	27.9	%	27.4	%	(4.7	)%

On December 22, 2017, the “Tax Cuts and Jobs Act” (the “Act”) was signed into law, making significant changes to the U.S. Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial tax system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. In accordance with the Act, we recorded $24.5 million as an additional income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted. The total income tax expense included a $41.6 million tax benefit for the remeasurement of deferred tax assets and liabilities to the 21% rate at which they are expected to reverse, offset with a one-time tax expense on deemed repatriation of $30.8 million and a valuation allowance of $35.3 million recorded against foreign tax credit carryovers that we no longer expect to be able to realize based upon the new tax law.

Additionally, Staff Accounting Bulletin No. 118 (“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 (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. December 22, 2018 marked the end of the measurement period for purposes of SAB 118. As such, we completed our analysis based on legislative updates relating to the Act which resulted in an additional SAB 118 tax expense of $2.9 million in the fourth quarter of 2018 and a total tax expense of $10.0 million for the year ended December 31, 2018. The total tax provision expense included an $8.0 million tax expense associated with an increase

to the valuation allowance against foreign tax credit carryovers that we no longer expect to be able to realize based upon the new tax law, a $1.3 million tax expense adjustment to the transition tax on the deemed repatriation of cumulative foreign earnings, a $1.1 million tax expense resulting from a valuation allowance established on the deferred tax assets associated with stock options of covered employees, and a $0.4 million income tax benefit associated with an adjustment to the remeasurement of certain deferred tax assets and liabilities.

During 2019, the United States Treasury issued final and proposed regulations with respect to certain aspects related to the Tax Cuts and Jobs Acts of 2017. Additional guidance provided in these regulations resulted in a tax adjustment in the fourth quarter of 2019. The total tax provision expense in 2019 included $10.0 million tax expense associated with the increase to the valuation allowance against foreign tax credit carryovers that we no longer expect to be able to realize based upon the new proposed tax regulations.

If we were to repatriate foreign cash to the U.S., we may be required to accrue and pay U.S. taxes in accordance with applicable U.S. tax rules and regulations as a result of the repatriation. However, it is our assertion to permanently reinvest the earnings of our non-U.S. subsidiaries in those operations and for continued non-U.S. growth opportunities. As a result, as of December 31, 2019, we have not made a provision for U.S. or additional foreign withholding taxes.

Foreign tax rate differences resulted in an income tax expense (benefit) of $(13.1) million, $(2.4) million, and $14.7 million in 2019, 2018, and 2017, respectively. Additionally, in 2019, 2018 and 2017, our income tax expense was reduced by $3.9 million, $3.0 million, and $3.5 million, respectively, due to a tax holiday for our operations in St. Kitts. The tax holiday in St. Kitts is scheduled to expire in 2022.



	December 31,
	2019			2018
	(In thousands)
Components of deferred income tax balances:
Deferred income tax liabilities:
Plant, equipment, and intangibles	$	(96,254	)	$	(98,141	)
Deferred income tax assets:
Postretirement, pensions, and stock compensation	30,338			27,549
Reserves and accruals	16,371			20,641
Net operating loss and tax credit carryforwards	76,456			79,703
Valuation allowances	(50,420		)	(39,402		)
	72,745			88,491
Net deferred income tax liability	$	(23,509	)	$	(9,650	)

During 2019, the United States Treasury issued final and proposed regulations with respect to certain aspects related to the Tax Cuts and Jobs Act of 2017. Additional guidance provided in these regulations resulted in a change in our valuation allowance assessment in the fourth quarter of 2019. The increase in deferred tax valuation allowances is primarily due to the valuation allowance against foreign tax credit carryovers that we no longer expect to be able to realize based upon the new proposed tax regulations.

As of December 31, 2019, we had $216.6 million of gross net operating loss carryforwards and $47.1 million of tax credit carryforwards. Unless otherwise utilized, net operating loss carryforwards will expire upon the filing of the tax returns for the following respective years: $6.7 million in 2019, $22.6 million between 2020 and 2024, and $142.3 million between 2025 and 2039. Net operating losses with an indefinite carryforward period total $45.0 million. Of the $216.6 million in net operating loss carryforwards, we have determined, based on the weight of all available evidence, both positive and negative, that we will utilize $150.5 million of these net operating loss carryforwards within their respective expiration periods. A valuation allowance has been recorded on the remaining portion of the net operating loss carryforwards.

Unless otherwise utilized, tax credit carryforwards of $47.1 million will expire as follows: $2.1 million between 2020 and 2024, $39.8 million between 2025 and 2039. Tax credit carryforwards with an indefinite carryforward period total $5.2 million. We have determined, based on the weight of all available evidence, both positive and negative, that we will utilize $8.3 million of these tax credit carryforwards within their respective expiration periods. A valuation allowance has been recorded on the remaining portion of the tax credit carryforwards.

The following tables summarize our net operating loss carryforwards and tax credit carryforwards as of December 31, 2019 by jurisdiction:



	Net Operating Loss Carryforwards
	(In thousands)
Australia	$	9,589
Germany	16,768
Japan	330
Luxembourg	86
Netherlands	14,165
Other	57,567
United Kingdom	10,854
United States - Federal and various states	107,280
Total	$	216,639



	Tax Credit Carryforwards
	(In thousands)
United States	$	45,877
Canada	1,187
Total	$	47,064

In 2019, we recognized a net $0.2 million increase to reserves for uncertain tax positions. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:



	2019			2018
	(In thousands)
Balance at beginning of year	$	6,591		$	6,881
Additions based on tax positions related to the current year	488			749
Additions for tax positions of prior years	—			1,292
Reductions for tax positions of prior years - Settlement	(300		)	(1,571		)
Reduction for tax positions of prior years - Statute of limitations	—			(760		)
Balance at end of year	$	6,779		$	6,591

The balance of $6.8 million at December 31, 2019, reflects tax positions that, if recognized, would impact our effective tax rate.

As of December 31, 2019, we believe it is reasonably possible that $0.4 million of unrecognized tax benefits will change within the next twelve months primarily attributable to the expected completion of tax audits in the U.S.

Our practice is to recognize interest and penalties related to uncertain tax positions in interest expense and operating expenses, respectively. We do not have any accrued amounts for the payment of interest and penalties as of December 31, 2019 and 2018.

Our federal tax return for the tax years 2015 and later remain subject to examination by the Internal Revenue Service. Our state and foreign income tax returns for the tax years 2011 and later remain subject to examination by various state and foreign tax authorities.