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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes On December 22, 2017, H.R.1, commonly referred to as the Tax Cuts and Jobs Act (Tax Act) was enacted into law in the United States. This new tax legislation represents one of the most significant overhauls to the U.S. federal tax code since 1986. The Tax Act lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. The Tax Act also includes numerous provisions, including, but not limited to, (1) imposing a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that had not been previously taxed in the U.S.; (2) creating a new provision designed to tax global intangible low-tax income (GILTI); (3) generally eliminating U.S. federal taxes on dividends from foreign subsidiaries; (4) eliminating the corporate alternative minimum tax (AMT); (5) creating the base erosion anti-abuse tax (BEAT); (6) establishing the deduction for foreign derived intangible income (FDII); (7) repealing the domestic production activity deduction; and (8) establishing new limitations on deductible interest expense and certain executive compensation. On December 22, 2017, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 118 (SAB 118), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company's accounting for certain income tax effects of the Tax Act is incomplete but is able to determine a reasonable estimate, it must recognize a provisional estimate in the financial statements. Pursuant to SAB 118, we recognized provisional estimates for the impact of the Tax Act in 2017. This included a one-time tax charge of $30.4 million to remeasure our deferred tax assets as a result of these legislative changes. We have completed our accounting for the Tax Act, and we did not make any material adjustments to these provisional amounts for the year ended December 31, 2018. The following table summarizes the provision (benefit) for U.S. federal, state, and foreign taxes on income from continuing operations:
| Year Ended December 31, |  |  |  |
In thousands | 2019 |  | 2018 |  | 2017
Current: |  |  |  |  |
Federal | $ | 4,859 |  |  | $ | (7,695) |  |  | $ | 7,679 |
State and local | 2,179 |  |  | (362) |  |  | 3,841 |
Foreign | 13,771 |  |  | 14,618 |  |  | 12,139 |
Total current | 20,809 |  |  | 6,561 |  |  | 23,659 |
Deferred: |  |  |  |  |
Federal | 2,334 |  |  | (17,463) |  |  | 40,340 |
State and local | (1,846) |  |  | (4,492) |  |  | (1,144) |
Foreign | (6,033) |  |  | (22,906) |  |  | 3,480 |
Total deferred | (5,545) |  |  | (44,861) |  |  | 42,676 |
Change in valuation allowance | 5,353 |  |  | 25,730 |  |  | 7,991 |
Total provision (benefit) for income taxes | $ | 20,617 |  |  | $ | (12,570) |  |  | $ | 74,326 |
The change in the valuation allowance does not include the impacts of currency translation adjustments, acquisitions, or significant intercompany transactions. Our tax provision (benefit) as a percentage of income before tax was 28%, 12%, and 55% for 2019, 2018, and 2017, respectively. Our actual tax rate differed from the 21% or 35% U.S. federal statutory tax rate due to various items. A reconciliation of income taxes at the U.S. federal statutory rate of 21% for 2019 and 2018 and 35% for 2017 to the consolidated actual tax rate is as follows:
| Year Ended December 31, |  |  |  |
In thousands | 2019 |  | 2018 |  | 2017
Income (loss) before income taxes |  |  |  |  |
Domestic | $ | 57,261 |  |  | $ | (50,463) |  |  | $ | 220,342 |
Foreign | 15,771 |  |  | (58,688) |  |  | (85,767) |
Total income before income taxes | $ | 73,032 |  |  | $ | (109,151) |  |  | $ | 134,575 |
Expected federal income tax provision | $ | 15,337 |  |  | $ | (22,922) |  |  | $ | 47,101 |
Change in valuation allowance | 5,353 |  |  | 25,730 |  |  | 7,991 |
Stock-based compensation | (2,130) |  |  | (104) |  |  | (1,225) |
Foreign earnings | (15,610) |  |  | (15,799) |  |  | (22,045) |
Tax credits | (8,794) |  |  | (10,502) |  |  | (777) |
Uncertain tax positions, including interest and penalties | 13,060 |  |  | 7,727 |  |  | (7,637) |
Change in tax rates | 4,999 |  |  | 335 |  |  | 41,125 |
State income tax provision (benefit), net of federal effect | 2,805 |  |  | (4,524) |  |  | 4,986 |
U.S. tax provision on foreign earnings | 129 |  |  | 25 |  |  | 33 |
Domestic production activities deduction | — |  |  | — |  |  | (2,534) |
Local foreign taxes | 1,471 |  |  | 2,540 |  |  | 2,324 |
Transaction costs | — |  |  | 974 |  |  | 2,643 |
Other, net | 3,997 |  |  | 3,950 |  |  | 2,341 |
Total provision (benefit) from income taxes | $ | 20,617 |  |  | $ | (12,570) |  |  | $ | 74,326 |
Change in tax rates line above includes the deferred tax impact of rate changes in 2017 to the U.S., France, and Luxembourg, among others. The rate change in 2019 related primarily to Luxembourg. Deferred tax assets and liabilities consist of the following:
| December 31, |  |
In thousands | 2019 |  | 2018
Deferred tax assets |  |  |
Loss carryforwards(1) | $ | 343,614 |  |  | $ | 370,120 |
Tax credits(2) | 98,098 |  |  | 94,359 |
Accrued expenses | 46,846 |  |  | 43,213 |
Pension plan benefits expense | 17,310 |  |  | 18,086 |
Warranty reserves | 12,961 |  |  | 13,470 |
Depreciation and amortization | 6,112 |  |  | 5,709 |
Equity compensation | 4,685 |  |  | 5,390 |
Inventory valuation | 1,069 |  |  | 1,415 |
Deferred revenue | 8,951 |  |  | 9,062 |
Leases | 13,876 |  |  | — |
Other deferred tax assets, net | 9,777 |  |  | 11,319 |
Total deferred tax assets | 563,299 |  |  | 572,143 |
Valuation allowance | (320,649) |  |  | (323,822) |
Total deferred tax assets, net of valuation allowance | 242,650 |  |  | 248,321 |
Deferred tax liabilities |  |  |
Depreciation and amortization | (161,044) |  |  | (178,358) |
Leases | (12,976) |  |  | — |
Other deferred tax liabilities, net | (6,540) |  |  | (6,676) |
Total deferred tax liabilities | (180,560) |  |  | (185,034) |
Net deferred tax assets | $ | 62,090 |  |  | $ | 63,287 |
(1)For tax return purposes at December 31, 2019, we had U.S. federal loss carryforwards of $187.5 million, which begin to expire in the year 2020. At December 31, 2019, we have net operating loss carryforwards in Luxembourg of $992.7 million, the majority of which can be carried forward indefinitely, offset by a full valuation allowance. The remaining portion of the loss carryforwards are composed primarily of losses in various other state and foreign jurisdictions. The majority of these losses can be carried forward indefinitely. At December 31, 2019, there was a valuation allowance of $320.6 million primarily associated with foreign loss carryforwards and foreign tax credit carryforwards (discussed below). (2)For tax return purposes at December 31, 2019, we had: (1) U.S. general business credits of $39.0 million, which begin to expire in 2022; (2) U.S. alternative minimum tax credits of $0.8 million that can be carried forward indefinitely; (3) U.S. foreign tax credits of $50.5 million, which begin to expire in 2024; and (4) state tax credits of $34.4 million, which begin to expire in 2020. Changes in the valuation allowance for deferred tax assets are summarized as follows:
| Year Ended December 31, |  |  |  |
In thousands | 2019 |  | 2018 |  | 2017
Balance at beginning of period | $ | 323,822 |  |  | $ | 285,784 |  |  | $ | 249,560 |
Other adjustments | (8,526) |  |  | 12,308 |  |  | 28,233 |
Additions charged to costs and expenses | 5,353 |  |  | 25,730 |  |  | 7,991 |
Balance at end of period, noncurrent | $ | 320,649 |  |  | $ | 323,822 |  |  | $ | 285,784 |
We recognize valuation allowances to reduce deferred tax assets to the extent we believe it is more likely than not that a portion of such assets will not be realized. In making such determinations, we consider all available favorable and unfavorable evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and our ability to carry back losses to prior years. We are required to make assumptions and judgments about potential outcomes that lie outside management's control. Our most sensitive and critical factors are the projection, source, and character of future taxable income. Although realization is not assured, management believes it is more likely than not that deferred tax assets, net of valuation allowance, will be realized. The amount of deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward periods are reduced or current tax planning strategies are not implemented. We do not provide U.S. deferred taxes on temporary differences related to our foreign investments that are considered permanent in duration. These temporary differences include undistributed foreign earnings of $13.7 million and $5.1 million at December 31, 2019 and 2018, respectively. Foreign taxes have been provided on these undistributed foreign earnings. As a result of recent changes in U.S. tax legislation, any repatriation of these earnings would not result in additional U.S. federal income tax. We are subject to income tax in the United States and numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The provision for income taxes includes the impact of reserve positions and changes to reserves that are considered appropriate. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
In thousands | Total |
Unrecognized tax benefits at January 1, 2017 | $ | 57,626 |
Gross increase to positions in prior years | 3,367 |
Gross decrease to positions in prior years | (5,559) |
Gross increases to current period tax positions | 6,453 |
Audit settlements | (5,169) |
Decrease related to lapsing of statute of limitations | (3,445) |
Effect of change in exchange rates | 3,429 |
Unrecognized tax benefits at December 31, 2017 | $ | 56,702 |
Gross increase to positions in prior years | 22,943 |
Gross decrease to positions in prior years | (24,949) |
Gross increases to current period tax positions | 63,869 |
Audit settlements | (2,977) |
Decrease related to lapsing of statute of limitations | (1,368) |
Effect of change in exchange rates | (1,662) |
Unrecognized tax benefits at December 31, 2018 | $ | 112,558 |
Gross increase to positions in prior years | 1,067 |
Gross decrease to positions in prior years | (3,296) |
Gross increases to current period tax positions | 13,762 |
Audit settlements | — |
Decrease related to lapsing of statute of limitations | (1,574) |
Effect of change in exchange rates | (802) |
Unrecognized tax benefits at December 31, 2019 | $ | 121,715 |
| At December 31, |  |  |  |
In thousands | 2019 |  | 2018 |  | 2017
The amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate | $ | 120,410 |  |  | $ | 111,224 |  |  | $ | 55,312 |
If certain unrecognized tax benefits are recognized they would create additional deferred tax assets. These assets would require a full valuation allowance in certain locations based upon present circumstances. We classify interest expense and penalties related to unrecognized tax benefits and interest income on tax overpayments as components of income tax expense. The net interest and penalties expense recognized is as follows:
| Year Ended December 31, |  |  |  |
In thousands | 2019 |  | 2018 |  | 2017
Net interest and penalties expense (benefit) | $ | 708 |  |  | $ | (990) |  |  | $ | (543) |
| At December 31, |  |
In thousands | 2019 |  | 2018
Accrued interest | $ | 2,849 |  |  | $ | 2,127 |
Accrued penalties | 1,681 |  |  | 1,758 |
At December 31, 2019, we are under examination by certain tax authorities. We believe we have appropriately accrued for the expected outcome of all tax matters and do not currently anticipate that the ultimate resolution of these examinations will have a material adverse effect on our financial condition, future results of operations, or cash flows. Based upon the timing and outcome of examinations, litigation, the impact of legislative, regulatory, and judicial developments, and the impact of these items on the statute of limitations, it is reasonably possible that the related unrecognized tax benefits could change from those recognized within the next twelve months. However, at this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made. We file income tax returns in various jurisdictions. We are subject to income tax examination by tax authorities in our major tax jurisdictions as follows:
Tax Jurisdiction |  | Years Subject to Audit
U.S. federal |  | Subsequent to 2001
France |  | Subsequent to 2012
Germany |  | Subsequent to 2013
Brazil |  | Subsequent to 2013
United Kingdom |  | Subsequent to 2015
Italy |  | Subsequent to 2014

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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