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Income Taxes | 12 Months Ended
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Dec. 31, 2014
Income Taxes [Abstract] |
Income Taxes | 8. Income Taxes The following tables present components of income tax expense/(benefit) and income/(loss) before income taxes on continuing operations:
(in thousands) | 2014 | 2013 | 2012
Income tax based on income from continuing operations, at estimated tax rates of 34%, 49%, and 39%, respectively | $25,703 | $15,172 | $19,769
Pension plan settlements | (3,194) | - | (39,460)
Income tax before discrete items | 22,509 | 15,172 | (19,691)
Discrete tax expense/(benefit): |  |  |
Repatriation of non-U.S. prior years' earnings | 2,210 | 618 | -
Provision for/resolution of tax audits and contingencies, net | 744 | 2,643 | (2,747)
Adjustments to prior period tax liabilities | 397 | (942) | (1,471)
Provision for/adjustment to beginning of year valuation allowances | (109) | (3,741) | (2,442)
Enacted tax legislation | - | (282) | (973)
Other discrete tax adjustments, net | - | (96) | (199)
Total income tax expense/(benefit) | $25,751 | $13,372 | ($27,523)
(in thousands) | 2014 | 2013 | 2012
Income/(loss) before income taxes: |  |  |
U.S. | $4,993 | $14,395 | ($84,624)
Non-U.S. | 62,507 | 16,681 | 16,258
| $67,500 | $31,076 | ($68,366)
Income tax provision: |  |  |
Current: |  |  |
Federal | $1,874 | $3,508 | ($20,123)
State | 1,102 | 2,301 | (1,212)
Non-U.S. | 17,474 | 14,957 | 12,413
| $20,450 | $20,766 | ($8,922)
Deferred: |  |  |
Federal | ($1,707) | 1,723 | ($12,851)
State | (495) | (180) | (1,538)
Non-U.S. | 7,503 | 8,937) | (4,212)
| $5,301 | ($7,394) | ($18,601)
Total provision for income taxes | $25,751 | $13,372 | ($27,523)
The significant components of deferred income tax (benefit)/expense are as follows:
(in thousands) | 2014 | 2013 | 2012
Net effect of temporary differences | ($1,667) | ($334) | ($7,557)
Foreign tax credits | (481) | 2,378 | 9,468
Postretirement benefits | 1,438 | 1,482 | (18,337)
Net impact to operating loss carryforwards | 6,120 | (6,897) | 1,240
Enacted changes in tax laws and rates | - | (282) | (973)
Adjustments to beginning-of-the-year valuation |  |  |
allowance balance for changes in circumstances | (109) | (3,741) | (2,442)
Total | $5,301 | ($7,394) | ($18,601)
A reconciliation of the U.S. federal statutory tax rate to the Company's effective income tax rate is as follows:
| 2014 |  | 2013 |  | 2012 |
U.S. federal statutory tax rate | 35.0 | % | 35.0 | % | 35.0 | %
State taxes, net of federal benefit | 1.7 |  | 4.9 |  | 3.5 |
Non-U.S. local income taxes | 4.0 |  | 8.7 |  | 0.5 |
Foreign adjustments and rate differential | (10.2) |  | 0.2 |  | (1.7) |
U.S. tax on non-U.S. earnings and foreign withholdings | 8.0 |  | 5.3 |  | (1.2) |
Provision for/resolution of tax audits and contingencies, net | 1.0 |  | 8.5 |  | 4.0 |
Research and development and other tax credits | (1.6) |  | (3.8) |  | 0.9 |
Provision for/adjustment to beginning of year valuation allowances | (0.2) |  | (12.0) |  | (3.7) |
Other | 0.4 |  | (3.8) |  | 3.0 |
Effective income tax rate | 38.1 | % | 43.0 | % | 40.3 | %
The Company has operations which constitute a taxable presence in 19 countries outside of the United States. All of these countries except one had income tax rates that were lower than the United States federal tax rate during the periods reported. The jurisdictional location of earnings is a significant component of our effective tax rate each year. The rate impact of this component is influenced by the specific location of non-U.S. earnings and the level of our total earnings. From period to period, the jurisdictional mix of earnings can vary as a result of operating fluctuations in the normal course of business, as well as the extent and location of other income and expense items, such as pension settlement and restructuring charges. The foreign income tax rate differential that is included above in the reconciliation of the effective tax rate includes the difference between tax expense calculated at the U.S. federal statutory tax rate of 35% and the expense accrued based on lower statutory tax rates that apply in the jurisdictions where the income or loss is earned. During the periods reported, income outside of the U.S. was heavily concentrated within Brazil, China, (25% tax rates) and Switzerland (8% tax rate). As a result, the foreign income tax rate differential was primarily attributable to these tax rate differences. Also, in 2013 and 2012 the income tax rate differential was significantly reduced by the pension settlement and restructuring charges outside of the U.S. that resulted in a lower tax rate benefit, as compared to the benefit calculated using the higher U.S. tax rate. In 2014, we identified an error in the presentation of deferred tax assets and liabilities in balance sheets prior to 2014. The previously filed Consolidated Balance Sheets presented deferred tax assets and liabilities within the same tax jurisdiction on a gross basis. ASC 740-10-45-6 requires netting of current deferred tax assets and liabilities, and netting of noncurrent deferred tax assets and liabilities. The error had no impact on Shareholders' equity, the Consolidated Statements of Income, or the Consolidated Statements of Cash Flows. The Company concluded that the error is immaterial to any previously filed balance sheet and, accordingly, the correction is being handled as a revision to previously filed financial statements. The following table presents amounts previously reported in the 2013 Consolidated Balance Sheet, the correction, and the 2013 amounts in the accompanying Consolidated Balance Sheet.
As of December 31, 2013 (in thousands) | Total deferred taxes as reported in tax footnote | Taxes receivable or payable, and tax reserves | Total as previously reported in Balance Sheet | Amount of revision | Corrected Balance sheet as revised
Assets |  |  |  |  |
Deferred taxes | $13,873 | $ - | $13,873 | ($968) | $12,905
Taxes receivable and deferred | 103,185 | 16,427 | 119,612 | (39,763) | 79,849
Total | $117,058 | $16,427 | $133,485 | ($40,731) | $92,754
Liabilities |  |  |  |  |
Taxes payable and deferred | $3,855 | $1,536 | $5,391 | ($962) | $4,429
Deferred taxes and other credits | 46,690 | 7,786 | 54,476 | (39,769) | 14,707
Total | $50,545 | $9,322 | $59,867 | ($40,731) | $19,136
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of certain assets and liabilities for financial reporting and the amounts used for income tax expense purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
| U.S. | Non-U.S.
| 2014 | 2013 | 2014 | 2013
(in thousands) |  |  |  |
Current deferred tax assets: |  |  |  |
Accounts receivable | $1,597 | $1,526 | $1,537 | $2,397
Inventories | 343 | 1,432 | 1,240 | 2,411
Tax credit carryforwards | - | 1,000 | - | -
Other | 2,662 | 2,867 | 3,574 | 3,058
Current deferred tax assets |  |  |  |
before valuation allowance | $4,602 | $6,825 | $6,351 | $7,866
Less: valuation allowance | - | - | (497) | (818)
Total current deferred tax assets | $4,602 | $6,825 | $5,854 | $7,048
Noncurrent deferred tax assets: |  |  |  |
Deferred compensation | 5,981 | 5,794 | - | -
Depreciation and amortization | 3,575 | 4,289 | 4,460 | 3,505
Postretirement benefits | 28,344 | 28,038 | 4,804 | 4,540
Tax loss carryforwards | 1,358 | 1,457 | 34,980 | 76,026
Tax credit carryforwards | 24,426 | 23,992 | 1,772 | 1,508
Other | 2,939 | 2,834 | 428 | 371
Noncurrent deferred tax assets |  |  |  |
before valuation allowance | 66,623 | 66,404 | 46,444 | 85,950
Less: valuation allowance | - | - | (21,363) | (49,169)
Total noncurrent deferred tax assets | 66,623 | 66,404 | 25,081 | 36,781
Total deferred tax assets | $71,225 | $73,229 | $30,935 | $43,829
Current deferred tax liabilities: |  |  |  |
Unrepatriated foreign earnings | $3,679 | $667 | $ - | $ -
Inventories | - | - | 32 | 1,366
Other | - | - | 577 | 1,822
Total current deferred tax liabilities | 3,679 | 667 | 609 | 3,188
Noncurrent deferred tax liabilities: |  |  |  |
Depreciation and amortization | 11,587 | 13,169 | 3,106 | 8,357
Postretirement benefits | - | - | 1,917 | 1,377
Deferred Gain | 8,396 | 9,013 | - | -
Branch losses subject to recapture | - | - | 11,369 | 12,380
Other | - | - | 1,888 | 2,394
Total noncurrent deferred tax liabilities | 19,983 | 22,182 | 18,280 | 24,508
Total deferred tax liabilities | 23,662 | 22,849 | 18,889 | 27,696
Net deferred tax asset | $47,563 | $50,380 | $12,046 | $16,133
Deferred income tax assets, net of valuation allowances, are expected to be realized through the reversal of existing taxable temporary differences and future taxable income. In 2014, the Company recorded a net decrease in its valuation allowance of $28.1 million. The reduction in deferred valuation allowances in 2014 was principally due to the recognition of an uncertain tax benefit of $12.5 million that decreased a reserved deferred tax asset and $9.7 million related to a write-off of a reserved deferred tax loss that expired. At December 31, 2014, the Company had available approximately $250.2 million of net operating loss carryforwards, for which we have a deferred tax asset of $36.3 million, with expiration dates ranging from one year to indefinite that may be applied against future taxable income. We believe that it is more likely than not that certain benefits from these net operating loss carryforwards will not be realized and, accordingly, we have recorded a valuation allowance of $17.8 million as of December 31, 2014. Included in the net operating loss carryforwards is approximately $22.3 million of state net operating loss carryforwards that are subject to various business apportionment factors and multiple jurisdictional requirements when utilized. In addition, the Company had available a foreign tax credit carryforward of $17.3 million that will begin to expire in 2019, research and development credit carryforwards of $6.6 million that will begin to expire in 2025, and alternative minimum tax credit carryforwards of $1.2 million with no expiration date. The Company reported a U.S. net deferred tax asset of $47.6 million at December 31, 2014, which contained $25.8 million of tax attributes with limited lives. The Company is in a cumulative book income position over the evaluation period (three-year period ending December 31, 2014). Management has evaluated its ability to utilize these tax attributes during the carryforward period. The Company's future profits from operations, coupled with the repatriation of non-U.S. earnings will generate income of sufficient character to utilize the remaining tax attributes. Accordingly, no valuation allowance has been established for the remaining U.S. net deferred tax assets. The Company records the residual U.S. and foreign taxes on certain amounts of foreign earnings that have been targeted for repatriation to the U.S. As a result, such amounts are not considered to be permanently reinvested, and the Company accrued for the residual taxes on these earnings to the extent they cannot be repatriated in a tax-free manner. At December 31, 2014 the Company reported a deferred tax liability of $3.7 million on $59.4 million of non-U.S. earnings that have been targeted for future repatriation to the U.S. Included in these amounts is $1.5 million of tax expense on approximately $22.2 million of foreign earnings that were generated in 2014. The accumulated undistributed earnings of the Company's foreign operations not targeted for repatriation to the U.S. were approximately $334.3 million, and are intended to remain permanently invested in foreign operations. Accordingly, no taxes have been provided on these earnings at December 31, 2014. If these earnings were distributed, the Company would be subject to both foreign withholding taxes and U.S. income taxes that may not be fully offset by foreign tax credits. Determination of the amount of any unrecognized deferred tax liability on these earnings is not practicable because of the complexities of the hypothetical calculation. The following table provides a reconciliation of the beginning and ending amount of unrecognized tax benefits, all of which, if recognized, would impact the effective tax rate.
(in thousands) | 2014 | 2013 | 2012
Unrecognized tax benefits balance at January 1 | $12,538 | $24,386 | $27,053
Increase in gross amounts of tax positions related to prior years | 14,699 | 2,121 | 9,454
Decrease in gross amounts of tax positions related to prior years | (67) | - | -
Increase in gross amounts of tax positions related to current year | 1,077 | 2,622 | 381
Decrease due to settlements with tax authorities | (32) | (16,721) | (13,099)
Decrease due to lapse in statute of limitations | (6,775) | - | (20)
Currency translation | (1,931) | 130 | 617
Unrecognized tax benefits balance at December 31 | $19,509 | $12,538 | $24,386
The Company recognizes interest and penalties related to unrecognized tax benefits within its global operations as a component of income tax expense. The Company recognized interest and penalties related to the unrecognized tax benefits noted above of $1.0 million, ($1.3) million and ($6.4) million in the Consolidated Statements of Income in 2014, 2013 and 2012, respectively. The 2013 and 2012 negative amounts include the reversal of $1.4 million and $7.4 million of interest and penalties related to the settlement of audits, respectively. As of December 31, 2014, 2013, and 2012 the Company had approximately $0.4 million, $0.1 million, and $1.4 million respectively, of accrued interest and penalties related to unrecognized tax benefits. We conduct business globally and, as a result, the Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world, including major jurisdictions such as the United States, Brazil, Canada, France, Germany, Italy, Mexico, and Switzerland. The open tax years in these jurisdictions range from 2000 to 2014. We are currently under audit in the U.S. and in other non-U.S. tax jurisdictions, including but not limited to Canada, Germany, and Italy. It is reasonably possible that over the next twelve months the amount of unrecognized tax benefits may change within a range of a net increase of $8.8 million to a net decrease of $2.4 million, from the reevaluation of uncertain tax positions arising in examinations, in appeals, or in the courts, or from the closure of tax statutes. The Company recognized current and deferred tax benefits of approximately $25.3 million on their corporate income tax returns filed in Germany related to a 1999 reorganization that have been challenged by the German tax authorities in the course of an audit. In 2008, the German Federal Tax Court (FTC) denied tax benefits to other taxpayers in a case involving German tax laws relevant to our reorganization. One of these cases involved a non-German party, and in the ruling in that case, the FTC acknowledged that the German law in question may be violative of European Union (EU) principles and referred the issue to the European Court of Justice (ECJ) for its determination on this issue. In September 2009, the ECJ issued an opinion in this case that is generally favorable to the other taxpayer and referred the case back to the FTC for further consideration. In May 2010, the FTC released its decision, in which it resolved certain tax issues that may be relevant to our audit and remanded the case to a lower court for further development. In 2012, the lower court decided in favor of the taxpayer and the government appealed the findings to the FTC. On July 2, 2014, the FTC conducted a hearing in the aforementioned case involving the other taxpayer, and the taxpayer lost. The final written decision of the FTC was published during the fourth quarter of 2014. Although the decision of the FTC in the case is not determinative of the outcome in our case, management views the conclusion of this matter as an opportunity to approach the German tax authorities with the goal of a settlement agreement. We were required to pay tax and interest of approximately $14.5 million to the German tax authorities in order to pursue our appeal position. In anticipation of a settlement, a portion of the prepaid taxes and interest along with certain deferred tax assets were adjusted downward by $6.3 million in 2014. The recognition of the uncertain tax position in deferred tax assets was partially offset by a reduction in a valuation allowance that offset the deferred tax assets. The remaining tax benefits sustained on the books are related to current tax benefits that were recognized in earlier tax years. Included in the range above is approximately $8.8 million of tax benefits that will continue to be challenged by the German tax authorities. The deferred tax amounts reported below and in the Consolidated Balance Sheets have been revised to properly reflect the netting of current and noncurrent deferred tax assets and liabilities that had previously not been completed in accordance with ASC 740-10-45-6. As of December 31, 2014 and 2013 and including the effect of the revision to 2013 described above, noncurrent taxes receivable and deferred consisted of the following:
(in thousands) | 2014 | 2013
Income taxes receivable | $10,518 | $16,427
Deferred income taxes | 59,022 | 103,185
Total noncurrent deferred taxes and taxes receivable | $69,540 | $119,612
As of December 31, 2014 and 2013 and including the effect of the revision to 2013 described above, current taxes payable and deferred consisted of the following:
(in thousands) | 2014 | 2013
Taxes payable | $2,211 | $1,536
Deferred income taxes | 575 | 3,855
Total current income taxes payable and deferred | $2,786 | $5,391
Taxes paid, net of refunds, amounted to $17.6 million in 2014, $29.4 million in 2013, and $15.1 million in 2012.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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