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Income Taxes | 12 Months Ended
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Dec. 31, 2015
Income Taxes [Abstract] |
Income Taxes | 7. Income Taxes The following tables present components of income tax (benefit)/expense and income before income taxes on continuing operations:
(in thousands) | 2015 | 2014 | 2013
Income tax based on income from continuing operations, at estimated tax rates of 32%, 34%, and 49%, respectively | $16,388 | $25,703 | $15,172
Pension plan settlements | - | (3,194) | (-)
Income tax before discrete items | 16,388 | 22,509 | 15,172
Discrete tax (benefit)/expense: |  |  |
Worthless stock deduction | (28,553) | - | -
Repatriation of non-U.S. prior years' earnings | - | 2,210 | 618
Provision for/resolution of tax audits and contingencies, net | 6,500 | 744 | 2,643
Adjustments to prior period tax liabilities | (867) | 397 | (942)
Provision for/adjustment to beginning of year valuation allowances | 75 | (109) | (3,741)
Enacted tax legislation | 670 | - | (282)
Other discrete tax adjustments, net | - | - | (96)
Total income tax (benefit)/expense | ($5,787) | $25,751 | $13,372
(in thousands) | 2015 | 2014 | 2013
Income/(loss) before income taxes: |  |  |
U.S. | ($7,211) | $4,993 | $14,395
Non-U.S. | 58,689 | 62,507 | 16,681
| $51,478 | $67,500 | $31,076
Income tax provision: |  |  |
Current: |  |  |
Federal | $- | $1,874 | $3,508
State | 1,993 | 1,102 | 2,301
Non-U.S. | 20,842 | 17,474 | 14,957
| $22,835 | $20,450 | $20,766
Deferred: |  |  |
Federal | ($34,135) | ($1,707) | $1,723
State | (40) | (495) | (180)
Non-U.S. | 5,553 | 7,503 | (8,937)
| ($28,622) | $5,301 | ($7,394)
Total income tax (benefit)/expense | ($5,787) | $25,751 | $13,372
The significant components of deferred income tax (benefit)/expense are as follows:
(in thousands) | 2015 | 2014 | 2013
Net effect of temporary differences | ($7,615) | ($1,667) | ($334)
Foreign tax credits | (17,874) | (481) | 2,378
Retirement benefits | 1,844 | 1,438 | 1,482
Net impact to operating loss carryforwards | (5,722) | 6,120 | (6,897)
Enacted changes in tax laws and rates | 670 | (-) | (282)
Adjustments to beginning-of-the-year valuation |  |  |
allowance balance for changes in circumstances | 75 | (109) | (3,741)
Total | ($28,622) | $5,301 | ($7,394)
A reconciliation of the U.S. federal statutory tax rate to the Company's effective income tax rate is as follows:
| 2015 |  | 2014 |  | 2013 |
U.S. federal statutory tax rate | 35.0 | % | 35.0 | % | 35.0 | %
State taxes, net of federal benefit | 2.4 |  | 1.7 |  | 4.9 |
Non-U.S. local income taxes | 4.1 |  | 4.0 |  | 8.7 |
Foreign adjustments and rate differential | (6.2) |  | (10.2) |  | 0.2 |
Net U.S. tax on non-U.S. earnings and foreign withholdings | (1.8) |  | 8.0 |  | 5.3 |
Provision for/resolution of tax audits and contingencies, net | 12.6 |  | 1.0 |  | 8.5 |
Research and development and other tax credits | (2.4) |  | (1.6) |  | (3.8) |
Adjustment to beginning of year valuation allowances | 0.1 |  | (0.2) |  | (12.0) |
Worthless stock deduction | (55.5 | ) | - |  | - |
Other | 0.5 |  | 0.4 |  | (3.8) |
Effective income tax rate | (11.2) | % | 38.1 | % | 43.0 | %
The Company has operations which constitute a taxable presence in 18 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 percent 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), Mexico (30% tax rate) and Switzerland (8% tax rate). As a result, the foreign income tax rate differential was primarily attributable to these tax rate differences. In 2015, 2014 and 2013 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. 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.
| 2015 | 2014 | 2015 | 2014
(in thousands) |  |  |  |
Current deferred tax assets: |  |  |  |
Accounts receivable | $- | $1,597 | $- | $1,537
Inventories | - | 343 | - | 1,240
Other | - | 2,662 | - | 3,574
Current deferred tax assets |  |  |  |
before valuation allowance | $- | $4,602 | $- | $6,351
Less: valuation allowance | - | - | - | (497)
Total current deferred tax assets | $- | $4,602 | $- | $5,854
Noncurrent deferred tax assets: |  |  |  |
Accounts receivable | 1,392 | - | 1,304 | -
Inventories | 897 | - | 1,750 | -
Deferred compensation | 6,714 | 5,981 | - | -
Depreciation and amortization | 10,323 | 3,575 | 4,882 | 4,460
Postretirement benefits | 26,475 | 28,344 | 4,138 | 4,804
Tax loss carryforwards | 2,682 | 1,358 | 27,134 | 34,980
Tax credit carryforwards | 42,851 | 24,426 | 1,740 | 1,772
Other | 10,222 | 2,939 | 3,503 | 428
Noncurrent deferred tax assets |  |  |  |
before valuation allowance | 101,556 | 66,623 | 44,451 | 46,444
Less: valuation allowance | - | - | (24,439) | (21,363)
Total noncurrent deferred tax assets | 101,556 | 66,623 | 20,012 | 25,081
Total deferred tax assets | $101,556 | $71,225 | $20,012 | $30,935
Current deferred tax liabilities: |  |  |  |
Unrepatriated foreign earnings | $- | $3,679 | $- | $ -
Inventories | - | - | - | 32
Other | - | - | - | 577
Total current deferred tax liabilities | - | 3,679 | - | 609
Noncurrent deferred tax liabilities: |  |  |  |
Unrepatriated foreign earnings | 1,157 | - | - | -
Depreciation and amortization | 10,309 | 11,587 | 3,174 | 3,106
Postretirement benefits | - | - | 2,003 | 1,917
Deferred Gain | 7,559 | 8,396 | - | -
Branch losses subject to recapture | - | - | 918 | 11,369
Other | - | - | 3,245 | 1,888
Total noncurrent deferred tax liabilities | 19,025 | 19,983 | 9,340 | 18,280
Total deferred tax liabilities | 19,025 | 23,662 | 9,340 | 18,889
Net deferred tax asset | $82,531 | $47,563 | $10,672 | $12,046
In 2015, the Company adopted the provisions of ASU 2015-17 which requires that deferred income taxes related to each tax paying jurisdiction be aggregated and classified as a single noncurrent asset or noncurrent liability. We adopted the ASU using the prospective transition method and, accordingly, we have not restated 2014 deferred income taxes as presented in the accompanying Consolidated Balance Sheets. Prior to adopting ASU 2015-17, we were required to net current deferred tax assets and liabilities, and to net noncurrent deferred tax assets and liabilities, for each tax jurisdiction. If we elected to use the retrospective transition method, the amounts in the 2014 Consolidated Balance Sheet would have been increased/(decreased) as follows:
| As of December
(in thousands) | 31, 2014
Current assets: Income taxes prepaid and deferred | ($6,743)
Noncurrent asset: Income taxes receivable and deferred | 13,657
Current liabilities: Income taxes payable and deferred | (575)
Noncurrent liabilities : Deferred taxes and other credits | 7,489
Total | $-
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 2015, the Company recorded an increase in its valuation allowance of $5.1 million due to a net increase of deferred tax assets and a decrease in its valuation allowance due to translation of $2.6 million, for a net increase in its valuation allowance of $2.5 million. At December 31, 2015, the Company had available approximately $220.0 million of net operating loss carryforwards in state and foreign jurisdictions, for which we have a deferred tax asset of $30.0 million, with expiration periods ranging from one year to indefinite that may be applied against future taxable income in those jurisdictions. 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 $21.6 million as of December 31, 2015. Included in the net operating loss carryforwards is approximately $20.7 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 $35.1 million that will begin to expire in 2018, research and development credit carryforwards of $7.6 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 $82.5 million at December 31, 2015, which contained $48.5 million of tax attributes with limited lives. Although the Company is in a cumulative book income position over the evaluation period (three-year period ending December 31, 2015), 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 tax attributes. Accordingly, no valuation allowance has been established for the 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, 2015 the Company reported a deferred tax liability of $1.1 million on $59.0 million of non-U.S. earnings that have been targeted for future repatriation to the U.S. Included in these amounts are $1.1 million of tax expense on approximately $46.8 million of foreign earnings that were generated in 2015. The accumulated undistributed earnings of the Company's foreign operations not targeted for repatriation to the U.S. were approximately $165.6 million, and are intended to remain permanently invested in foreign operations. Accordingly, no taxes have been provided on these earnings at December 31, 2015. 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) | 2015 | 2014 | 2013
Unrecognized tax benefits balance at January 1 | $19,509 | $12,538 | $24,386
Increase in gross amounts of tax positions related to prior years | 2,315 | 14,699 | 2,121
Decrease in gross amounts of tax positions related to prior years | (145) | (67) | -
Increase in gross amounts of tax positions related to current year | 79 | 1,077 | 2,622
Decrease due to settlements with tax authorities | (42) | (32) | (16,721)
Decrease due to lapse in statute of limitations | (90) | (6,775) | (-)
Currency translation | (2,020) | (1,931) | 130
Unrecognized tax benefits balance at December 31 | $19,606 | $19,509 | $12,538
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 ($0.1) million, $1.0 million and ($1.3) million in the Consolidated Statements of Income in 2015, 2014 and 2013, respectively. The 2013 negative amount include the reversal of $1.4 million of interest and penalties related to the settlement of audits. As of December 31, 2015, 2014 and 2013 the Company had approximately $0.4 million, $0.4 million, and $0.1 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 2015. 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 $0.6 million to a net decrease of $3.6 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 range principally results from the matter described in the following paragraph. 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 and $6.4 million in 2015. 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 $3.2 million of tax benefits that will continue to be challenged by the German tax authorities. As of December 31, 2015 and 2014, current income taxes prepaid and deferred consisted of the following:
(in thousands) | 2015 | 2014
Prepaid taxes | $2,417 | $-
Taxes receivable | 510 | -
Deferred income taxes | - | 6,743
Total current income taxes prepaid and deferred | $2,927 | $6,743
As of December 31, 2015 and 2014, noncurrent income taxes receivable and deferred consisted of the following:
(in thousands) | 2015 | 2014
Deferred income taxes | $105,792 | $59,022
Taxes receivable | 3,153 | 10,518
Total noncurrent income taxes receivable and deferred | $108,945 | $69,540
As of December 31, 2015 and 2014, current income taxes payable and deferred consisted of the following:
(in thousands) | 2015 | 2014
Taxes payable | $7,090 | $2,211
Deferred income taxes | - | 575
Total current income taxes payable and deferred | $7,090 | $2,786
As of December 31, 2015 and 2014, noncurrent deferred taxes and other liabilities consisted of the following:
(in thousands) | 2015 | 2014
Deferred income taxes | $12,589 | $5,583
Other liabilities | 1,565 | 1,580
Total noncurrent deferred taxes and other liabilities | $14,154 | $7,163
Taxes paid, net of refunds, amounted to $18.3 million in 2015, $17.6 million in 2014, and $29.4 million in 2013.

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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 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 2: 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 Reference 3: 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 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 + Details
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