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Income Taxes | 12 Months Ended
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Dec. 31, 2016
Income Tax Disclosure [Abstract] |
Income Taxes | 7. Income Taxes The following tables present components of income tax expense/(benefit) and income before income taxes on continuing operations:
(in thousands) |  | 2016 |  | 2015 |  | 2014
Income tax based on income from continuing operations, at estimated tax rates of 35%, 32%, and 34%, respectively |  | $27,629 |  |  | $16,388 |  |  | $25,703 |
Pension plan settlements |  | - |  |  | - |  |  | (3,194 | )
Income tax before discrete items |  | 27,629 |  |  | 16,388 |  |  | 22,509 |
Discrete tax expense/(benefit): |  |  |  |  |  |  |  |  |
Worthless Stock deduction |  | - |  |  | (28,553 | ) |  | - |
Repatriation of non-U.S. prior years' earnings |  | - |  |  | - |  |  | 2,210 |
Provision for/resolution of tax audits and contingencies, net |  | (2,856 | ) |  | 6,500 |  |  | 744 |
Adjustments to prior period tax liabilities |  | 769 |  |  | (867 | ) |  | 397 |
Provision for/adjustment to beginning of year valuation allowances |  | (88 | ) |  | 75 |  |  | (109 | )
Enacted tax legislation |  | - |  |  | 670 |  |  | - |
Total income tax expense/(benefit) |  | $25,454 |  |  | ($5,787 | ) |  | $25,751 |
(in thousands) |  | 2016 |  | 2015 |  | 2014
Income/(loss) before income taxes: |  |  |  |  |  |
U.S. |  | $8,556 |  |  | ($7,211 | ) |  | $4,993 |
Non-U.S. |  | 69,710 |  |  | 58,689 |  |  | 62,507 |
|  | $78,266 |  |  | $51,478 |  |  | $67,500 |
Income tax provision: |  |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |  |
Federal |  | $3,728 |  |  | $- |  |  | $1,874 |
State |  | 176 |  |  | 1,993 |  |  | 1,102 |
Non-U.S. |  | 19,979 |  |  | 20,842 |  |  | 17,474 |
|  | $23,883 |  |  | $22,835 |  |  | $20,450 |
Deferred: |  |  |  |  |  |  |  |  |
Federal |  | $2,138 |  |  | ($34,135 | ) |  | ($1,707 | )
State |  | 1,984 |  |  | (40 | ) |  | (495 | )
Non-U.S. |  | (2,551 | ) |  | 5,553 |  |  | 7,503 |
|  | $1,571 |  |  | ($28,622 | ) |  | $5,301 |
Total income tax expense/(benefit) |  | $25,454 |  |  | ($5,787 | ) |  | $25,751 |
The significant components of deferred income tax expense/(benefit) are as follows:
(in thousands) |  | 2016 |  | 2015 |  | 2014
Net effect of temporary differences |  | $7,214 |  |  | ($7,615 | ) |  | ($1,667 | )
Foreign tax credits |  | (6,869 | ) |  | (17,874 | ) |  | (481 | )
Retirement benefits |  | 1,734 |  |  | 1,844 |  |  | 1,438 |
Net impact to operating loss carryforwards |  | (603 | ) |  | (5,722 | ) |  | 6,120 |
Enacted changes in tax laws and rates |  | 183 |  |  | 670 |  |  | - |
Adjustments to beginning-of-the-year valuation |  |  |  |  |  |
allowance balance for changes in circumstances |  | (88 | ) |  | 75 |  |  | (109 | )
Total |  | $1,571 |  |  | ($28,622 | ) |  | $5,301 |
A reconciliation of the U.S. federal statutory tax rate to the Company’s effective income tax rate is as follows:
|  | 2016 |  | 2015 |  | 2014
U.S. federal statutory tax rate |  | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State taxes, net of federal benefit |  | 2.3 |  |  | 2.4 |  |  | 1.7 |
Non-U.S. local income taxes |  | 3.5 |  |  | 4.1 |  |  | 4.0 |
Foreign adjustments |  | 1.6 |  |  | 7.4 |  |  | 3.7 |
Foreign rate differential |  | (11.3 | ) |  | (13.6 | ) |  | (13.9 | )
Net U.S. tax on non-U.S. earnings and foreign withholdings |  | 5.8 |  |  | (1.8 | ) |  | 8.0 |
Provision for/resolution of tax audits and contingencies, net |  | (3.4 | ) |  | 12.6 |  |  | 1.0 |
Research and development and other tax credits |  | (1.2 | ) |  | (2.4 | ) |  | (1.6 | )
Adjustment to beginning of year valuation allowances |  | (0.1 | ) |  | 0.1 |  |  | (0.2 | )
Worthless stock deduction |  | - |  |  | (55.5 | ) |  | - |
Other |  | 0.3 |  |  | 0.5 |  |  | 0.4 |
Effective income tax rate |  | 32.5 | % |  | (11.2 | )% |  | 38.1 | %
The Company has operations which constitute a taxable presence in 18 countries outside of the United States. All of these countries had income tax rates that were at or below the United States’ federal tax rate of 35% 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, (both with 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. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of certain assets and liabilities for financial reporting and income tax return purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:
|  | U.S. |  |  |  | Non-U.S. |  |
|  | 2016 |  | 2015 |  | 2016 |  | 2015
(in thousands) |  |  |  |  |  |  |  |
Noncurrent deferred tax assets: |  |  |  |  |  |  |  |  |  |  |  |
Accounts receivable |  | $1,155 |  |  | $1,392 |  |  | $1,381 |  |  | $1,304 |
Inventories |  | 1,193 |  |  | 897 |  |  | 1,868 |  |  | 1,750 |
Deferred compensation |  | 7,533 |  |  | 6,714 |  |  | - |  |  | - |
Depreciation and amortization |  | 2,786 |  |  | 10,323 |  |  | 5,030 |  |  | 4,882 |
Postretirement benefits |  | 26,602 |  |  | 26,475 |  |  | 3,478 |  |  | 4,138 |
Tax loss carryforwards |  | 1,760 |  |  | 2,682 |  |  | 26,084 |  |  | 27,134 |
Tax credit carryforwards |  | 50,624 |  |  | 42,851 |  |  | 1,186 |  |  | 1,740 |
Other |  | 7,828 |  |  | 10,222 |  |  | 2,876 |  |  | 3,503 |
Noncurrent deferred tax assets |  |  |  |  |  |  |  |  |  |  |  |
before valuation allowance |  | 99,481 |  |  | 101,556 |  |  | 41,903 |  |  | 44,451 |
Less: valuation allowance |  | - |  |  | - |  |  | (22,821 | ) |  | (24,439 | )
Total noncurrent deferred tax assets |  | 99,481 |  |  | 101,556 |  |  | 19,082 |  |  | 20,012 |
Total deferred tax assets |  | $99,481 |  |  | $101,556 |  |  | $19,082 |  |  | $20,012 |
Noncurrent deferred tax liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Unrepatriated foreign earnings |  | $1,602 |  |  | $1,157 |  |  | $- |  |  | $- |
Depreciation and amortization |  | 43,156 |  |  | 10,309 |  |  | 2,466 |  |  | 3,174 |
Postretirement benefits |  | - |  |  | - |  |  | 1,411 |  |  | 2,003 |
Deferred gain |  | 7,156 |  |  | 7,559 |  |  | - |  |  | - |
Branch losses subject to recapture |  | - |  |  | - |  |  | - |  |  | 918 |
Other |  | 2,198 |  |  | - |  |  | 2,897 |  |  | 3,245 |
Total deferred tax liabilities |  | $54,112 |  |  | 19,025 |  |  | $6,774 |  |  | 9,340 |
Net deferred tax asset |  | $45,369 |  |  | $82,531 |  |  | $12,308 |  |  | $10,672 |
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 2016, the Company recorded the following decreases in its valuation allowance: $0.9 million due to a net reduction in the related deferred tax assets, $0.3 million due to the elimination of previously recorded valuation allowances, and $0.4 million due to the effect of changes in currency translation rates. At December 31, 2016, the Company had available approximately $143 million of net operating loss carryforwards, for which we have a deferred tax asset of $27.8 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 $19.7 million as of December 31, 2016. Included in the net operating loss carryforwards is approximately $23.0 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 $41.4 million that will begin to expire in 2020, U.S. and non-U.S. research and development credit carryforwards of $7.9 million, and $1.2 million, respectively, 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 $45.4 million at December 31, 2016, which contained $52.4 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, 2016), management has evaluated its ability to utilize these tax attributes during the carryforward period. The Company’s future profits from operations, available tax elections and tax planning opportunities, 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. These amounts are not considered to be permanently reinvested, and the Company accrued for the tax cost on these earnings to the extent they cannot be repatriated in a tax-free manner. At December 31, 2016 the Company reported a deferred tax liability of $1.6 million on $24.9 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 $14.6 million of foreign earnings that were generated in 2016. The accumulated undistributed earnings of the Company’s foreign operations not targeted for repatriation to the U.S. were approximately $164.0 million, and are intended to remain permanently invested in foreign operations. Accordingly, no taxes have been provided on these earnings at December 31, 2016. 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) |  | 2016 |  | 2015 |  | 2014
Unrecognized tax benefits balance at January 1 |  | $19,606 |  |  | $19,509 |  |  | $12,538 |
Increase in gross amounts of tax positions related to prior years |  | 62 |  |  | 2,315 |  |  | 14,699 |
Decrease in gross amounts of tax positions related to prior years |  | (2,129 | ) |  | (145 | ) |  | (67 | )
Increase in gross amounts of tax positions related to current year |  | 585 |  |  | 79 |  |  | 1,077 |
Decrease due to settlements with tax authorities |  | (14,029 | ) |  | (42 | ) |  | (32 | )
Decrease due to lapse in statute of limitations |  | (163 | ) |  | (90 | ) |  | (6,775 | )
Currency translation |  | 251 |  |  | (2,020 | ) |  | (1,931 | )
Unrecognized tax benefits balance at December 31 |  | $4,183 |  |  | $19,606 |  |  | $19,509 |
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 (income)/expense for interest and penalties related to the unrecognized tax benefits noted above of ($0.1) million, ($0.1) million and $1.0 million in the Consolidated Statements of Income in 2016, 2015 and 2014, respectively. As of December 31, 2016, 2015 and 2014, the Company had approximately $0.3 million, $0.4 million, and $0.4 million respectively, of accrued interest and penalties related to unrecognized tax benefits. The Company conducts business globally and, as a result, files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business the Company is 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 2007 to 2016. The Company is currently under audit in non-U.S. tax jurisdictions, including but not limited to Canada, France, 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 less than $0.1 million to a net decrease of $0.6 million, from the reevaluation of uncertain tax positions arising in examinations, in appeals, or in the courts, or from the closure of tax statutes. In the first quarter of 2016, the Company reached a settlement with the German tax authorities over matters that had been outstanding for a number of years. The German Tax Authority had denied tax positions taken by the Company related to a 1999 reorganization. In 2009, the Company made a payment of $14.5 million in order to appeal the German Tax Authority decision, and that payment was recorded as an income tax receivable. As additional information became available in subsequent years, the receivable was written down by $6.3 million in 2014 and $6.4 million in 2015. In 2016, the Company received $3.7 million representing the final settlement of this matter, which resulted in the recognition of a discrete tax benefit. As of December 31, 2016 and 2015, current income taxes prepaid and receivable consisted of the following:
(in thousands) |  | 2016 |  |  | 2015 |
Prepaid taxes |  | $3,914 |  |  | $2,417 |
Taxes receivable |  | 1,299 |  |  | 510 |
Total current income taxes prepaid and receivable |  | $5,213 |  |  | $2,927 |
As of December 31, 2016 and 2015, noncurrent income taxes receivable and deferred consisted of the following:
(in thousands) |  | 2016 |  |  | 2015 |
Deferred income taxes |  | $68,865 |  |  | $105,792 |
Taxes receivable |  | - |  |  | 3,153 |
Total noncurrent income taxes receivable and deferred |  | $68,865 |  |  | $108,945 |
As of December 31, 2016 and 2015, current income taxes payable consisted of the following:
(in thousands) |  | 2016 |  |  | 2015 |
Taxes Payable |  | $9,531 |  |  | $7,090 |
Total current income taxes payable |  | $9,531 |  |  | $7,090 |
As of December 31, 2016 and 2015, noncurrent deferred taxes and other liabilities consisted of the following:
(in thousands) |  | 2016 |  |  | 2015 |
Deferred income taxes |  | $11,188 |  |  | $12,589 |
Other liabilities |  | 1,201 |  |  | 1,565 |
Total noncurrent deferred taxes and other liabilities |  | $12,389 |  |  | $14,154 |
Taxes paid, net of refunds, amounted to $23.4 million in 2016, $18.3 million in 2015, and $17.6 million in 2014.

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