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Income Taxes | 9 Months Ended
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Sep. 30, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | 7. Income Taxes The following table presents components of income tax expense for the three and nine months ended September 30, 2018 and 2017:
| Three months ended | Nine months ended
| September 30, | September 30,
(in thousands) | 2018 | 2017 | 2018 | 2017
Income tax based on income from continuing operations, at estimated tax rates of 29.7% and 36.4%, respectively | $ 11,857 | $ 6,935 | $ 27,409 | $ 14,420
Provision for change in estimated tax rate | (227) | 741 | - | -
Income tax before discrete items | 11,630 | 7,676 | 27,409 | 14,420
Discrete tax expense: |  |  |  |
Exercise of U.S. Stock Options | (29) | - | (155) | -
Impact of Mandatory Repatriation | - | - | (1,099) | -
Adjustments to prior period tax liabilities | (7) | (73) | (259) | 606
Provision for/resolution of tax audits and contingencies, net | (166) | - | 2,282 | 961
Changes in Opening Valuation Allowance | 63 | (3,787) | (4,923) | (3,787)
Other | - | (7) | (124) | (62)
Total income tax expense | $ 11,491 | $ 3,809 | $ 23,131 | $ 12,138
The third quarter estimated effective tax rate on continuing operations was 29.7 percent in 2018, compared to 36.4 percent for the same period in 2017. Income tax expense for the quarter was computed in accordance with ASC 740-270 “Income Taxes – Interim Reporting”. Under this method, loss jurisdictions, which cannot recognize a tax benefit with regard to their generated losses, are excluded from the annual effective tax rate (AETR) calculation and their taxes will be recorded discretely in each quarter. The Company’s tax rate is affected by recurring items such as the income tax rate in the U.S. and in non-U.S. jurisdictions and the mix of income earned in those jurisdictions, including changes in losses and income from excluded loss jurisdictions, and the impact of discrete items in the respective quarter. Additionally, tax adjustments resulting from the 2017 Tax Cut and Jobs Act (TCJA) have affected the Company’s 2018 AETR, including the global intangible low-taxed income (GILTI) inclusion, the foreign-derived intangible income (FDII) deduction and the corporate U.S. tax rate reduction from 35% to 21%. The TCJA significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018, while also repealing the deduction for domestic production activities, implementing a territorial tax system and imposing a transition tax on deemed repatriated earnings of foreign subsidiaries. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted. In December 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (SAB 118), which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the TCJA. The measurement period ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. The Company elected to apply the measurement period guidance provided in SAB 118. Deferred tax assets and liabilities: At December 31, 2017, the Company re-measured certain deferred tax assets and liabilities based on the federal rate of 21%. However, the Company is still analyzing certain aspects of the TCJA, such as IRC section 162(m), and refining its calculations which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. As such, no adjustment has been recorded to the provisional amount previously recorded in 2017. Foreign tax effects: At December 31, 2017, the Company recorded a provisional federal tax charge due to the transition tax on deemed repatriation of foreign earnings. As of September 30, 2018, the Company is still analyzing its U.S. tax attributes such as foreign earnings and profits, foreign tax paid, and other tax components involved in foreign tax credit calculations, however, the Company recorded a net $1.1 million reduction to the provisional transition tax in second quarter of 2018. The $1.1 million adjustment was comprised of a $1.9 million federal tax benefit attributable to adjustments discovered while analyzing the Post 1986 E&P and tax pools through 2016 and a $0.8 million state tax charge based on interpretive guidance issued by various states during the quarter on how the deemed mandatory repatriation would be taxed in those jurisdictions. These amounts are still considered provisional as the Company continues to analyze guidance and legislation published by the taxing jurisdictions. The Company has elected to account for the global intangible low taxed income (GILTI) as a current-period expense when incurred (the “period cost method”). The estimated net GILTI inclusion calculated by the Company (including the gross up on the GILTI Inclusion and the apportioned foreign tax credits applied to GILTI) was $22 million and increased the AETR by 2.2%. The Company also calculated an estimated foreign-derived intangible income (FDII) deduction of $4.5 million which decreased the AETR by 0.8%. Because of the complexity of the GILTI and FDII tax rules and the lack of legislative guidance, the Company continues to evaluate these provisions of the TCJA and the application of ASC 740, Income Taxes. The final impact on the Company from the TCJA’s GILTI and FDII tax legislation may differ from the estimate calculated by the Company. Such differences could be material, due to, among other things, changes in interpretations of the TCJA, future legislative action to address questions that arise because of the TCJA, changes in accounting standards for income taxes or related interpretations in response to the TCJA, or any updates or changes to estimates the Company has utilized to calculate the GILTI inclusion and FDII deduction. The Company continues to believe that the Base Erosion Anti-Abuse Tax (BEAT) does not apply under the Company’s current policies. Therefore no adjustments for BEAT have been recorded. 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 indefinitely reinvested, and the Company accrued for the tax cost on these earnings to the extent they cannot be repatriated in a tax-free manner. The Company has targeted for repatriation $100.7 million of current year and prior year earnings of the Company’s foreign operations. If these earnings were distributed, the Company would be subject to foreign withholding taxes of $2.3 million which have already been recorded. 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 2018. The Company is currently under audit in non-U.S. tax jurisdictions, including but not limited to Canada and Italy. In the second quarter of 2018, the Company recorded additional uncertain tax positions of $2.4 million as a result of developments in ongoing tax audits. 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 nil to a net decrease of $1.2 million, from the reevaluation of uncertain tax positions arising in examinations, in appeals, or in the courts, or from the closure of tax statutes of limitations. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. In the second quarter of 2018, management determined that there was sufficient positive evidence to conclude that it is more likely than not that deferred tax assets in Germany are realizable. Therefore, the Company reversed the previously recorded valuation allowances in the second quarter of 2018 which resulted in a discrete tax benefit of $5.0 million. In October 2016, an accounting update, ASU 2016-16 was issued which modifies the recognition of income tax effects on intercompany transfers of assets, other than inventory. The Company adopted this update effective January 1, 2018, which resulted in a decrease of $0.5 million to deferred taxes liabilities, with an offsetting increase to retained earnings.

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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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