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Income Taxes | 12 Months Ended
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Dec. 31, 2019
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) |  | 2019 |  | 2018 |  | 2017
Income tax based on income from continuing operations, at estimated tax rates of 28%, 31%, and 32%, respectively |  | $49,977 |  | $36,044 |  | $17,519
Income tax before discrete items |  | 49,977 |  | 36,044 |  | 17,519
Discrete tax expense/(benefit): |  |  |  |  |  |
Net impact of mandatory deemed repatriation |  | — |  | (1,003) |  | 5,758
Provision for/resolution of tax audits and contingencies, net |  | (2,874) |  | 1,286 |  | 1,329
Adjustments to prior period tax liabilities |  | (1,637) |  | (1,284) |  | (840)
Provision for/adjustment to beginning of year valuation allowances |  | (525) |  | (4,882) |  | (3,522)
Enacted tax legislation |  | (112) |  | 2,067 |  | 1,879
Total income tax expense |  | $44,829 |  | $32,228 |  | $22,123
(in thousands) |  | 2019 |  | 2018 |  | 2017
Income/(loss) before income taxes: |  |  |  |  |  |
U.S. |  | $76,024 |  | $41,875 |  | $(5,865)
Non-U.S. |  | 102,188 |  | 73,372 |  | 60,573
|  | $178,212 |  | $115,247 |  | $54,708
Income tax provision |  |  |  |  |  |
Current: |  |  |  |  |  |
Federal |  | $780 |  | $304 |  | $1,551
State |  | 6,357 |  | 4,996 |  | 1,770
Non-U.S. |  | 25,255 |  | 21,557 |  | 19,282
|  | $32,392 |  | $26,857 |  | $22,603
Deferred: |  |  |  |  |  |
Federal |  | $10,583 |  | $10,700 |  | $1,881
State |  | 253 |  | (338) |  | (1,237)
Non-U.S. |  | 1,601 |  | (4,991) |  | (1,124)
|  | $12,437 |  | $5,371 |  | $(480)
Total income tax expense |  | $44,829 |  | $32,228 |  | $22,123
The significant components of deferred income tax expense/(benefit) are as follows:
(in thousands) |  | 2019 |  | 2018 |  | 2017
Net effect of temporary differences |  | $(18) |  | $(4,657) |  | $(5,774)
Foreign tax credits |  | 12,530 |  | 9,437 |  | 8,340
Retirement benefits |  | (752) |  | 2,360 |  | (502)
Net impact to operating loss carryforwards |  | 1,314 |  | 1,046 |  | (900)
Enacted changes in tax laws and rates |  | (112) |  | 2,067 |  | 1,878
Adjustment to beginning-of-the-year valuation allowance balance for changes in circumstances |  | (525) |  | (4,882) |  | (3,522)
Total |  | $12,437 |  | $5,371 |  | $(480)
76 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 7. Income Taxes — (continued) A reconciliation of the U.S. federal statutory tax rate to the Company’s effective income tax rate is as follows:
|  | 2019 |  | 2018 |  | 2017
U.S. federal statutory tax rate |  | 21.0% |  | 21.0% |  | 35.0%
State taxes, net of federal benefit |  | 3.0 |  | 2.9 |  | 0.4
Non-U.S. local income taxes |  | 4.4 |  | 3.3 |  | 5.9
US permanent adjustments |  | — |  | (0.3) |  | 0.5
Foreign permanent adjustments |  | 0.4 |  | (0.4) |  | 0.4
Foreign rate differential |  | 0.5 |  | 0.2 |  | (10.5)
Net U.S. tax on non-U.S. earnings and foreign withholdings |  | 0.3 |  | 5.7 |  | 11.9
Provision for/resolution of tax audits and contingencies, net |  | (1.6) |  | 1.1 |  | 2.4
Research and development and other tax credits |  | (0.3) |  | (0.1) |  | (1.5)
Provision for/adjustment to beginning of year valuation allowances |  | (0.3) |  | (4.2) |  | (6.4)
Enacted tax legislation and rate change |  | (0.1) |  | 1.8 |  | 3.0
Return to provision and other adjustments |  | (2.1) |  | (3.0) |  | (0.7)
Effective income tax rate |  | 25.2% |  | 28.0% |  | 40.4%
The Company has operations which constitute a taxable presence in 18 countries outside of the United States. The majority of these countries had income tax rates that are above the United States federal tax rate of 21% during 2019. The jurisdictional location of earnings is a significant component of the Company’s 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 the Company’s 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 21% and the expense accrued based on the different 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 (blended 34% tax rate), China (25% tax rate), and Mexico (30% tax rate). The foreign rate differential of these jurisdictions was partially offset by Switzerland (7.8% 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 purposes and income tax return purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows: 77 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 7. Income Taxes — (continued)
|  | U.S. |  | Non-U.S.
(in thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Noncurrent deferred tax assets: |  |  |  |  |  |  |  |
Accounts receivable |  | $823 |  | $686 |  | $1,050 |  | $1,224
Inventories |  | 636 |  | 442 |  | 1,231 |  | 829
Deferred compensation |  | 4,730 |  | 4,460 |  | 1,386 |  | 1,053
Depreciation and amortization |  | — |  | — |  | 4,892 |  | 4,252
Postretirement benefits |  | 14,885 |  | 14,759 |  | 1,048 |  | 1,667
Tax loss carryforwards |  | 2,266 |  | 1,199 |  | 21,467 |  | 21,890
Tax credit carryforwards |  | 15,931 |  | 30,523 |  | 936 |  | 1,197
Derivatives |  | 1,411 |  | — |  | — |  | —
Reserves |  | 2,953 |  | 3,954 |  | — |  | —
Deferred Revenue |  | 2,417 |  | 3,556 |  | — |  | —
Other |  | — |  | 516 |  | — |  | 990
Noncurrent deferred tax assets before valuation allowance |  | 46,052 |  | 60,095 |  | 32,010 |  | 33,102
Less: valuation allowance |  | — |  | — |  | (9,102) |  | (8,389)
Total noncurrent deferred tax assets |  | 46,052 |  | 60,095 |  | 22,908 |  | 24,713
Total deferred tax assets |  | $46,052 |  | $60,095 |  | $22,908 |  | $24,713
Noncurrent deferred tax liabilities: |  |  |  |  |  |  |  |
Unrepatriated foreign earnings |  | $2,202 |  | $4,028 |  | $— |  | $—
Depreciation and amortization |  | 4,404 |  | 12,848 |  | — |  | —
Postretirement benefits |  | — |  | — |  | — |  | —
Deferred gain |  | 3,391 |  | 3,762 |  | — |  | —
Derivatives |  | — |  | 1,162 |  | — |  | —
Flow-through DTL's |  | 6,205 |  | 2,192 |  | — |  | —
Deferred Revenue |  | — |  | — |  | 8,492 |  | 5,740
Other |  | 510 |  | — |  | 3,137 |  | —
Total noncurrent deferred tax liabilities |  | $16,712 |  | $23,992 |  | $11,629 |  | $5,740
Net deferred tax liabilities |  | $16,712 |  | $23,992 |  | $11,629 |  | $5,740
Net deferred tax asset |  | $29,340 |  | $36,103 |  | $11,279 |  | $18,973
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 2019, the Company recorded the following movements in its valuation allowance: the Company recorded a valuation allowance of $0.8 million for one of its Mexican subsidiaries, and the Company also recorded a $0.1 million decrease in a valuation allowance due to a net reduction in the related deferred tax assets. Additionally, the Company recorded a $1.3 million out-of-period immaterial adjustment related to a German tax valuation allowance that was released in 2018. At December 31, 2019, the Company had available approximately $112.9 million of net operating loss carryforwards, for which the Company has a deferred tax asset of $24.3 million, with expiration dates ranging from one year to indefinite that may be applied against future taxable income. The Company believes that it is more likely than not that certain benefits from these net operating loss carryforwards will not be realized and, accordingly, the Company has recorded a valuation allowance of $9.1 million as of December 31, 2019. Additionally, management has evaluated its ability to utilize its other non-U.S. tax attributes during the various carryforward periods and has concluded that the Company will more likely than not be able to utilize the remaining non-U.S. tax attributes. Included in the net operating loss carryforward is approximately $38.8 million of state net operating loss carryforwards that are subject to various business apportionment 78 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 7. Income Taxes — (continued) factors and multiple jurisdictional requirements when utilized. In addition, the Company had available a foreign tax credit carryforward of $11.7 million that will begin to expire in 2025, U.S. and non-U.S. research and development credit carryforwards of $8.0 million and $0.9 million, respectively, that will begin to expire in 2025. The Company reported a U.S. net deferred tax asset of $29.3 million at December 31, 2019, which contained $22.6 million of tax attributes with limited lives. Although the Company is in a cumulative book income position for the three-year period ending December 31, 2019, 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 more likely than not will generate income of sufficient character to utilize the remaining 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. 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 $94.4 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 $1.2 million and state income taxes of $1.0 million which have already been recorded. The accumulated undistributed earnings of the Company’s foreign operations not targeted for repatriation to the U.S. were approximately $169.1 million, and are intended to remain indefinitely invested in foreign operations. No additional income taxes have been provided on the indefinitely invested foreign earnings at December 31, 2019. If these earnings were distributed, the Company could be subject to income taxes and additional foreign withholding taxes. Determining the amount of unrecognized deferred tax liability related to any additional outside basis difference in these entities is not practical. The following table provides a reconciliation of the beginning and ending amount of unrecognized tax benefits, $1.0 million of which, if recognized, would impact the effective tax rate:
(in thousands) |  | 2019 |  | 2018 |  | 2017
Unrecognized tax benefits balance at January 1st |  | $3,790 |  | $4,509 |  | $4,183
Increase in gross amounts of tax positions related to prior years |  | 4,874 |  | 2,008 |  | 480
Decrease in gross amounts of tax positions related to prior years |  | (2,239) |  | (358) |  | (50)
Increase in gross amounts of tax positions related to current years |  | — |  | — |  | —
Decrease due to settlements with tax authorities |  | — |  | (1,626) |  | (381)
Decrease due to lapse in statute of limitations |  | (626) |  | (479) |  | (29)
Currency translation |  | 35 |  | (264) |  | 306
Unrecognized tax benefits balance at December 31 |  | $5,834 |  | $3,790 |  | $4,509
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 interest and penalties related to the unrecognized tax benefits noted above of $0.2 million or less in each of 2019, 2018 and 2017. As of December 31, 2019, 2018 and 2017, the Company had approximately $0.1 million, $0.1 million, and $0.4 million respectively, of accrued interest and penalties related to unrecognized tax benefits. 79 Index ALBANY INTERNATIONAL CORP. Notes to Consolidated Financial Statements 7. Income Taxes — (continued) 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 2019. The Company is currently under audit in non-U.S. tax jurisdictions, including but not limited to Canada and Italy. In 2019, the Company recorded a net decrease of $2.2 million for tax audit settlements with Canada. The Canadian Revenue Agency agreed to accept the Company’s appeal of all protested issues. The Company has received the refunds from the Canadian Revenue Agency and Ontario for taxes that were pre-paid at the time of protests. As such, during the first quarter, the Company determined that it was more likely than not that the liability for unrecognized tax benefits of $2.2 million that was recorded as of December 31, 2018 was no longer warranted and thus it was reduced in the first quarter of 2019, resulting in a $2.2 million discrete tax benefit. As of December 31, 2019, and 2018, current income taxes prepaid and receivable consisted of the following:
(in thousands) |  | 2019 |  | 2018
Prepaid taxes |  | $4,399 |  | $4,859
Taxes receivable |  | 1,763 |  | 2,614
Total current income taxes prepaid and receivable |  | $6,162 |  | $7,473
As of December 31, 2019, and 2018, noncurrent deferred taxes and other liabilities consisted of the following:
(in thousands) |  | 2019 |  | 2018
Deferred income taxes |  | $11,002 |  | $7,547
Other liabilities |  | 1,224 |  | 875
Total noncurrent deferred taxes and other liabilities |  | $ 12,226 |  | $ 8,422
Taxes paid, net of refunds, amounted to $25.9 million in 2019, $28.1 million in 2018 and $23.7 million in 2017.

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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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