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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | 9. Income Taxes The provisions for taxes on income and the related income before taxes for the years ended December 31, 2017, 2016 and 2015, were as follows:
(In thousands) |  | 2017 |  |  | 2016 |  |  | 2015 |
Taxes on Income |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | 32,299 |  |  | $ | 18,811 |  |  | $ | 7,697 |
Deferred |  |  | (1,744 | ) |  |  | (3,192 | ) |  |  | 3,890 |
State |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | 1,764 |  |  |  | 2,273 |  |  |  | 1,559 |
Deferred |  |  | 192 |  |  |  | (1,171 | ) |  |  | (225 | )
Foreign |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | 13,077 |  |  |  | 14,960 |  |  |  | 14,562 |
Deferred |  |  | 2,102 |  |  |  | (4,063 | ) |  |  | (664 | )
Total |  | $ | 47,690 |  |  | $ | 27,618 |  |  | $ | 26,819 |
Income before Taxes |  |  |  |  |  |  |  |  |  |  |  |
Domestic |  | $ | 72,662 |  |  | $ | 64,675 |  |  | $ | 48,721 |
Foreign |  |  | 66,575 |  |  |  | 49,141 |  |  |  | 54,135 |
Total |  | $ | 139,237 |  |  | $ | 113,816 |  |  | $ | 102,856 |
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that affects the Company’s income tax provision for 2017, including, but not limited to, (1) a one-time transition tax (“Transition Tax”) on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years and (2) bonus depreciation that will allow for full expensing of qualified property. The Tax Act also establishes new tax laws that will affect the Company’s income tax provision for 2018, including, but not limited to, (1) reduction of the U.S. federal corporate income tax rate; (2) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (3) a new provision designed to tax global intangible low-taxed income, which allows for the possibility of using foreign tax credits (FTCs) and a deduction of up to 50 percent to offset the income tax liability (subject to some limitations); (4) the creation of the base erosion anti-abuse tax, a new minimum tax; (5) limitations on the use of FTCs to reduce the U.S. income tax liability; (6) limitations on net operating losses (NOLs) generated after December 31, 2017, to 80 percent of taxable income; (7) a new limitation on deductible interest expense; (8) elimination of the corporate alternative minimum tax; (9) the repeal of the domestic production activity deduction; and (10) limitations on the deductibility of certain executive compensation. The variations between the effective and statutory U.S. federal income tax rates are summarized as follows:
(In thousands) |  | 2017 Amount |  |  | % |  |  | 2016 Amount |  |  | % |  |  | 2015 Amount |  |  | % |
Federal income tax provision at statutory tax rate |  | $ | 48,733 |  |  |  | 35.0 |  |  | $ | 39,836 |  |  |  | 35.0 |  |  | $ | 36,000 |  |  |  | 35.0 |
State tax provision on income less applicable federal tax benefit |  |  | 1,271 |  |  |  | 0.9 |  |  |  | 716 |  |  |  | 0.6 |  |  |  | 867 |  |  |  | 0.8 |
Foreign income taxed at different rates |  |  | (8,075 | ) |  |  | (5.8 | ) |  |  | (6,325 | ) |  |  | (5.6 | ) |  |  | (5,060 | ) |  |  | (4.9 | )
Repatriation of foreign earnings |  |  | (1,054 | ) |  |  | (0.8 | ) |  |  | 14 |  |  |  | — |  |  |  | 21 |  |  |  | — |
Unrecognized tax benefits |  |  | (47 | ) |  |  | 0.0 |  |  |  | 23 |  |  |  | — |  |  |  | 1,536 |  |  |  | 1.5 |
Domestic production activities deduction |  |  | (1,339 | ) |  |  | (1.0 | ) |  |  | (1,633 | ) |  |  | (1.4 | ) |  |  | (884 | ) |  |  | (0.9 | )
Nontaxable foreign interest income |  |  | (2,073 | ) |  |  | (1.5 | ) |  |  | (2,030 | ) |  |  | (1.8 | ) |  |  | (2,106 | ) |  |  | (2.0 | )
U.S. tax reform, net impact (a) |  |  | 14,807 |  |  |  | 10.7 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Change in accounting method for depreciation |  |  | (893 | ) |  |  | (0.6 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Stock based compensation, excess tax benefits(b) |  |  | (2,254 | ) |  |  | (1.6 | ) |  |  | (1,878 | ) |  |  | (1.7 | ) |  |  | — |  |  |  | — |
U.S. tax credits |  |  | (1,204 | ) |  |  | (0.9 | ) |  |  | (1,100 | ) |  |  | (1.0 | ) |  |  | (3,465 | ) |  |  | (3.4 | )
Non-deductible expenses and other items, net (c) |  |  | (182 | ) |  |  | (0.1 | ) |  |  | (5 | ) |  |  | 0.2 |  |  |  | (90 | ) |  |  | — |
Total income tax provision |  | $ | 47,690 |  |  |  | 34.3 |  |  | $ | 27,618 |  |  |  | 24.3 |  |  | $ | 26,819 |  |  |  | 26.1 |
(a) | Does not include state tax impacts, which are included in state tax provision on income less applicable federal tax benefit.
(b) | Excess tax benefits related to employee share-based payment transactions recognized in 2017 and 2016 resulting from the adoption of ASU No. 2016-9. There is no effect for 2015 because the recognition of excess tax benefits in the tax provision is to be done only on a prospective basis, beginning with the year of adopting the new guidance, which was 2016.
(c) | Certain 2016 and 2015 amounts have been reclassified to conform to the current year presentation.
For various reasons that are discussed more fully below, we have not completed our accounting for the income tax effects of certain elements of the Tax Act. If we were able to make reasonable estimates of the effects of elements for which our analysis is not yet complete, we recorded provisional adjustments. If we were not yet able to make reasonable estimates of the impact of certain elements, we have not recorded any adjustments related to those elements and have continued accounting for them in accordance with ASC 740 on the basis of the tax laws in effect before the Tax Act. We were able to make reasonable estimates of certain effects and, therefore, recorded the following provisional adjustments: Reduction of US federal corporate tax rate: The Tax Act reduces the corporate tax rate to 21 percent, effective January 1, 2018. For certain of our deferred tax assets, we have recorded a provisional decrease of $31.8 million, which is offset by a provisional $36.3 million decrease in our deferred tax liabilities, resulting in a corresponding net adjustment to deferred income tax benefit of $4.5 million attributable to the rate reduction for the year ended December 31, 2017. While we are able to make a reasonable estimate of the impact of the reduction in corporate rate, it may be affected by other analyses related to the Tax Act, including, but not limited to, our calculation of deemed repatriation of deferred foreign income and the state tax effect of adjustments made to federal temporary differences. Deemed Repatriation Transition Tax: The Transition Tax is a tax on previously untaxed accumulated and current earnings and profits (E&P) of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. We are able to make a reasonable estimate of the Transition Tax and recorded a provisional Transition Tax obligation of $19.4 million. However, we are continuing to gather additional information to more precisely compute the amount of the Transition Tax. Pursuant to the Tax Act, the Company will make an election to pay this liability in installments over eight years. Consequently, $18.1 million of this liability has been recorded as noncurrent taxes payable and $1.3 million as current taxes payable in the Company’s consolidated balance sheet as of December 31, 2017. We were not yet able to make reasonable estimates of the following effects and, therefore, no provisional adjustments were recorded: Global intangible low taxed income (“GILTI”): The Tax Act requires the Company to include certain income (GILTI) of its foreign subsidiaries in gross income. The amount of this inclusion is determined under complex rules, and depends, in part, on the character of income earned by the foreign subsidiaries, the tax bases of those subsidiaries’ assets and the amount of certain interest expenses. Under U.S. GAAP, we are allowed to make an accounting policy choice of either (1) treating taxes due on future income inclusions related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) accounting for such amounts in measuring deferred taxes (the “deferred method”). Our selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing our global income to determine whether we expect to have future income inclusions related to GILTI and, if so, what the impact is expected to be. These determinations depend not only on our current structure and estimated future results of global operations but also our intent and ability to modify our structure and/or our business. Therefore, we have not made any adjustments or estimates related to any potential tax liabilities related to GILTI in our financial statements and have not made a policy decision regarding whether to record deferred tax liabilities related to GILTI. Cost recovery: We have not yet completed all of the computations necessary or completed an inventory of our 2017 expenditures that qualify for immediate expensing. Therefore, we have not made any adjustments or estimates related to any potential tax liabilities in our financial statements related to immediate expensing. Deductibility of Executive Compensation: The Tax Act amended certain aspects of Section 162(m) of the Internal Revenue Code (“Section 162(m)”), which generally disallows a tax deduction for annual compensation paid to “covered employees” in excess of $1 million, including eliminating an exception to the deduction limit for “qualified performance-based compensation”, effective for tax years beginning after December 31, 2017. The Tax Act provides for a grandfather provision, pursuant to which remuneration that is provided pursuant to a written binding contract in effect on November 2, 2017, and which has not been modified in any material respect on or after that date, will not be subject to the amendments made to Section 162(m) by the Tax Act and will remain eligible for deduction as qualified performance-based compensation. To the extent available, we intend to continue to treat “qualified performance-based compensation” that is grandfathered under the Tax Act as deductible compensation. We have not yet completed our evaluation of our existing compensation arrangements to determine whether any amounts payable to our Section 162(m) covered employees may continue to constitute qualified performance-based compensation under Section 162(m) and qualify under the grandfather provision. Therefore, we have not made any adjustments or estimates related to any potential tax liabilities in our financial statements related to the amendments to Section 162(m). Valuation allowances: The Company must assess whether valuation allowances assessments are affected by various aspects of the Tax Act (e.g., GILTI inclusions and new categories of FTCs). Since, as discussed herein, the Company has recorded no amounts related to certain portions of the Tax Act, any corresponding determination of the need for or change in a valuation allowance has not been completed and no changes to valuation allowances as a result of the Tax Act have been recorded. At December 31, 2017 and 2016, the tax effects of significant temporary differences representing deferred tax assets and liabilities were as follows:
(In thousands) |  | 2017 |  |  | 2016 |
Deferred Tax Liabilities: |  |  |  |  |  |  |  |
Depreciation |  | $ | (51,244 | ) |  | $ | (75,973 | )
Unrealized foreign exchange loss |  |  | (734 | ) |  |  | (631 | )
Other |  |  | (2,066 | ) |  |  | (2,756 | )
|  | $ | (54,044 | ) |  | $ | (79,360 | )
Deferred Tax Assets: |  |  |  |  |  |  |  |
Pensions |  | $ | 7,884 |  |  | $ | 12,077 |
Deferred revenue |  |  | 232 |  |  |  | 940 |
Other accruals and reserves |  |  | 13,660 |  |  |  | 20,590 |
Inventories |  |  | 1,182 |  |  |  | 1,815 |
Legal and environmental accruals |  |  | 7,243 |  |  |  | 11,503 |
Deferred compensation |  |  | 15,402 |  |  |  | 24,485 |
Bad debt and rebate reserves |  |  | 2,865 |  |  |  | 4,195 |
Non-U.S. subsidiaries net operating loss carryforwards |  |  | 2,657 |  |  |  | 1,201 |
Tax credit carryforwards |  |  | 1,851 |  |  |  | 1,599 |
|  | $ | 52,976 |  |  | $ | 78,405 |
Valuation Allowance |  | $ | (2,255 | ) |  | $ | (1,815 | )
Net Deferred Tax Liabilities |  | $ | (3,323 | ) |  | $ | (2,770 | )
Reconciliation to Consolidated Balance Sheet: |  |  |  |  |  |  |  |
Non-current deferred tax assets (in other non-current assets) |  |  | 7,639 |  |  |  | 9,727 |
Non-current deferred tax liabilities |  |  | (10,962 | ) |  |  | (12,497 | )
Net Deferred Tax (Liabilities) Assets |  | $ | (3,323 | ) |  | $ | (2,770 | )
Earnings generated by a foreign subsidiary are presumed to ultimately be transferred to the parent company. Therefore, the establishment of deferred taxes may be required with respect to the excess of the investment value for financial reporting over the tax basis of investments in those foreign subsidiaries (also referred to as book-over-tax outside basis differences). A company may overcome this presumption and forgo recording a deferred tax liability in its financial statements if it can assert that management has the intent and ability to indefinitely reinvest the earnings of its foreign subsidiaries. Prior to the year ended December 31, 2017, the Company has not provided deferred U.S., foreign or local income taxes on the book-over-tax outside basis differences of its foreign subsidiaries because such excess has been considered to be indefinitely reinvested in the local country businesses. As discussed above, the Company has recorded $19.4 million in income tax expense, representing U.S. federal and state taxes expected to be incurred pursuant to the deemed repatriation of its foreign subsidiary earnings under the Tax Act in its consolidated statement of operations for the year ended December 31, 2017. Pursuant to the Tax Act, the Company now has the ability to repatriate to the U.S. parent the foreign cash associated with these foreign earnings as these earnings have already been subject to U.S. federal taxes. This cash may, however, be subject to foreign income and/or local country taxes if repatriated to the U.S. In addition, repatriation of some foreign cash balances may be further restricted by local laws. The Company is currently analyzing its foreign capital structure in order to determine the amount of cash at its foreign subsidiaries that can be repatriated to the U.S. with minimal additional taxes. This evaluation requires judgment about the future operating and liquidity needs of the Company and its foreign subsidiaries. Until such time as the Company completes this analysis, the Company maintains its assertion of indefinite reinvestment in its foreign earnings. The Company has non-U.S. tax loss carryforwards of $10,352,000 (pretax) as of December 31, 2017, and $4,655,000 as of December 31, 2016, that are available for use by the Company between 2018 and 2037. The Company has tax credit carryforwards of $1,851,000 as of December 31, 2017, and $1,599,000 as of December 31, 2016 that are available for use by the Company between 2018 and 2027. At December 31, 2017, the Company had valuation allowances of $2,255,000, which were primarily attributable to deferred tax assets in China, India, the Philippines and Singapore. The realization of deferred tax assets is dependent on the generation of sufficient taxable income in the appropriate tax jurisdictions. The Company believes that it is more likely than not that the related deferred tax assets will not be realized. As of December 31, 2017 and 2016, unrecognized tax benefits totaled $1,927,000 and $1,931,000, respectively. The amount of unrecognized tax benefits that, if recognized, would favorably affect the Company’s effective income tax rate in any future periods, net of the federal benefit on state issues, was approximately $1,917,000, $1,921,000 and $1,948,000 at December 31, 2017, 2016 and 2015, respectively. The Company believes it is reasonably possible that the amount of unrecognized tax benefits related to its current uncertain tax positions could decrease by up to $1,780,000 over the next 12 months. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. In 2017, the Company recognized net interest and penalty expense of $3,000 compared to $9,000 of net interest and penalty expense in 2016 and $6,000 of net interest and penalty income in 2015. At December 31, 2017 the liability for interest and penalties was $56,000 compared to $53,000 at December 31, 2016. The Company files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company is not subject to U.S. federal income tax examinations by tax authorities for years before 2011. In addition, 2013 is no longer subject to U.S. federal income tax examinations. Some foreign jurisdictions and various U.S. states jurisdictions may be subject to examination back to 2011. During 2016, the Internal Revenue Service started its audit of the 2011 and 2012 tax years. As of December 31, 2017, these audits were still open and the Company had not been notified of any significant proposed adjustments. Below are reconciliations of the January 1 and December 31 balances of unrecognized tax benefits for 2017, 2016 and 2015:
(In thousands) |  | 2017 |  |  | 2016 |  |  | 2015 |
Unrecognized tax benefits, opening balance |  | $ | 1,931 |  |  | $ | 1,958 |  |  | $ | 464 |
Gross increases – tax positions in prior period |  |  | — |  |  |  | — |  |  |  | 1,526 |
Gross increases – current period tax positions |  |  | 20 |  |  |  | 35 |  |  |  | 29 |
Foreign currency translation |  |  | 69 |  |  |  | (43 | ) |  |  | (37 | )
Lapse of statute of limitations |  |  | (93 | ) |  |  | (19 | ) |  |  | (24 | )
Unrecognized tax benefits, ending balance |  | $ | 1,927 |  |  | $ | 1,931 |  |  | $ | 1,958 |

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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 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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