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Income Taxes | 12 Months Ended
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Dec. 31, 2018
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, 2018, 2017 and 2016, were as follows:
(In thousands) |  | 2018 |  |  | 2017 |  |  | 2016 |
Taxes on Income |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | (296 | ) |  | $ | 32,299 |  |  | $ | 18,811 |
Deferred |  |  | 9,314 |  |  |  | (1,744 | ) |  |  | (3,192 | )
State |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | 2,095 |  |  |  | 1,764 |  |  |  | 2,273 |
Deferred |  |  | 1,892 |  |  |  | 192 |  |  |  | (1,171 | )
Foreign |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | 14,510 |  |  |  | 13,077 |  |  |  | 14,960 |
Deferred |  |  | (342 | ) |  |  | 2,102 |  |  |  | (4,063 | )
Total |  | $ | 27,173 |  |  | $ | 47,690 |  |  | $ | 27,618 |
Income before Taxes |  |  |  |  |  |  |  |  |  |  |  |
Domestic |  | $ | 88,522 |  |  | $ | 72,662 |  |  | $ | 64,675 |
Foreign |  |  | 51,401 |  |  |  | 66,575 |  |  |  | 49,141 |
Total |  | $ | 139,923 |  |  | $ | 139,237 |  |  | $ | 113,816 |
The variations between the effective and statutory U.S. federal income tax rates are summarized as follows:
(In thousands) |  | 2018 Amount |  |  | % |  |  | 2017 Amount |  |  | % |  |  | 2016 Amount |  |  | % |
Federal income tax provision at statutory tax rate |  | $ | 29,384 |  |  |  | 21.0 |  |  | $ | 48,733 |  |  |  | 35.0 |  |  | $ | 39,836 |  |  |  | 35.0 |
State income tax provision, less applicable federal tax benefit |  |  | 3,150 |  |  |  | 2.3 |  |  |  | 1,271 |  |  |  | 0.9 |  |  |  | 716 |  |  |  | 0.6 |
Foreign income taxed at different rates |  |  | 864 |  |  |  | 0.6 |  |  |  | (8,075 | ) |  |  | (5.8 | ) |  |  | (6,325 | ) |  |  | (5.6 | )
U.S. taxation of foreign earnings(a) |  |  | 2,348 |  |  |  | 1.7 |  |  |  | (1,054 | ) |  |  | (0.8 | ) |  |  | 14 |  |  |  | — |
Unrecognized tax benefits |  |  | (460 | ) |  |  | (0.3 | ) |  |  | (47 | ) |  |  | — |  |  |  | 23 |  |  |  | — |
Domestic production activities deduction |  |  | — |  |  |  | — |  |  |  | (1,339 | ) |  |  | (1.0 | ) |  |  | (1,633 | ) |  |  | (1.4 | )
Nontaxable foreign interest income |  |  | (1,179 | ) |  |  | (0.8 | ) |  |  | (2,073 | ) |  |  | (1.5 | ) |  |  | (2,030 | ) |  |  | (1.8 | )
U.S. tax reform, net impact(b) |  |  | (375 | ) |  |  | (0.3 | ) |  |  | 14,807 |  |  |  | 10.7 |  |  |  | — |  |  |  | — |
Change in accounting methods(c) |  |  | (3,383 | ) |  |  | (2.4 | ) |  |  | (893 | ) |  |  | (0.6 | ) |  |  | — |  |  |  | — |
Stock based compensation, excess tax benefits(d) |  |  | (1,648 | ) |  |  | (1.2 | ) |  |  | (2,254 | ) |  |  | (1.6 | ) |  |  | (1,878 | ) |  |  | (1.7 | )
U.S. tax credits |  |  | (1,324 | ) |  |  | (0.9 | ) |  |  | (1,204 | ) |  |  | (0.9 | ) |  |  | (1,100 | ) |  |  | (1.0 | )
Non-deductible expenses and other items, net(e) |  |  | (204 | ) |  |  | (0.3 | ) |  |  | (182 | ) |  |  | (0.1 | ) |  |  | (5 | ) |  |  | 0.2 |
Total income tax provision |  | $ | 27,173 |  |  |  | 19.4 |  |  | $ | 47,690 |  |  |  | 34.3 |  |  | $ | 27,618 |  |  |  | 24.3 |
(a) | Includes cost of global intangible low-taxed income (GILTI) in 2018 and withholding taxes paid on cash repatriated from foreign countries.
(b) | Does not include state tax impacts, which are included in state income tax provision, less applicable federal tax benefit.
(c) | For 2018, amount represents the federal tax rate change due to certain accounting methods that were adopted on the 2017 federal income tax return. For 2017, amount represents an accounting method change for depreciation.
(d) | Excess tax benefits related to employee share-based payment transactions recognized in 2018, 2017 and 2016 resulting from the adoption of ASU No. 2016-9.
(e) | Certain 2016 amounts have been reclassified to conform to the 2017 and 2018 presentation.
On December 22, 2017, the U.S. government enacted the Tax Act, which was comprehensive tax legislation. The Tax Act made broad and complex changes to the U.S. tax code that affect the Company’s income tax provision for 2018 including, but not limited to: (1) a 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 (BEAT), 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) the 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 Tax Act established new tax laws that affected 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 Securities and Exchange Commission staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 allows a company to record a provisional amount when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in the tax law. 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. During 2018, we examined the Tax Act changes discussed above and completed our analysis. As such, we were able to make reasonable estimates of the effects of the changes and consider our accounting for the income tax effects of certain elements of the Tax Act complete in all material respects as discussed immediately below. Deemed Repatriation Transition Tax: The Transition Tax is a tax on previously untaxed accumulated and current earnings and profits of our foreign subsidiaries. We were able to reasonably estimate the Transition Tax and recorded a provisional Transition Tax obligation of $19.4 million, with a corresponding adjustment of $19.4 million to income tax expense for the year ended December 31, 2017. On the basis of revised earnings and profits computations that were completed, we recognized a favorable measurement-period adjustment of $0.4 million to the Transition Tax obligation, with a corresponding favorable adjustment of $0.4 million to income tax expense during 2018. The effect of the measurement-period adjustment on the 2018 effective tax rate was a reduction of approximately 0.3 percent. The Transition Tax, the accounting for which has now been determined to be materially complete, resulted in recording a total Transition Tax obligation of $19.0 million, with a corresponding adjustment of $19.0 million to income tax expense. We expect another minor measurement-period Transition Tax adjustment to occur in 2019 upon finalization of the earnings and profits for some of our non-calendar-year-end foreign subsidiaries. These foreign subsidiaries are non-calendar-year-end entities for U.S. federal income tax purposes only. Permanent Reinvestment: Pursuant to the Tax Act, the Company’s foreign earnings have been subject to U.S. federal taxes. The Company now has the ability to repatriate to the U.S. parent the cash associated with these foreign earnings with little additional U.S. federal taxes. This cash may, however, be subject to foreign income and/or local country taxes if repatriated to the United States. In addition, repatriation of some foreign cash balances may be further restricted by local laws. During the year, the Company completed analyzing its foreign capital structure and determined the amount of cash at its foreign subsidiaries that can be repatriated to the United States with minimal additional taxes. In our analysis, the Company considered the future operating and liquidity needs of the Company and its foreign subsidiaries, while also considering the Company’s past assertion of indefinite reinvestment in its foreign earnings. Based on this analysis, the Company repatriated approximately $100.0 million to the U.S. parent and recorded $1.8 million of additional income tax expense in 2018 as a result of the repatriation. The effect of the adjustment on the 2018 effective tax rate was an increase of approximately 1.3 percent. With regard to the cash remaining at the Company’s foreign subsidiaries after the repatriation, the Company maintains its assertion of indefinite reinvestment in its foreign earnings. Reduction of U.S. federal corporate tax rate: The Tax Act reduced the corporate tax rate to 21 percent, effective January 1, 2018. We were able to reasonably estimate the impact to our deferred tax assets and liabilities and recorded a provisional net favorable adjustment of $4.5 million for the year ended December 31, 2017. On the basis of revised temporary differences that were completed during 2018 due to tax accounting method changes and other accelerated deductions, we recognized a favorable measurement-period adjustment of $5.2 million. The effect of the measurement-period adjustment on the 2018 effective tax rate was a reduction of approximately 3.7 percent. The reduction of the U.S. federal corporate tax rate, which has now been determined to be complete, resulted in recording a total deferred income tax benefit of $9.7 million as a result of revaluing the Company’s deferred tax assets and liabilities. Cost recovery: The Company is able to claim bonus depreciation to accelerate the expensing of the cost of certain qualified property acquired and placed in service after September 27, 2017 and before January 1, 2024. For the first five-year period (through 2022), the Company can deduct 100 percent of the cost of qualified property. Starting in 2023, the additional bonus depreciation is gradually phased out by 20 percent each year through 2027. We have completed the computations necessary and completed an inventory of our 2018 expenditures for property that was placed in service in 2018 and that qualifies for immediate expensing. We reasonably estimate said expenditures to be approximately $11.5 million. As these expenditures are temporary in nature, there was no impact to the effective tax rate. We also completed the computations necessary and completed an inventory of our 2017 expenditures for property that was placed into service from September 28, 2017 through December 31, 2017 and that qualified for immediate expensing. We concluded the impact of the true-up adjustment from this analysis, which has now been determined to be complete, was immaterial. 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 foreign tax credits). The Tax Act did not result in any additional valuation allowances for the Company. 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 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 depended, 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 depended 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. We determined to treat taxes due on future income inclusions related to GILTI as a current-period expense, option (1) above. The current-period expense for 2018 was $0.6 million which increased the 2018 effective tax rate by approximately 0.4 percent. We did not make any adjustments related to any potential deferred tax liabilities related to GILTI in our financial statements and have not recorded deferred tax liabilities related to GILTI. 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. We completed our evaluation of our existing compensation arrangements to determine whether any amounts payable to our Section 162(m) covered employees qualified under the grandfather provision. We determined that certain of these arrangements constitute qualified performance-based compensation under Section 162(m) and qualify under the grandfather provision. As a result, for compensation not yet paid or incurred related to services performed before January 1, 2018, to the extent available, we continued to treat this compensation as “qualified performance-based compensation” that is grandfathered under the Tax Act, which is deductible compensation. For services rendered after January 1, 2018, we recognized an unfavorable adjustment of $0.5 million in 2018. The effect of the adjustment on the 2018 effective tax rate was an increase of approximately 0.3 percent. Other Miscellaneous Tax Amendments of the Tax Act: The Tax Act’s other amendments including the creation of BEAT, a new minimum tax; limitations on the use of foreign tax credits (FTCs) to reduce the U.S. income tax liability; limitations on NOLs generated after December 31, 2017, to 80 percent of taxable income; and a new limitation on deductible interest expense were determined by the Company to be either not applicable or immaterial for 2018. Such tax amendments, however, may be subject to adjustment in subsequent periods in accordance with future interpretive guidance issued by the Internal Revenue Service (IRS), or may become material in prospective tax years. We continue to work with our tax advisors to determine such future impacts. At December 31, 2018 and 2017, the tax effects of significant temporary differences representing deferred tax assets and liabilities were as follows:
(In thousands) |  | 2018 |  |  | 2017 |
Deferred Tax Liabilities: |  |  |  |  |  |  |  |
Depreciation |  | $ | (57,665 | ) |  | $ | (51,244 | )
Unrealized foreign exchange loss |  |  | (980 | ) |  |  | (734 | )
Amortization of intangibles |  |  | (1,016 | ) |  |  | (1,420 | )
Inventories |  |  | (725 | ) |  |  | — |
Other |  |  | (301 | ) |  |  | (646 | )
|  | $ | (60,687 | ) |  | $ | (54,044 | )
Deferred Tax Assets: |  |  |  |  |  |  |  |
Pensions |  | $ | 7,971 |  |  | $ | 7,884 |
Deferred revenue |  |  | 208 |  |  |  | 232 |
Other accruals and reserves |  |  | 13,123 |  |  |  | 13,660 |
Inventories |  |  | — |  |  |  | 1,182 |
Legal and environmental accruals |  |  | 7,143 |  |  |  | 7,243 |
Deferred compensation |  |  | 14,214 |  |  |  | 15,402 |
Bad debt and rebate reserves |  |  | 2,916 |  |  |  | 2,865 |
Non-U.S. subsidiaries net operating loss carryforwards |  |  | 3,869 |  |  |  | 2,657 |
Tax credit carryforwards |  |  | 2,141 |  |  |  | 1,851 |
|  | $ | 51,585 |  |  | $ | 52,976 |
Valuation Allowance |  | $ | (3,701 | ) |  | $ | (2,255 | )
Net Deferred Tax Liabilities |  | $ | (12,803 | ) |  | $ | (3,323 | )
Reconciliation to Consolidated Balance Sheet: |  |  |  |  |  |  |  |
Non-current deferred tax assets (in other non-current assets) |  |  | 5,869 |  |  |  | 7,639 |
Non-current deferred tax liabilities |  |  | (18,672 | ) |  |  | (10,962 | )
Net Deferred Tax (Liabilities) Assets |  | $ | (12,803 | ) |  | $ | (3,323 | )
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 recorded $19.0 million in income tax expense, representing U.S. federal and state taxes 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 and adjusted for the year ended December 31, 2018. In 2018, the Company repatriated approximately $100.0 million to the U.S. parent, and recorded $1.8 million of additional income tax expense in 2018 as a result of the repatriation. The effect of the adjustment on the 2018 effective tax rate was an increase of approximately 1.3 percent. With regard to the cash remaining at the Company’s foreign subsidiaries after the repatriation, the Company maintains its assertion of indefinite reinvestment in its foreign earnings. At this time, the determination of deferred tax liabilities on this amount is not practicable. The Company has non-U.S. tax loss carryforwards of $14,901,000 (pretax) as of December 31, 2018, and $10,352,000 as of December 31, 2017, that are available for use by the Company between 2019 and 2038. The Company has tax credit carryforwards of $2,141,000 as of December 31, 2018, and $1,851,000 as of December 31, 2017 that are available for use by the Company between 2019 and 2028. At December 31, 2018, the Company had valuation allowances of $3,701,000, which were attributable to deferred tax assets in Canada, 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, 2018 and 2017, unrecognized tax benefits totaled $168,000 and $1,927,000, 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 $162,000, $1,917,000 and $1,921,000 at December 31, 2018, 2017 and 2016, respectively. The Company does not believe that the amount of unrecognized tax benefits related to its current uncertain tax positions will change significantly over the next 12 months. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. In 2018, the Company recognized net interest and penalty income of $26,000 compared to $3,000 of net interest and penalty expense in 2017 and $9,000 of net interest and penalty expense in 2016. At December 31, 2018 the liability for interest and penalties was $30,000 compared to $56,000 at December 31, 2017. 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 2015. Some foreign jurisdictions and various U.S. states jurisdictions may be subject to examination back to 2012. During 2016, the Internal Revenue Service started its audit of the 2011 and 2012 tax years. As of December 31, 2018, these audits were effectively settled. As such, the Company reversed an unrecognized tax benefit of $1.5 million that was offset with a corresponding reversal of $1.3 million related to an income tax refund receivable for which the Company is no longer entitled to receive. Below are reconciliations of the January 1 and December 31 balances of unrecognized tax benefits for 2018, 2017 and 2016:
(In thousands) |  | 2018 |  |  | 2017 |  |  | 2016 |
Unrecognized tax benefits, opening balance |  | $ | 1,927 |  |  | $ | 1,931 |  |  | $ | 1,958 |
Gross increases – tax positions in prior period |  |  | 29 |  |  |  | — |  |  |  | — |
Gross increases – current period tax positions |  |  | 26 |  |  |  | 20 |  |  |  | 35 |
Foreign currency translation |  |  | 1 |  |  |  | 69 |  |  |  | (43 | )
Settlement |  |  | (1,526 | ) |  |  | — |  |  |  | — |
Lapse of statute of limitations |  |  | (289 | ) |  |  | (93 | ) |  |  | (19 | )
Unrecognized tax benefits, ending balance |  | $ | 168 |  |  | $ | 1,927 |  |  | $ | 1,931 |

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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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