Income Taxes

12 Months Ended

Dec. 31, 2020

For financial reporting purposes, income before income taxes includes the following components ($ in millions):


	For the Years Ended December 31,
	2020		2019		2018
United States	$	29.1	$	60.0	$	55.8
Foreign	68.2		36.9		61.0
Total	$	97.3	$	96.9	$	116.8

An analysis of the provision (benefit) for income taxes from continuing operations follows ($ in millions):


	For the Years Ended December 31,
	2020		2019		2018
Current income taxes:
U.S. federal	$	7.3	$	8.1	$	(9.2)
U.S. state	1.5		0.8		0.8
Foreign	14.8		9.7		11.6
	23.6		18.6		3.2
Deferred income taxes:
U.S. federal	(5.3)		2.3		3.6
U.S. state	1.0		(1.9)		1.4
Foreign	(0.9)		(3.8)		2.5
	(5.2)		(3.4)		7.5
Total	$	18.4	$	15.2	$	10.7

A reconciliation of income taxes computed at the U.S. Federal statutory income tax rate to the provision for income taxes is as follows ($ in millions):


	For the Years Ended December 31,
	2020				2019				2018


	Amount		Percent		Amount		Percent		Amount		Percent
Tax provision at U.S. statutory rate	$	20.4	21.0	%	$	20.3	21.0	%	$	24.5	21.0	%
Foreign income tax rate differential	2.7		2.7		0.6		0.5		2.5		2.2
Income from passthrough entities	2.3		2.3		1.7		1.6		0.7		0.6
Global intangible low tax inclusion	4.8		4.8		(0.1)		(0.1)		7.0		6.0
Foreign derived intangible income	(0.3)		(0.3)		(0.2)		(0.2)		(4.2)		(3.6)
State income tax, net of federal benefit	1.8		1.8		(0.2)		(0.2)		1.7		1.5
Adjustments to valuation allowances	(3.9)		(3.9)		(3.7)		(3.8)		(2.5)		(2.1)
Transition tax	—		—		(0.7)		(0.6)		(11.6)		(10.0)
Other tax credits	(0.8)		(0.8)		(2.0)		(2.1)		(2.6)		(2.3)
Foreign tax credits	(9.9)		(10.0)		(3.5)		(3.6)		(5.1)		(4.4)
Other foreign operational taxes	3.5		3.5		2.9		3.0		3.1		2.7

Remeasurement of deferred taxes due to tax law	0.4		0.4		0.9		1.0		(1.8)		(1.5)
Non-deductible compensation	0.4		0.4		1.1		1.1		0.4		0.3
Other, net	(3.0)		(3.0)		(1.9)		(1.9)		(1.4)		(1.2)
Provision for income taxes	$	18.4	18.9	%	$	15.2	15.7	%	$	10.7	9.2	%

On December 22, 2017, the Tax Act was enacted into law effective January 1, 2018. The new legislation contains several key tax provisions that affected the Company, which include but are not limited to a one-time deemed repatriation tax on post-1986 accumulated earnings and profits of the undistributed earnings of foreign subsidiaries (“transition tax”), a reduction of the federal corporate income tax rate from 35% to 21%, and other U.S. reform items. In 2018, the Company decreased its provisional estimates of transition tax, related currency implications, state taxes and deferred tax rate change effect of the new law by $13.9 million. The reduction from the provisional 2017 amounts was primarily due to further analysis of transition tax on accumulated earnings and foreign taxes paid. As of December 31, 2018, the Company completed its accounting for the tax effects of the Tax Act.

A provision for income taxes of $18.4 million and $15.2 million in the years ended December 31, 2020 and 2019, respectively, resulted in an effective tax rate of 18.9% as compared with 15.7% in 2019. The Company’s effective tax rates differ from the statutory federal income tax rate of 21% due to varying tax rates in foreign jurisdictions, the relative amounts of income we earn in those jurisdictions and a $4.2 million year over year reduction due to the one-time Brazil ICMS litigation accrual in 2019.

Prior to the passage of the U.S. Tax Act, the Company asserted that substantially all of the undistributed earnings of its foreign subsidiaries were considered indefinitely reinvested and accordingly, no deferred taxes were provided. Due to the Tax Act, the Company has significant previously taxed earnings and profits from its foreign subsidiaries, as a result of transition tax, that is generally able to be repatriated free of U. S. federal tax. In addition, future earnings of foreign subsidiaries are generally expected to be able to be repatriated free of U.S. federal income tax because these earnings were taxed in the U.S. under the GILTI regime or would be eligible for a 100% dividends received deduction. As a result of the Company’s treasury policy to simplify and expediate the intercompany cash flows to SWM US, as evidenced by the implementation of the Cash Pool, and in light of the Company’s demonstrated goal of driving growth though inorganic/acquisitional means, the Company has decided to no longer assert indefinite reinvestment with respect to earnings generated by foreign subsidiaries prior to January 1, 2018. Therefore, the Company does not intend to assert indefinite reinvestment of its foreign subsidiaries to the extent of each CFC’s earnings and profits and to the extent of any foreign partnership’s U.S. tax capital accounts. As a result,

the Company has provided for non-U.S. withholding taxes, U.S. federal tax related to currency movement on previously-taxed earnings and profits, and U.S. state taxes on unremitted earnings.

Net deferred income tax assets (liabilities) were comprised of the following ($ in millions):


	December 31,
	2020		2019
Deferred Tax Assets
Receivable allowances	$	0.5	$	0.4



Postretirement and other employee benefits	21.0		19.0

Derivatives	2.5		0.1
Net operating loss and tax credit carryforwards	104.4		93.7
Capital loss carryforward	12.1		6.9
Accruals and other liabilities	0.7		—

Intangibles	37.6		45.7
Other	4.4		3.9
	183.2		169.7
Less: Valuation allowance	(166.6)		(157.4)
Net deferred income tax assets	$	16.6	$	12.3

Deferred Tax Liabilities


Net property, plant and equipment	$	(55.7)	$	(52.6)
Accruals and other liabilities	—		(0.6)

Investment in subsidiaries	(3.2)		(3.5)


Other	(0.3)		(0.1)


Net deferred income tax liabilities	$	(59.2)	$	(56.8)

Total net deferred income tax liabilities	$	(42.6)	$	(44.5)

As of December 31, 2020, the Company had approximately $99.5 million of tax-effected operating loss carryforwards available to further reduce future taxable income in various jurisdictions which will expire on various dates as follows:


	2020
2021-2024	$	0.1
2025-2037	19.6

Indefinite	79.8
	$	99.5

In addition, the Company has $2.9 million and $1.8 million of foreign and state tax credits that will expire between 2029 – 2030 and 2021 – 2036, respectively.

The Company's deferred tax asset valuation allowances are primarily the result of uncertainties regarding the future realization of recorded tax benefits on tax loss carryforwards for certain entities. The valuation allowance on deferred tax assets as of December 31, 2020, in Luxembourg, Spain and the Philippines total $151.8 million, $9.1 million and $0.4 million respectively, fully reserving the net deferred tax asset balances in these locations. In addition, there is a valuation allowance on ICMS tax credits of $4.1 million in Brazil and certain state tax credits of $1.2 million.

The Company's assumptions, judgments and estimates relative to the valuation of these net deferred tax assets take into account available positive and negative evidence of realizability, including recent financial performance, the ability to realize benefits of restructuring and other recent actions, projections of the amount and category of future taxable income and tax planning strategies. Actual future operating results and the underlying amount and category of income in future periods could differ from the Company's current assumptions, judgments and estimates. The Company believes that it will generate sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets.

The following table summarizes the activity related to the Company's unrecognized tax benefits related to income taxes ($ in millions):


	December 31,
	2020		2019		2018
Uncertain tax position balance at beginning of year	$	1.7	$	1.1	$	1.0
Increases related to current year tax positions	0.3		0.6		0.6

Decreases related to prior year tax positions	—		—		(0.2)
Decreases related to expiration of statute of limitations	—		—		(0.3)
Uncertain tax position balance at end of year	$	2.0	$	1.7	$	1.1

The liability for unrecognized tax benefits included $2.0 million as of December 31, 2020 that if recognized would impact the Company's effective tax rate. We do not anticipate a decrease in unrecognized tax benefits by the end of 2021 as a result of a lapse of the statute of limitations and other regulatory filings. The Company's policy with respect to penalties and interest in connection with income tax assessments or related to unrecognized tax benefits is to classify penalties as provision for income taxes and interest as interest expense in its Consolidated Statements of Income. There were no material income tax penalties or interest accrued during the years ended December 31, 2020, 2019 and 2018.

The Company files income tax returns, including returns for its subsidiaries, with federal, state, local and foreign jurisdictions. The Company finalized Belgium and France audits for tax years 2017 – 2018 and 2016 - 2017, respectively during 2020. All expected impacts have been recorded in 2020 or earlier. We are no longer subject to U.S. federal examinations by the IRS for tax years before 2016. The following tax years remain subject to examination by the respective major tax jurisdictions:


Jurisdiction			Fiscal Years
Belgium			2019-2020
Brazil			2015-2020
Canada			2016-2020
China			2018-2020
France			2018-2020
Germany			2016-2020
Hong Kong			2014-2020
Luxembourg			2015-2020
Philippines			2017-2020
Poland			2015-2020
Spain			2016-2020
United Kingdom			2018-2020
United States
Federal			2016-2020
State			2014-2020

- 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.

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