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Income Taxes | 12 Months Ended
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Dec. 31, 2016
Income Tax Disclosure [Abstract] |
Income Taxes |
9. | INCOME TAXES
Income taxes are recognized for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. The effects of income taxes are measured based on enacted tax laws and rates. The provision for income taxes from operations consisted of the following:
| Year ended December 31 |  |
In thousands | 2016 |  |  |  | 2015 |  |  |  | 2014 |  |
Current taxes |  |  |  |  |  |  |  |  |  |  |  |  |  |
Federal | $ | 2,216 |  |  |  | $ | 5,047 |  |  |  | $ | 3,291 |  |
State |  | (1,112 | ) |  |  |  | (1,680 | ) |  |  |  | 238 |  |
Foreign |  | 10,203 |  |  |  |  | 12,536 |  |  |  |  | 24,027 |  |
|  | 11,307 |  |  |  |  | 15,903 |  |  |  |  | 27,556 |  |
Deferred taxes and other |  |  |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | (24,411 | ) |  |  |  | (7,287 | ) |  |  |  | (3,975 | ) |
State |  | (1,723 | ) |  |  |  | 564 |  |  |  |  | (147 | ) |
Foreign |  | 4,079 |  |  |  |  | 4,821 |  |  |  |  | (5,297 | ) |
|  | (22,055 | ) |  |  |  | (1,902 | ) |  |  |  | (9,419 | ) |
Income tax provision (benefit) | $ | (10,748 | ) |  |  | $ | 14,001 |  |  |  | $ | 18,137 |  |
The following are the domestic and foreign components of pretax income (loss) from operations:
| Year ended December 31 |  |
In thousands | 2016 |  |  |  | 2015 |  |  |  | 2014 |  |
United States | $ | (63,315 | ) |  |  | $ | 2,382 |  |  |  | $ | 4,637 |  |
Foreign |  | 74,121 |  |  |  |  | 76,194 |  |  |  |  | 82,746 |  |
Total pretax income | $ | 10,806 |  |  |  | $ | 78,576 |  |  |  | $ | 87,383 |  |
A reconciliation between the income tax provision, computed by applying the statutory federal income tax rate of 35% to income before income taxes, and the actual income tax provision is as follows:
| Year ended December 31 |  |
| 2016 |  |  |  | 2015 |  |  |  | 2014 |  |
Federal income tax provision at statutory rate |  | 35.0 | % |  |  |  | 35.0 | % |  |  |  | 35.0 | % |
State income taxes, net of federal income tax benefit |  | (15.0 | ) |  |  |  | 0.3 |  |  |  |  | 0.2 |  |
Foreign income tax rate differential |  | (96.3 | ) |  |  |  | (8.6 | ) |  |  |  | (5.0 | ) |
Rate changes due to enacted legislation |  | (6.7 | ) |  |  | – |  |  |  |  | (2.2 | ) |
Tax effect of credits |  | (30.3 | ) |  |  |  | (1.9 | ) |  |  |  | (2.0 | ) |
Provision for (resolution of ) tax matters |  | 2.8 |  |  |  |  | (2.1 | ) |  |  |  | 1.3 |  |
Permanent differences on non-U.S. earnings |  | - |  |  |  |  | (4.4 | ) |  |  |  | (2.8 | ) |
Valuation allowance |  | 7.1 |  |  |  |  | 0.4 |  |  |  |  | (2.7 | ) |
Other |  | 3.9 |  |  |  |  | (0.9 | ) |  |  |  | (1.0 | ) |
Actual tax rate |  | (99.5 | )% |  |  |  | 17.8 | % |  |  |  | 20.8 | % |
The sources of deferred income taxes were as follows at December 31:
In thousands | 2016 |  |  |  | 2015 |  |
Reserves | $ | 4,625 |  |  |  | $ | 4,720 |  |
Environmental |  | 20,868 |  |  |  |  | 7,211 |  |
Compensation |  | 8,950 |  |  |  |  | 8,250 |  |
Post-retirement benefits |  | 18,318 |  |  |  |  | 19,476 |  |
Research & development expenses |  | 6,949 |  |  |  |  | 8,925 |  |
Inventories |  | 1,464 |  |  |  |  | 3,445 |  |
Other |  | 993 |  |  |  |  | 605 |  |
Tax carryforwards |  | 14,438 |  |  |  |  | 8,413 |  |
Deferred tax assets |  | 76,605 |  |  |  |  | 61,045 |  |
Valuation allowance |  | (4,066 | ) |  |  |  | (3,773 | ) |
Net deferred tax assets |  | 72,539 |  |  |  |  | 57,272 |  |
Property |  | (81,837 | ) |  |  |  | (84,009 | ) |
Intangible assets |  | (16,561 | ) |  |  |  | (17,748 | ) |
Pension |  | (29,041 | ) |  |  |  | (26,885 | ) |
Deferred tax liabilities |  | (127,439 | ) |  |  |  | (128,642 | ) |
Net deferred tax liabilities | $ | (54,900 | ) |  |  | $ | (71,370 | ) |
Non-current deferred tax assets and liabilities are included in the following balance sheet captions:
| December 31 |  |
In thousands | 2016 |  |  |  | 2015 |  |
Other assets | $ | 95 |  |  |  | $ | 5,088 |  |
Deferred income taxes |  | 54,995 |  |  |  |  | 76,458 |  |
At December 31, 2016 we had federal, state and foreign tax net operating loss (“NOL”) carryforwards of $15.5 million, $77.8 million and $4.8 million, respectively. These NOL carryforwards are available to offset future taxable income, if any. The federal NOL carryforward expires in 2036, state NOLs expire at various times and in various amounts beginning in 2017 and through 2036. Certain foreign NOL carryforwards begin to expire after 2019. The state and foreign NOL carryforwards and federal tax credits on the income tax returns filed included unrecognized tax benefits taken in prior years. The NOLs for which a deferred tax asset is recognized for financial statement purposes in accordance with ASC 740 are presented net of these unrecognized tax benefits. In addition, we had various federal tax credit carryforwards totaling $2.9 million which begin to expire in 2035, state tax credit carryforwards totaling $0.2 million, which begin to expire in 2017, and foreign investment tax credits of $0.8 million which begin to expire after 2030. As of December 31, 2016 and 2015, we had a valuation allowance of $4.1 million and $3.8 million, respectively, against net deferred tax assets, primarily due to uncertainty regarding the ability to utilize state and foreign tax NOL carryforwards and certain state tax credits. In assessing the need for a valuation allowance, management considers all available positive and negative evidence in its analysis. Based on this analysis, we recorded a valuation allowance for the portion of deferred tax assets where the weight of available evidence indicated it is more likely than not that the deferred tax assets will not be realized. Tax credits and other incentives reduce tax expense in the year the credits are claimed. We recorded tax credits of $1.1 million, $1.5 million and $1.8 million in 2016, 2015 and 2014, respectively, related to research and development credits and fuels tax credits. We also recognized $2.2 million related to investment tax credits in 2016. At December 31, 2016 and 2015, unremitted earnings of subsidiaries outside the United States deemed to be indefinitely reinvested totaled $399.9 million and $338.6 million, respectively. Because the unremitted earnings of subsidiaries are deemed to be indefinitely reinvested as of December 31, 2016 and because we have no need for or plans to repatriate such earnings, no deferred tax liability has been recognized in our consolidated financial statements. It is not practicable to determine the amount of additional taxes that have not been provided. As of December 31, 2016, 2015 and 2014, we had $14.2 million, $12.2 million and $14.9 million of gross unrecognized tax benefits, respectively. As of December 31, 2016, if such benefits were to be recognized, approximately $11.3 million would be recorded as a component of income tax expense, thereby affecting our effective tax rate. A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:
In millions | 2016 |  |  |  | 2015 |  |  |  | 2014 |  |
Balance at January 1 | $ | 12.2 |  |  |  | $ | 14.9 |  |  |  | $ | 14.9 |  |
Increases in tax positions for prior years |  | 2.0 |  |  |  | - |  |  |  |  | 0.7 |  |
Decreases in tax positions for prior years |  | (1.4 | ) |  |  |  | (4.3 | ) |  |  |  | (0.5 | ) |
Acquisition related: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Purchase Accounting |  | - |  |  |  |  | - |  |  |  |  | 0.3 |  |
Increases in tax positions for current year |  | 1.9 |  |  |  |  | 1.9 |  |  |  |  | 3.4 |  |
Settlements |  | (0.2 | ) |  |  | - |  |  |  |  | (1.3 | ) |
Lapse in statutes of limitation |  | (0.3 | ) |  |  |  | (0.3 | ) |  |  |  | (2.6 | ) |
Balance at December 31 | $ | 14.2 |  |  |  | $ | 12.2 |  |  |  | $ | 14.9 |  |
We, or one of our subsidiaries, file income tax returns with the United States Internal Revenue Service, as well as various state and foreign authorities. The following table summarizes tax years that remain subject to examination by major jurisdiction:
| Open Tax Years |
Jurisdiction | Examinations not yet initiated |  |  | Examination in progress |
United States |  |  |  |  |
Federal | 2013 - 2016 |  |  | N/A |
State | 2012 - 2016 |  |  | 2014 |
Canada(1) | 2010 - 2016 |  |  | N/A |
Germany(1) | 2012 - 2016 |  |  | 2011 - 2013 |
France | 2014 - 2016 |  |  | 2011 - 2012 |
United Kingdom | 2015 - 2016 |  |  | N/A |
Philippines | 2015 -2016 |  |  | 2013, 2014 |
(1) | includes provincial or similar local jurisdictions, as applicable.
The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Management performs a comprehensive review of its global tax positions on a quarterly basis and accrues amounts for uncertain tax positions. Based on these reviews and the result of discussions and resolutions of matters with certain tax authorities and the closure of tax years subject to tax audit, reserves are adjusted as necessary. However, future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are determined or resolved or as such statutes are closed. Due to potential for resolution of federal, state and foreign examinations, and the expiration of various statutes of limitation, it is reasonably possible our gross unrecognized tax benefits balance may decrease within the next twelve months by a range of zero to $0.9 million. Substantially all of this range relates to tax positions taken in the United Kingdom and in the U.S. We recognize interest and penalties related to uncertain tax positions as income tax expense. The following table summarizes information related to interest and penalties on uncertain tax positions:
| As of or for the year ended December 31, |  |
In millions | 2016 |  |  |  | 2015 |  |  |  | 2014 |  |
Accrued interest payable | $ | 0.5 |  |  |  | $ | 0.6 |  |  |  | $ | 0.6 |  |
Interest expense (income) |  | (0.1 | ) |  |  | – |  |  |  | – |  |
Penalties | – |  |  |  | – |  |  |  | – |  |

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