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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
On December 22, 2017, the TCJA was signed into U.S. law. Among other things, the TCJA reduced the U.S. federal corporate tax rate from 35% to 21% beginning in 2018 and required companies to pay a one-time transition tax on previously unremitted earnings of non-U.S. subsidiaries that were previously tax deferred. ASC Topic 740, Accounting for Income Taxes, required companies to recognize the effect of tax law changes in the period of enactment, or 2017, even though the effective date for most provisions was for tax years beginning after December 31, 2017. Accordingly, in 2017 we recorded an income tax benefit of $18.1 million to remeasure the net deferred tax liabilities due to the reduction in the U.S. corporate income tax rate to 21%. The TCJA included a one-time mandatory repatriation transition tax on the net accumulated earnings and profits of a U.S. taxpayer’s foreign subsidiaries. Given the significance of the legislation, the U.S. Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118, which allowed registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations. We performed an earnings and profits analysis which resulted in us recording in 2017 a provisional U.S. federal income tax expense of $41.8 million associated with the repatriation transition tax, and $3.8 million of non-US taxes and $0.3 million of state taxes associated with the repatriation of such earnings and profits. Our accounting for all provisions of the TCJA was completed as of December 31, 2018. We filed our 2017 U.S. federal income tax return during the third quarter of 2018 and reported the mandatory repatriation transition tax on the net earnings and profits of our foreign subsidiaries. As a result, we recorded a net benefit of $0.5 million to adjust the provisional amounts previously recorded in 2017 in connection with the repatriation provision. While the TCJA provided for a territorial tax system, beginning in 2018, it includes the global intangible low-taxed income (“GILTI”) provision. We elected to account for GILTI tax in the period in which it is incurred. The GILTI provisions require entities to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiaries’ tangible assets. For the year ended December 31, 2018, our income tax expense increased by approximately $2.5 million as a result of the GILTI provisions which, due to our utilization of U.S. federal tax loss carryforward, restricts our ability to recognize the associated foreign tax credits and a deduction of up to 50% of the GILTI income. Since we are using U.S. federal tax loss carryforwards, there is no impact to cash taxes related to the GILTI provisions. 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 (benefit from) income taxes from continuing operations consisted of the following:
| Year ended December 31 |  |
In thousands | 2018 |  |  |  | 2017 |  |  | 2016 |  |
Current taxes |  |  |  |  |  |  |  |  |  |  |  |  |
Federal | $ |  |  |  |  | $ | (1,323 | ) |  | $ | (763 | ) |
State |  | 442 |  |  |  |  | 107 |  |  |  | 315 |  |
Foreign |  | 14,985 |  |  |  |  | 14,292 |  |  |  | 10,203 |  |
|  | 15,427 |  |  |  |  | 13,076 |  |  |  | 9,755 |  |
Deferred taxes and other |  |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | (9,242 | ) |  |  |  | 5,375 |  |  |  | (38,811 | ) |
State |  | 251 |  |  |  |  | 2,652 |  |  |  | (3,428 | ) |
Foreign |  | 1,287 |  |  |  |  | 3,976 |  |  |  | 4,079 |  |
|  | (7,704 | ) |  |  |  | 12,003 |  |  |  | (38,160 | ) |
Income tax provision (benefit) | $ | 7,723 |  |  |  | $ | 25,079 |  |  | $ | (28,405 | ) |
The following are the domestic and foreign components of pretax income (loss) from continuing operations:
| Year ended December 31 |  |
In thousands | 2018 |  |  |  | 2017 |  |  | 2016 |  |
United States | $ | (59,264 | ) |  |  | $ | (60,788 | ) |  | $ | (116,703 | ) |
Foreign |  | 66,539 |  |  |  |  | 80,255 |  |  |  | 74,121 |  |
Total pretax income (loss) | $ | 7,275 |  |  |  | $ | 19,467 |  |  | $ | (42,582 | ) |
The following table sets forth a reconciliation of the statutory federal income tax rate to our actual effective tax rate for continuing operations.
| Year ended December 31 |  |
| 2018 |  |  |  | 2017 |  |  | 2016 |  |
Federal income tax provision at statutory rate |  | 21.0 | % |  |  |  | 35.0 | % |  |  | 35.0 | % |
State income taxes, net of federal income tax benefit |  | (15.9 | ) |  |  |  | (1.8 | ) |  |  | 7.0 |  |
Foreign income tax rate differential |  | (18.9 | ) |  |  |  | (58.0 | ) |  |  | 24.4 |  |
Tax effect of tax credits |  | 1.3 |  |  |  |  | (20.1 | ) |  |  | — |  |
Provision for (resolution of) tax matters |  | 46.5 |  |  |  |  | 27.8 |  |  |  | 0.4 |  |
Rate changes due to enacted legislation |  | 7.2 |  |  |  |  | (1.3 | ) |  |  | 1.9 |  |
State benefit due to enacted legislation |  | — |  |  |  |  | (8.2 | ) |  |  | — |  |
Effect of U.S. tax law change (1) |  | (7.5 | ) |  |  |  | 107.5 |  |  |  | — |  |
Global Intangible Low-taxed Income |  | 33.8 |  |  |  |  | — |  |  |  | — |  |
Stock-based compensation |  | 10.0 |  |  |  |  | (0.2 | ) |  |  | 0.2 |  |
Nondeductible officer's compensation |  | 5.2 |  |  |  |  | — |  |  |  | — |  |
Valuation allowance |  | 15.7 |  |  |  |  | 47.0 |  |  |  | (1.8 | ) |
Other |  | 7.8 |  |  |  |  | 1.1 |  |  |  | (0.4 | ) |
Actual tax rate |  | 106.2 | % |  |  |  | 128.8 | % |  |  | 66.7 | % |
| (1) | Due to the TCJA which was enacted in December 2017, provisional mandatory transition tax on accumulated foreign earnings was accrued as of December 31, 2017. Our U.S. deferred tax assets and liabilities as of December 31, 2017 were re-measured from 35% to 21%.
The provisional effects of the TCJA for the year ended December 31, 2017, are $39.0 million of deferred income tax expense, including a $6.8 million reversal of a valuation allowance, and $18.1 million of deferred income tax benefit. The sources of deferred income taxes were as follows at December 31:
In thousands | 2018 |  |  |  | 2017 |  |
Reserves | $ | 3,720 |  |  |  | $ | 3,145 |  |
Environmental |  | 10,795 |  |  |  |  | 11,189 |  |
Compensation |  | 3,957 |  |  |  |  | 6,782 |  |
Post-retirement benefits |  | 2,133 |  |  |  |  | 12,570 |  |
Research & development expenses |  | — |  |  |  |  | 6,787 |  |
Inventories |  | (35 | ) |  |  |  | 1,891 |  |
Tax carryforwards |  | 21,843 |  |  |  |  | 21,988 |  |
Other |  | 3,506 |  |  |  |  | 2,106 |  |
Deferred tax assets |  | 45,919 |  |  |  |  | 66,458 |  |
Valuation allowance |  | (30,029 | ) |  |  |  | (7,405 | ) |
Net deferred tax assets |  | 15,890 |  |  |  |  | 59,053 |  |
Property |  | (66,426 | ) |  |  |  | (98,809 | ) |
Intangible assets |  | (22,231 | ) |  |  |  | (17,647 | ) |
Pension |  | (3,890 | ) |  |  |  | (21,941 | ) |
Other |  | (1,935 | ) |  |  |  | (4,110 | ) |
Deferred tax liabilities |  | (94,482 | ) |  |  |  | (142,507 | ) |
Net deferred tax liabilities | $ | (78,592 | ) |  |  | $ | (83,454 | ) |
Non-current deferred tax assets and liabilities are included in the following balance sheet captions:
| December 31 |  |
In thousands | 2018 |  |  |  | 2017 |  |
Other assets | $ | 59 |  |  |  | $ | 117 |  |
Deferred income taxes |  | 78,651 |  |  |  |  | 83,571 |  |
At December 31, 2018 we had federal, state and foreign tax net operating loss (“NOL”) carryforwards of $37.6 million, $201.7 million and $2.7 million, respectively. These NOL carryforwards are available to offset future taxable income, if any. All federal NOL carryforwards expire in 2037. The state NOL carryforwards expire at various times and in various amounts beginning in 2019 and through 2038. Certain foreign NOL carryforwards begin to expire after 2023. The federal, state and foreign NOL carryforwards 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 $11.2 million which begin to expire after 2036, state tax credit carryforwards totaling $0.2 million, which begin to expire in 2019, and foreign investment tax credits of $2.4 million which begin to expire after 2027. As of December 31, 2018 and 2017, we had a valuation allowance of $30.0 million and $7.4 million, respectively, against net deferred tax assets, primarily due to uncertainty regarding the ability to utilize federal, 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 $(0.1) million, $3.9 million and $0.0 million in 2018, 2017 and 2016, respectively, related to research and development credits. At December 31, 2018 and 2017, unremitted earnings of subsidiaries outside the United States deemed to be indefinitely reinvested totaled $29.0 million and $0.0 million, respectively. Because the unremitted earnings of subsidiaries are deemed to be indefinitely reinvested as of December 31, 2018 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. As of December 31, 2018, 2017 and 2016, we had $29.6 million, $26.9 million and $14.2 million of gross unrecognized tax benefits, respectively. As of December 31, 2018, if such benefits were to be recognized, approximately $19.8 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 | 2018 |  |  |  | 2017 |  |  | 2016 |  |
Balance at January 1 | $ | 26.9 |  |  |  | $ | 14.2 |  |  | $ | 12.2 |  |
Increases in tax positions for prior years |  | 0.3 |  |  |  |  | 1.7 |  |  |  | 2.0 |  |
Decreases in tax positions for prior years |  | (1.0 | ) |  |  |  | — |  |  |  | (1.4 | ) |
Acquisition related: |  |  |  |  |  |  |  |  |  |  |  |  |
Purchase Accounting |  | 0.3 |  |  |  |  | — |  |  |  | — |  |
Increases in tax positions for current year |  | 4.0 |  |  |  |  | 11.9 |  |  |  | 1.9 |  |
Settlements |  | (0.2 | ) |  |  |  | — |  |  |  | (0.2 | ) |
Lapse in statutes of limitation |  | (0.7 | ) |  |  |  | (0.9 | ) |  |  | (0.3 | ) |
Balance at December 31 | $ | 29.6 |  |  |  | $ | 26.9 |  |  | $ | 14.2 |  |
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 | 2015 - 2018 |  |  | N/A |
State | 2014 - 2018 |  |  | N/A |
Canada(1) | 2011-2013; 2018 |  |  | 2014 - 2017 |
Germany(1) | 2016 - 2018 |  |  | 2011 - 2015 |
France | 2018 |  |  | 2015-2017 |
United Kingdom | 2017 - 2018 |  |  | N/A |
Philippines | 2015, 2018 |  |  | 2016, 2017 |
(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 $6.5 million. The majority of this range relates to tax positions taken in Germany and 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 | 2018 |  |  |  | 2017 |  |  | 2016 |  |
Accrued interest payable | $ | 1.1 |  |  |  | $ | 0.8 |  |  | $ | 0.5 |  |
Interest expense (income) |  | 0.3 |  |  |  |  | 0.3 |  |  |  | (0.1 | ) |
Penalties | – |  |  |  | – |  |  | – |  |

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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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