Income Taxes

12 Months Ended

Dec. 31, 2020

The following table summarizes the U.S. and non-U.S. components of income (loss) from continuing operations before Provision (benefit) for income taxes:


	For the Year Ended December 31,
	2020		2019		2018
	(Dollars in thousands)
U.S.	$	51,672	$	85,365	$	(68,032)
Non-U.S.	458,373		757,462		970,840
	$	510,045	$	842,827	$	902,808

Income tax expense (benefit) consists of the following:


	For the Year Ended December 31,
	2020		2019		2018

U.S. income taxes:
Current	$	(7,660)	$	16,589	$	787
Deferred	27,822		5,690		(52,145)
	20,162		22,279		(51,358)
Non-U.S. income taxes:
Current	63,092		64,134		85,252
Deferred	(7,583)		11,812		15,026
	55,509		75,946		100,278
Total income tax expense (benefit)	$	75,671	$	98,225	$	48,920

Income tax expense in 2020 was $75.7 million on income before taxes of $510.0 million. In 2019, income tax expense

was $98.2 million on income before taxes of $842.8 million, and in 2018, income tax expense was $48.9 million on income before taxes of $902.8 million. The change in tax expense from year to year is primarily due to changes in earnings and the shift

in the jurisdictional mix of earnings and losses from year to year. The years 2018 and 2019 also included partial release of a valuation allowance recorded against the deferred tax asset related to certain foreign, US federal and state tax attributes.

Income tax expense (benefit) differed from the amount computed by applying the U.S. federal income tax rate of 21% for years ended December 31, 2020, 2019 and 2018 to income before (benefit) expense for taxes as set forth in the following table:


	For the Year Ended December 31,
	2020		2019		2018
	(Dollars in thousands)
Tax at statutory U.S. federal rate	$	107,109	$	176,994	$	189,590
Impact of U.S. Tax Act - GILTI	45,539		65,531		93,739
Impact of Tax Receivable Agreement	(4,429)		713		18,160
Valuation allowance	(980)		(14,548)		(93,125)
State taxes, net of federal tax benefit	3,591		4,231		1,529
U.S. tax impact of foreign earnings (net of foreign tax credits)	2,113		2,181		792

Establishment/resolution of uncertain tax positions	(78)		(1,293)		(345)
Adjustment for foreign income taxed at different rates	(38,464)		(76,922)		(95,822)
Foreign tax credits	(37,280)		(56,171)		(65,046)
Other	(1,450)		(2,491)		(552)
Provision (benefit) for income taxes	$	75,671	$	98,225	$	48,920

The tax effects of temporary differences that give rise to significant components of the deferred tax assets and deferred tax liabilities at December 31, 2020 and December 31, 2019 are set forth in the following table:


	As of December 31,
	2020		2019
	(Dollars in thousands)
Deferred tax assets:
Postretirement and other employee benefits	$	18,202	$	18,256
Foreign tax credit and other carryforwards	37,101		55,103
Capitalized research and experimental costs	3,897		5,566
Environmental reserves	1,111		1,110
Inventory adjustments	7,381		14,863



Long-term contract option amortization	1,031		1,080
Provision for rationalization charges	96		232
Mark- to- market Hedges	3,552		768
Other	3,646		1,104
Total gross deferred tax assets	76,017		98,082
Less: valuation allowance	(12,773)		(13,736)
Total deferred tax assets	63,244		84,346
Deferred tax liabilities:
Fixed assets	$	54,485	$	56,659

Inventory	8,573		12,778

Goodwill and acquired intangibles	7,552		6,996
Other	3,254		2,468
Total deferred tax liabilities	73,864		78,901
Net deferred tax ( liability) asset	$	(10,620)	$	5,445

Net non-current deferred tax assets are separately stated as deferred income taxes in the amount of $84.3 million as of December 31, 2019 and $63.2 million as of December 31, 2020. Net non-current deferred tax liabilities are separately stated as deferred income taxes in the amount of $78.9 million at December 31, 2019 and $73.9 million at December 31, 2020.

At each reporting period, we assess the need for valuation allowances against deferred tax assets based on determinations of whether it is more likely than not that deferred tax benefits will be realized through the generation of future taxable income. Appropriate consideration is given to all available evidence, both positive and negative, in assessing the need for a valuation allowance. Examples of positive evidence would include a strong earnings history, an event or events that would increase our taxable income through a continued reduction of expenses, and tax planning strategies that would indicate an ability to realize deferred tax assets. Examples of negative evidence would include cumulative losses in recent years and history of tax attributes expiring unused. In circumstances where the significant positive evidence does not outweigh the negative evidence in our assessment, we have established and maintained valuation allowances on those net deferred tax assets. However, the recognition of the valuation allowance does not result in or limit the Company's ability to utilize these tax assets in the future.

Valuation allowance activity for the years ended December 31, 2018, 2019 and 2020 is as follows:


	(Dollars in thousands)
Balance as of December 31, 2018	$	58,446
Credited to income	(14,548)
Changes attributable to write-off of underlying assets	(30,138)
Translation adjustment	(24)
Balance as of December 31, 2019	$	13,736
Credited to income	(980)

Translation adjustment	17
Balance as of December 31, 2020	$	12,773

During 2018, we determined that sufficient positive evidence existed that allowed us to conclude that a full valuation allowance was no longer required to be recorded against the deferred tax assets related to the U.S. tax attributes. This positive evidence was primarily supplied by the company exiting a cumulative loss period in the U.S. as well as sufficient U.S. current and forecasted taxable income that would utilize the U.S. tax attributes. As a result, a partial release (to reflect only the economic benefit of the attributes) of the valuation allowance against federal net operating losses and state losses was recorded in 2018 while a full release of the valuation allowance against the federal foreign tax credit carryforward, other federal deferred tax assets was also recorded. A valuation allowance of $35.8 million is included in the December 31, 2018 balance reflected above as there was not sufficient positive evidence that the deferred tax asset related to the U.S. federal net operating loss would generate more than its estimated economic benefit. This valuation allowance and the related deferred tax asset were subsequently released to the income statement in 2019. In 2020, the reduction in the valuation allowance resulted primarily from expirations of NOLs upon which a valuation allowance was previously recorded.

As of December 31, 2020, we have a total foreign tax credit carryforward of $17.9 million. As indicated above, a valuation allowance is no longer recorded against this foreign tax credit carryforward. These tax credit carryforwards begin to expire in 2025. In addition, we have state net operating losses carryforwards of $255.7 million (net of federal benefit), which can be carried forward from 5 to 20 years. These state net operating losses carryforwards result in a deferred tax asset of $15.0 million as of December 31, 2020. We also have U.S. state tax credits of $0.1 million as of December 31, 2020. Our foreign loss carryforwards on a gross basis are $9.1 million and may be carried forward indefinitely.

As of December 31, 2020, we had unrecognized tax benefits of $0.1 million, which, if recognized, would have a favorable impact on our effective tax rate. We have elected to report interest and penalties related to uncertain tax positions as income tax expense. Accrued interest and penalties were $0.9 million as of December 31, 2018 and no accrued interest and penalties as of December 31, 2019 (a decrease of $0.9 million). A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


	(Dollars in thousands)

Balance as of December 31, 2018	$	1,990
Settlements	(1,383)
Reductions for tax positions of prior years	(421)

Foreign currency impact	(2)
Balance as of December 31, 2019	$	184


Lapse of statutes of limitations	(75)
Foreign currency impact	16
Balance as of December 31, 2020	$	125

It is reasonably possible that a reduction of unrecognized tax benefits of up to $0.1 million may occur within 12 months due to settlements and the expiration of statutes of limitation.

We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. All U.S. federal tax years prior to 2016 are generally closed by statute or have been audited and settled with the applicable domestic tax authorities. Other jurisdictions are still open to examination beginning after 2014.

As of December 31, 2020, the Company has accumulated undistributed earnings generated by our foreign subsidiaries of approximately $1.2 billion. Because $1.0 billion of such earnings have previously been subject to taxation by way of the transition tax on foreign earnings required by the Tax Act, as well as the current and previous years’ GILTI inclusion, any additional taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of our foreign investments would generally be limited to foreign withholding and state taxes. We intend, however, to indefinitely reinvest these earnings and expect future U.S. cash generation to be sufficient to meet future U.S. cash needs.

- 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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