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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES Income (loss) before income taxes and income tax expense (benefit) are as follows:
(In thousands) |  | 2019 |  | 2018 |  | 2017
Income (loss) before income taxes: |  |  |  |  |
Domestic | $ | 35,731 |  |  | $ | 17,663 |  |  | $ | 67,549 |
Foreign | 22,441 |  |  | 18,705 |  |  | (82,461 | )
Total | $ | 58,172 |  |  | $ | 36,368 |  |  | $ | (14,912 | )
Current income tax expense (benefit): |  |  |  |  |
Federal | $ | 1,202 |  |  | $ | (187 | ) |  | $ | (20,560 | )
State | 989 |  |  | 815 |  |  | 800 |
Foreign | 1,801 |  |  | 2,090 |  |  | 3,247 |
Total | 3,992 |  |  | 2,718 |  |  | (16,513 | )
Deferred income tax expense (benefit): |  |  |  |  |
Federal | 17,357 |  |  | 8,708 |  |  | (23,302 | )
State | 311 |  |  | 364 |  |  | (949 | )
Foreign | (11,747 | ) |  | (264 | ) |  | (12,399 | )
Total | 5,921 |  |  | 8,808 |  |  | (36,650 | )
Total income tax expense (benefit) | $ | 9,913 |  |  | $ | 11,526 |  |  | $ | (53,163 | )
The significant differences between the U.S. federal statutory rate and the effective income tax rate for continuing operations are as follows:
| 2019 |  | 2018 |  | 2017
(In thousands, except percentages) | Amount |  | % |  |  | Amount |  | % |  |  | Amount |  | % |
Income tax expense (benefit) at federal statutory rate | $ | 12,223 |  | 21.0 |  |  | $ | 7,638 |  | 21.0 |  |  | $ | (5,219 | ) | 35.0 |
U.S. tax on foreign branch income | 15,865 |  | 27.2 |  |  | 1,901 |  | 5.2 |  |  | — |  | — |
Foreign rate differences | 2,211 |  | 3.8 |  |  | 1,805 |  | 5.0 |  |  | 2,546 |  | (17.1 | )
State taxes, net of federal income tax benefit | 987 |  | 1.7 |  |  | 520 |  | 1.4 |  |  | 656 |  | (4.4 | )
Non-deductible expenses | 467 |  | 0.8 |  |  | 322 |  | 0.9 |  |  | 434 |  | (2.9 | )
Stock-based compensation | 283 |  | 0.5 |  |  | 175 |  | 0.5 |  |  | 199 |  | (1.3 | )
Global intangible low tax income | 68 |  | 0.1 |  |  | — |  | — |  |  | — |  | — |
Valuation allowance for capital loss carryforwards | 60 |  | 0.1 |  |  | 553 |  | 1.5 |  |  | 83 |  | (0.6 | )
Unremitted earnings from foreign operations | 60 |  | 0.1 |  |  | 126 |  | 0.3 |  |  | — |  | — |
Non-deductible goodwill and asset impairment loss | — |  | — |  |  | 1,801 |  | 5.1 |  |  | 228 |  | (1.5 | )
Increase in value of kaléo investment held abroad | — |  | — |  |  | — |  | — |  |  | (2,326 | ) | 15.6 |
Settlement of Terphane acquisition escrow | — |  | — |  |  | — |  | — |  |  | (4,200 | ) | 28.2 |
Impact of U.S. Tax Cuts and Jobs Act | — |  | — |  |  | — |  | — |  |  | (4,433 | ) | 29.7 |
Worthless stock deductions | — |  | — |  |  | — |  | — |  |  | (61,413 | ) | 411.9 |
Foreign derived intangible income deduction | (273 | ) | (0.5 | ) |  | (1,050 | ) | (2.9 | ) |  | — |  | — |
Changes in estimates related to prior year tax provision | (721 | ) | (1.2 | ) |  | (303 | ) | (0.8 | ) |  | 320 |  | (2.1 | )
Research and development tax credit | (830 | ) | (1.4 | ) |  | (420 | ) | (1.2 | ) |  | (375 | ) | 2.5 |
Dividend received deduction net of foreign withholding tax | (1,016 | ) | (1.7 | ) |  | — |  | — |  |  | — |  | — |
Brazilian tax incentive | (1,999 | ) | (3.4 | ) |  | (1,340 | ) | (3.7 | ) |  | — |  | — |
Tax contingency accruals and tax settlements | (2,543 | ) | (4.4 | ) |  | 773 |  | 2.1 |  |  | (420 | ) | 2.8 |
Valuation allowance due to foreign losses and impairments | (14,929 | ) | (25.6 | ) |  | (975 | ) | (2.7 | ) |  | 20,757 |  | (139.3 | )
Income tax expense (benefit) at effective income tax rate | $ | 9,913 |  | 17.1 |  |  | $ | 11,526 |  | 31.7 |  |  | $ | (53,163 | ) | 356.5 |
During 2019, the Company recorded a deferred tax expense of $1.0 million as a valuation allowance to offset deferred tax assets for loss carryovers at our Hungarian subsidiary that the Company does not believe are more likely than not to be realized before the carryover periods expire. Due to recent favorable earnings trends, the Company reversed a $12.4 million valuation allowance on the net deferred tax assets of its Brazilian subsidiary Terphane Ltda. Because Terphane Ltda. is taxed as a foreign branch for US tax purposes, Tredegar also recorded a related deferred tax liability of $12.4 million for the reduction in foreign tax credits that would result from Terphane Ltda. realizing this net deferred tax asset. Income taxes in 2018 were primarily impacted by not recording a tax benefit on a portion of the PE Films Personal Care goodwill impairment charge, the additional tax impact of Tredegar’s Brazilian subsidiaries being included in its US consolidated tax return as foreign branches as well as the tax impact of the local statutory tax rates of Tredegar’s foreign subsidiaries being higher than the current US tax rate of 21%. These increases to income tax expense were offset by recording a tax benefit on a portion of foreign losses and impairments, by the tax benefit of the foreign derived intangible income deduction under the TCJA, and by the benefit of tax incentives in Brazil. During 2017, the Company completed a plan to liquidate for tax purposes one of its domestic subsidiaries, which allowed it to claim an income tax benefit on the write-off of the stock basis of Terphane, Inc. (Terphane’s U.S. affiliate) on its 2017 U.S. federal income tax return. The Company recorded an income tax benefit during the second quarter of 2017 of $8.1 million related to this worthless stock deduction, net of valuation allowances and accrual for uncertain tax positions. Also, during the fourth quarter of 2017, as a result of valuation activities and other efforts, the Company claimed an ordinary loss for U.S. federal and state income tax purposes of $153 million for the write-off of the stock basis of Terphane Limitada (Terphane’s Brazilian entity). The full tax benefit accrued for the Terphane Limitada worthless stock deduction at the 35% U.S. corporate income tax rate applicable for 2017 was approximately $54 million. This benefit was reduced by $4.8 million in conjunction with the TCJA for the portion of the deduction that is expected to be applied to income generated after 2017 where the new U.S. federal corporate income tax rate of 21% is applicable. The significant foreign rate difference for 2017 is primarily due to the difference between Hungary’s income tax rate of 9% and the U.S. federal corporate income tax rate of 35%. Tredegar accrues U.S. federal income taxes on unremitted earnings of all foreign subsidiaries where required. However, due to changes in the taxation of dividends under TCJA, Tredegar will only record U.S. federal income taxes on unremitted earnings of its foreign subsidiaries where Tredegar cannot take steps to eliminate any potential tax on future distributions from its foreign subsidiaries. Prior to the second quarter of 2016, deferred U.S. federal income taxes had not been recorded for the undistributed earnings for Terphane Limitada because the Company had intended to permanently reinvest these earnings. Due to concerns about the political and economic conditions in Brazil, Terphane Limitada began making cash distributions to the Company in 2016. During the second quarter of 2016, Terphane Limitada paid a dividend of $10.7 million to the Company. During the second quarter of 2017, the Company recognized a net tax benefit of $0.4 million associated with additional U.S. tax related to this repatriation of cash from Brazil offset by the reversal of related tax contingencies. Because of the accumulation of significant losses related to foreign currency translations at Terphane Limitada, there were no deferred income tax liabilities associated with the U.S. federal income taxes and foreign withholding taxes on Terphane Limitada’s undistributed earnings as of and December 31, 2019 and 2018. The Brazilian federal statutory income tax rate is a composite of 34.0% (25.0% of income tax and 9.0% of social contribution on income). Terphane’s manufacturing facility in Brazil is the beneficiary of certain income tax incentives that allow for a reduction in the statutory Brazilian federal income tax rate levied on the operating profit of its products. These incentives produce a current tax rate of 15.25% for Terphane (6.25% of income tax and 9.0% social contribution on income). The incentives were originally granted for a 10-year period commencing January 1, 2015 and expiring at the end of 2024. Terphane Brazil has been granted an additional three years of tax incentives through the end of 2027. The benefit from the tax incentives was $2.0 million and $1.3 million in 2019 and 2018, respectively, and was immaterial for 2017. Deferred income tax liabilities and deferred income tax assets at December 31, 2019 and 2018, are as follows:
(In thousands) | 2019 |  | 2018
Deferred income tax liabilities: |  |  |
Amortization of goodwill and identifiable intangibles | $ | 12,023 |  |  | $ | 13,416 |
Depreciation | 7,065 |  |  | — |
Foregone tax credits on foreign branch income | 12,361 |  |  | — |
Foreign currency translation gain adjustment | — |  |  | 300 |
Excess of carrying value over tax basis of investment in kaléo | 17,504 |  |  | 15,131 |
Right-of-use leased assets | 751 |  |  | — |
Other | 549 |  |  | 184 |
Total deferred income tax liabilities | 50,253 |  |  | 29,031 |
Deferred income tax assets: |  |  |
Depreciation | — |  |  | 2,399 |
Pensions | 21,025 |  |  | 17,153 |
Employee benefits | 7,964 |  |  | 6,676 |
Excess capital losses | 1,551 |  |  | 1,519 |
Inventory | 3,734 |  |  | 3,644 |
Asset write-offs, divestitures and environmental accruals | 1,355 |  |  | 1,200 |
Tax benefit on U.S. federal, state and foreign NOL and credit carryforwards | 19,658 |  |  | 23,507 |
Timing adjustment for unrecognized tax benefits on uncertain tax positions, including portion relating to interest and penalties | 187 |  |  | 267 |
Allowance for doubtful accounts | 383 |  |  | 382 |
Lease liabilities | 967 |  |  | — |
Derivative financial instruments | 345 |  |  | 432 |
Foreign currency translation gain adjustment | 285 |  |  | — |
Deferred income tax assets before valuation allowance | 57,454 |  |  | 57,179 |
Less: Valuation allowance | 5,091 |  |  | 24,736 |
Total deferred income tax assets | 52,363 |  |  | 32,443 |
Net deferred income tax (assets) liabilities | $ | (2,110 | ) |  | $ | (3,412 | )
Amounts recognized in the consolidated balance sheets: |  |  |
Deferred income tax assets (noncurrent) | $ | 13,129 |  |  | $ | 3,412 |
Deferred income tax liabilities (noncurrent) | 11,019 |  |  | — |
Net deferred income tax assets (liabilities) | $ | 2,110 |  |  | $ | 3,412 |
Except as noted below, the Company believes that it is more likely than not that future taxable income will exceed future tax-deductible amounts thereby resulting in the realization of deferred income tax assets. The Company has estimated gross federal, state and foreign tax credits and net operating loss carryforwards of $19.7 million and $23.5 million at December 31, 2019 and 2018, respectively. The U.S. federal tax credits will expire in 2026. The U.S. federal net operating loss carryforwards were fully utilized in 2018. The majority of the foreign net operating loss carryforwards do not expire. The U.S. state carryforwards expire at different points over the next 9 to 20 years. Valuation allowances of $3.8 million, $7.7 million and $8.5 million at December 31, 2019, 2018 and 2017, respectively, are recorded against the tax benefit on U.S. federal, state and foreign tax credits and net operating loss carryforwards generated by certain foreign and domestic subsidiaries that may not be recoverable in the carryforward period. The valuation allowance for excess capital losses from investments and other related items was $1.3 million, $1.2 million and $4.4 million at December 31, 2019, 2018 and 2017, respectively. The 2018 balance decreased primarily due to the expiration of a portion of the capital loss carryforwards. The amount of the deferred income tax asset considered realizable, however, could be adjusted in the near term if estimates of the fair value of certain investments during the carryforward period change. Tredegar continues to evaluate opportunities to utilize capital loss carryforwards prior to their expiration at various dates in the future. As circumstances and events warrant, allowances will be reversed when it is more likely than not that future taxable income will exceed deductible amounts, thereby resulting in the realization of deferred income tax assets. The valuation allowance for asset impairments in foreign jurisdictions where the Company believes it is more likely than not that the deferred income tax asset will not be realized was $0.0 million, $15.8 million and $15.6 million at December 31, 2019, 2018 and 2017, respectively. Due to recent favorable earnings trends, the Company reversed a $12.4 million valuation allowance on the net deferred tax assets of its Brazilian subsidiary Terphane Ltda. Because Terphane Ltda. is taxed as a foreign branch for US tax purposes, Tredegar also recorded a related deferred tax liability of $12.4 million for the reduction in foreign tax credits that would result from Terphane Ltda. realizing this net deferred tax asset. A reconciliation of the Company’s unrecognized uncertain tax positions since January 1, 2017, is shown below:
|  | Years Ended December 31,
(In thousands) |  | 2019 |  | 2018 |  | 2017
Balance at beginning of period | $ | 3,361 |  |  | $ | 1,962 |  |  | $ | 3,315 |
Increase (decrease) due to tax positions taken in: |  |  |  |  |
Current period | 12 |  |  | 13 |  |  | 27 |
Prior period | 49 |  |  | 1,430 |  |  | (532 | )
Increase (decrease) due to settlements with taxing authorities | (151 | ) |  | — |  |  | (51 | )
Reductions due to lapse of statute of limitations | (2,390 | ) |  | (44 | ) |  | (797 | )
Balance at end of period | $ | 881 |  |  | $ | 3,361 |  |  | $ | 1,962 |
Additional information related to unrecognized uncertain tax positions since January 1, 2017 is summarized below:
|  | Years Ended December 31,
(In thousands) |  | 2019 |  | 2018 |  | 2017
Gross unrecognized tax benefits on uncertain tax positions (reflected in current income tax, other noncurrent liability accounts, or deferred tax assets in the balance sheet) | $ | 881 |  |  | $ | 3,361 |  |  | $ | 1,962 |
Deferred income tax assets related to unrecognized tax benefits on uncertain tax positions (reflected in deferred income tax accounts in the balance sheet) | (163 | ) |  | (211 | ) |  | (153 | )
Net unrecognized tax benefits on uncertain tax positions, which would impact the effective tax rate if recognized | 718 |  |  | 3,150 |  |  | 1,809 |
Interest and penalties accrued on deductions taken relating to uncertain tax positions (approximately $(144), $107 and $(1) reflected in income tax expense in the income statement in 2019, 2018 and 2017, respectively, with the balance shown in current income tax and other noncurrent liability accounts in the balance sheet) | 100 |  |  | 243 |  |  | 136 |
Related deferred income tax assets recognized on interest and penalties | (23 | ) |  | (56 | ) |  | (32 | )
Interest and penalties accrued on uncertain tax positions net of related deferred income tax benefits, which would impact the effective tax rate if recognized | 77 |  |  | 187 |  |  | 104 |
Total net unrecognized tax benefits on uncertain tax positions reflected in the balance sheet, which would impact the effective tax rate if recognized | $ | 795 |  |  | $ | 3,337 |  |  | $ | 1,913 |
Tredegar, or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction, various states and jurisdictions outside the U.S. With few exceptions, Tredegar is no longer subject to U.S. federal, state or non-U.S. income tax examinations by tax authorities for years before 2016. The Company anticipates that it is reasonably possible that Federal and state income tax audits or statutes may settle or close within the next 12 months, which could result in the recognition of up to approximately $0.7 million of the balance of unrecognized tax positions, including any payments that may be made.

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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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