XML 48 R28.htm IDEA: XBRL DOCUMENT v3.22.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes 12. INCOME TAXES
Income (loss) from continuing operations before income taxes and income tax expense (benefit) for continuing operations are as follows:
(In thousands)202120202019
Income (loss) from continuing operations before income taxes:
Domestic$22,885 $(58,033)$52,536 
Foreign44,336 32,987 19,470 
Total$67,221 $(25,046)$72,006 
Current income tax expense (benefit):
Federal$1,232 $4,777 $7,551 
State764 136 1,558 
Foreign13,521 2,374 579 
Total15,517 7,287 9,688 
Deferred income tax expense (benefit):
Federal(7,862)(18,191)15,298 
State125 (640)187 
Foreign1,504 3,331 (11,628)
Total(6,233)(15,500)3,857 
Total income tax expense (benefit)$9,284 $(8,213)$13,545 
The significant differences between the U.S. federal statutory rate and the effective income tax rate related to continuing operations are as follows:
202120202019
(In thousands, except percentages)Amount%Amount%Amount%
Income tax expense (benefit) at federal statutory rate$14,116 21.0 $(5,260)21.0 $15,121 21.0 
Foreign rate differences8,269 12.3 4,554 (18.2)2,247 2.9 
Tax on Prodepe tax incentive2,858 4.3 (801)3.2 (714)(1.0)
Foreign currency translation variation on intercompany loans1,374 2.0 — — — — 
Non-deductible other1,053 1.6 208 (0.8)637 0.9 
State taxes, net of federal income tax benefit933 1.4 (373)1.5 1,050 1.5 
Tax contingency accruals and tax settlements202 0.3 (58)0.2 (2,543)(3.5)
Foreign derived intangible income deduction— — — — (319)(0.4)
Valuation allowance due to foreign losses and impairments— — — — (14,350)(19.9)
Dividend received deduction net of foreign withholding tax(109)(0.2)(52)0.2 (1,016)(1.4)
Changes in estimates related to prior year tax provision(383)(0.6)(2,472)9.9 (135)(0.2)
Research and development tax credit(928)(1.4)(633)2.5 (523)(0.7)
Valuation allowance for capital loss carryforwards(5,415)(8.1)52 (0.2)60 0.1 
U.S. tax on foreign branch income(5,667)(8.4)1,409 (5.6)16,029 22.3 
Brazilian tax incentive(7,019)(10.4)(4,787)19.1 (1,999)(2.8)
    Income tax expense (benefit) at effective income tax rate$9,284 13.8 $(8,213)32.8 $13,545 18.8 
Income taxes in 2021 are primarily due to the strong earnings of Terphane Ltda, which are included in Tredegar’s U.S. consolidated tax return and, the tax impact of the local statutory tax rates of Tredegar’s foreign subsidiaries being higher than the current U.S. tax rate of 21%, the benefit of tax incentives in Brazil and the release of the valuation allowance for capital loss carryforwards.
Income taxes in 2020 were primarily impacted by the tax impact of Terphane Ltda. being included in Tredegar’s U.S. consolidated tax return as a foreign branch, the tax impact of the local statutory tax rates of Tredegar’s foreign subsidiaries being higher than the current US tax rate of 21%, the benefit of tax incentives in Brazil, and by claims for prior years’ U.S. research and development tax credits.
During 2019, due to favorable earnings trends, the Company released 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 U.S. 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.
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. Because of the accumulation of significant losses related to foreign currency translations at Terphane Ltda., there were no deferred income tax liabilities associated with the U.S. federal income taxes and foreign withholding taxes on Terphane Ltda.’s undistributed earnings as of December 31, 2021 and 2020.
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 $7.0 million, $4.8 million and $2.0 million in 2021, 2020 and 2019, respectively.
Deferred income tax liabilities and deferred income tax assets at December 31, 2021 and 2020, are as follows:
(In thousands)20212020
Deferred income tax liabilities:
Amortization of goodwill and identifiable intangibles$10,215 $9,520 
Depreciation12,902 10,844 
Foregone tax credits on foreign branch income4,796 5,714 
Excess of carrying value over tax basis of investment in kaléo— 4,905 
Right-of-use leased assets2,767 2,979 
Other520 944 
Total deferred income tax liabilities31,200 34,906 
Deferred income tax assets:
Pensions5,632 25,576 
Employee benefits7,791 9,757 
Excess capital losses1,097 7,462 
Inventory3,775 2,613 
Asset write-offs, divestitures and environmental accruals1,173 2,904 
Tax benefit on U.S. federal, state and foreign NOL and credit carryforwards33,922 18,305 
Other146 275 
Lease liabilities2,977 3,144 
Tax basis remaining for installment sale - kaléo1,092 — 
Foreign currency translation gain adjustment1,970 1,423 
Deferred income tax assets before valuation allowance59,575 71,459 
Less: Valuation allowance12,652 17,485 
Total deferred income tax assets46,923 53,974 
Net deferred income tax (assets) liabilities$(15,723)$(19,068)
Amounts recognized in the consolidated balance sheets:
Deferred income tax assets (noncurrent)$15,723 $19,068 
Deferred income tax liabilities (noncurrent)— — 
Net deferred income tax assets (liabilities)$15,723 $19,068 
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 $33.9 million and $18.3 million at December 31, 2021 and 2020, respectively. The U.S. federal foreign tax credits will expire between 2027-2031 and the U.S. federal research and development tax credits will expire by 2041. The U.S. state carryforwards expire at different points over the next 20 years.
Valuation allowances of $9.4 million, $5.5 million and $2.5 million at December 31, 2021, 2020 and 2019, 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 $0.7 million, $7.1 million and $1.3 million at December 31, 2021, 2020 and 2019, respectively. The 2021 balance decreased primarily due to utilization of capital losses as a result of the sale of the Company’s investment in kaléo. 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. 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. Valuation allowances of $2.5 million, $4.9 million and $0 million at December 31, 2021, 2020 and 2019, respectively, were recorded against certain deferred state tax assets. In 2019, the Company reversed a $12.4 million valuation allowance on the net deferred tax assets of its Brazilian subsidiary Terphane Ltda due to favorable earnings trends. Since 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, 2019, is shown below:
 Years Ended December 31,
(In thousands)202120202019
Balance at beginning of period$628 $881 $3,361 
Increase (decrease) due to tax positions taken in:
Current period— 12 12 
Prior period40 — 49 
Increase (decrease) due to settlements with taxing authorities— — (151)
Reductions due to lapse of statute of limitations(20)(265)(2,390)
Balance at end of period$648 $628 $881 
Additional information related to unrecognized uncertain tax positions since January 1, 2019 is summarized below:
 Years Ended December 31,
(In thousands)202120202019
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)
$648 $628 $881 
Deferred income tax assets related to unrecognized tax benefits on uncertain tax positions (reflected in deferred income tax accounts in the balance sheet)48 (110)(163)
Net unrecognized tax benefits on uncertain tax positions, which would impact the effective tax rate if recognized696 518 718 
Interest and penalties accrued on deductions taken relating to uncertain tax positions (approximately $26, $2 and $(144) reflected in income tax expense in the income statement in 2021, 2020 and 2019, respectively, with the balance shown in current income tax and other noncurrent liability accounts in the balance sheet)
133 102 100 
Related deferred income tax assets recognized on interest and penalties(31)(24)(23)
Interest and penalties accrued on uncertain tax positions net of related deferred income tax benefits, which would impact the effective tax rate if recognized102 78 77 
Total net unrecognized tax benefits on uncertain tax positions reflected in the balance sheet, which would impact the effective tax rate if recognized$798 $596 $795 
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 2018. 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 $0.5 million of the balance of unrecognized tax positions, including any payments that may be made.