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Income Taxes | 12 Months Ended
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Dec. 31, 2022
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) | 2022 |  | 2021 |  | 2020
Income (loss) from continuing operations before income taxes: |  |  |  |  |
Domestic | $ | 3,185 |  |  | $ | 22,885 |  |  | $ | (58,033) |
Foreign | 29,585 |  |  | 44,336 |  |  | 32,987 |
Total | $ | 32,770 |  |  | $ | 67,221 |  |  | $ | (25,046) |
Current income tax expense (benefit): |  |  |  |  |
Federal | $ | 2 |  |  | $ | 1,232 |  |  | $ | 4,777 |
State | 772 |  |  | 764 |  |  | 136 |
Foreign | 3,071 |  |  | 13,521 |  |  | 2,374 |
Total | 3,845 |  |  | 15,517 |  |  | 7,287 |
Deferred income tax expense (benefit): |  |  |  |  |
Federal | 24 |  |  | (7,862) |  |  | (18,191) |
State | (537) |  |  | 125 |  |  | (640) |
Foreign | 1,057 |  |  | 1,504 |  |  | 3,331 |
Total | 544 |  |  | (6,233) |  |  | (15,500) |
Total income tax expense (benefit) | $ | 4,389 |  |  | $ | 9,284 |  |  | $ | (8,213) |
The significant differences between the U.S. federal statutory rate and the effective income tax rate related to continuing operations are as follows:
| 2022 |  | 2021 |  | 2020
(In thousands, except percentages) | Amount | % |  | Amount | % |  | Amount | %
Income tax expense (benefit) at federal statutory rate | $ | 6,882 |  | 21.0 |  |  | $ | 14,116 |  | 21.0 |  |  | $ | (5,260) |  | 21.0 |
Foreign rate differences | 2,924 |  | 8.9 |  |  | 8,269 |  | 12.3 |  |  | 4,554 |  | (18.2) |
U.S. tax on foreign branch income | 1,390 |  | 4.1 |  |  | (5,667) |  | (8.4) |  |  | 1,409 |  | (5.6) |
Non-deductible other | 381 |  | 1.2 |  |  | 1,053 |  | 1.6 |  |  | 208 |  | (0.8) |
Tax contingency accruals and tax settlements | 88 |  | 0.3 |  |  | 202 |  | 0.3 |  |  | (58) |  | 0.2 |
State taxes, net of federal income tax benefit | 48 |  | 0.1 |  |  | 933 |  | 1.4 |  |  | (373) |  | 1.5 |
Valuation allowance for capital loss carryforwards | — |  | — |  |  | (5,415) |  | (8.1) |  |  | 52 |  | (0.2) |
Foreign currency translation variation on intercompany loans | — |  | — |  |  | 1,374 |  | 2.0 |  |  | — |  | — |
Dividend received deduction net of foreign withholding tax | — |  | — |  |  | (109) |  | (0.2) |  |  | (52) |  | 0.2 |
Changes in estimates related to prior year tax provision | (175) |  | (0.5) |  |  | (383) |  | (0.6) |  |  | (2,472) |  | 9.9 |
Foreign derived intangible income deduction | (763) |  | (2.3) |  |  | — |  | — |  |  | — |  | — |
Tax on Prodepe tax incentive | (1,024) |  | (3.1) |  |  | 2,858 |  | 4.3 |  |  | (801) |  | 3.2 |
Research and development tax credit | (1,489) |  | (4.5) |  |  | (928) |  | (1.4) |  |  | (633) |  | 2.5 |
Brazilian tax incentive | (3,873) |  | (11.8) |  |  | (7,019) |  | (10.4) |  |  | (4,787) |  | 19.1 |
Income tax expense (benefit) at effective income tax rate | $ | 4,389 |  | 13.4 |  |  | $ | 9,284 |  | 13.8 |  |  | $ | (8,213) |  | 32.8 |
Provision for income taxes for the year ended December 31, 2022 was $4.4 million compared to $9.3 million for the year ended December 31, 2021. The effective tax rates for the years ended December 31, 2022 and 2021 were 13.4% and 13.8%, respectively. The change in effective tax rate is primarily attributed to a discrete tax benefit recorded in the first quarter of 2022 resulting from the implementation of new U.S. tax regulations associated with foreign tax credits published by the U.S. Treasury and Internal Revenue Service (“IRS”) on January 4, 2022. These regulations overhaul various components of the foreign tax credit regime including the determination of creditable foreign taxes and limit the amount of foreign taxes that are creditable against U.S. income taxes. This discrete benefit was partially offset by an increase to the effective tax rate as the result of the Brazilian income tax no longer being creditable in the U.S. for the foreseeable future. Lastly, the effective tax rate changed due to foreign rate differences pertaining to the Company’s foreign operations and the benefit from tax incentives in Brazil. 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. 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, 2022 and 2021. Beginning January 1, 2022, the TCJA eliminated the option to deduct research and development expenditures in the current year and requires taxpayers to capitalize such expenses as a result of amendments to Internal Revenue Code (“IRC”) Section 174. As a result of this provision of the TCJA, deferred tax assets related to capitalized research expenses pursuant to the amended IRC Section 174 increased by a net $4.8 million. 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 $3.9 million, $7.0 million and $4.8 million in 2022, 2021 and 2020, respectively. Deferred income tax liabilities and deferred income tax assets at December 31, 2022 and 2021, are as follows:
(In thousands) | 2022 |  | 2021
Deferred income tax liabilities: |  |  |
Amortization of goodwill and identifiable intangibles | $ | 10,533 |  |  | $ | 10,215 |
Depreciation | 14,950 |  |  | 12,902 |
Foregone tax credits on foreign branch income | 719 |  |  | 4,796 |
Right-of-use leased assets | 3,147 |  |  | 2,767 |
Other | 722 |  |  | 520 |
Total deferred income tax liabilities | 30,071 |  |  | 31,200 |
Deferred income tax assets: |  |  |
Pensions | 7,535 |  |  | 5,632 |
Employee benefits | 7,558 |  |  | 7,791 |
Excess capital losses | 1,099 |  |  | 1,097 |
Inventory | 3,952 |  |  | 3,775 |
Asset write-offs, divestitures and environmental accruals | 1,075 |  |  | 1,173 |
Tax benefit on U.S. federal, state and foreign NOL and credit carryforwards | 24,914 |  |  | 33,922 |
Section 174 Capitalized R&D expenditures | 4,874 |  |  | — |
Other | 1,220 |  |  | 146 |
Lease liabilities | 3,328 |  |  | 2,977 |
Tax basis remaining for installment sale - kaléo | 999 |  |  | 1,092 |
Foreign currency translation gain adjustment | 1,224 |  |  | 1,970 |
Deferred income tax assets before valuation allowance | 57,778 |  |  | 59,575 |
Less: Valuation allowance | 13,807 |  |  | 12,652 |
Total deferred income tax assets | 43,971 |  |  | 46,923 |
Net deferred income tax (assets) liabilities | $ | (13,900) |  |  | $ | (15,723) |
Amounts recognized in the consolidated balance sheets: |  |  |
Deferred income tax assets (noncurrent) | $ | 13,900 |  |  | $ | 15,723 |
Deferred income tax liabilities (noncurrent) | — |  |  | — |
Net deferred income tax assets (liabilities) | $ | 13,900 |  |  | $ | 15,723 |
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 $24.9 million and $33.9 million at December 31, 2022 and 2021, 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 2043. The U.S. state carryforwards expire at different points over the next 20 years. Valuation allowances of $10.3 million, $9.4 million and $5.5 million at December 31, 2022, 2021 and 2020, respectively, are recorded against the tax benefit on U.S. federal, state and foreign tax credits and net operating loss carryforwards generated by 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, $0.7 million and $7.1 million at December 31, 2022, 2021 and 2020, respectively. 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 $2.8 million, $2.5 million and $4.9 million at December 31, 2022, 2021 and 2020, respectively, were recorded against certain deferred state tax assets. A reconciliation of the Company’s unrecognized uncertain tax positions since January 1, 2020, is shown below:
| Years Ended December 31,
(In thousands) | 2022 |  | 2021 |  | 2020
Balance at beginning of period | $ | 648 |  |  | $ | 628 |  |  | $ | 881 |
Increase (decrease) due to tax positions taken in: |  |  |  |  |
Current period | 2 |  |  | — |  |  | 12 |
Prior period | 44 |  |  | 40 |  |  | — |
Reductions due to lapse of statute of limitations | (66) |  |  | (20) |  |  | (265) |
Balance at end of period | $ | 628 |  |  | $ | 648 |  |  | $ | 628 |
Additional information related to unrecognized uncertain tax positions since January 1, 2020 is summarized below:
| Years Ended December 31,
(In thousands) | 2022 |  | 2021 |  | 2020
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) | $ | 628 |  |  | $ | 648 |  |  | $ | 628 |
Deferred income tax assets related to unrecognized tax benefits on uncertain tax positions (reflected in deferred income tax accounts in the balance sheet) | 143 |  |  | 48 |  |  | (110) |
Net unrecognized tax benefits on uncertain tax positions, which would impact the effective tax rate if recognized | 771 |  |  | 696 |  |  | 518 |
Interest and penalties accrued on deductions taken relating to uncertain tax positions (approximately $16, $26 and $2 reflected in income tax expense in the income statement in 2022, 2021 and 2020, respectively, with the balance shown in current income tax and other noncurrent liability accounts in the balance sheet) | 149 |  |  | 133 |  |  | 102 |
Related deferred income tax assets recognized on interest and penalties | (34) |  |  | (31) |  |  | (24) |
Interest and penalties accrued on uncertain tax positions net of related deferred income tax benefits, which would impact the effective tax rate if recognized | 115 |  |  | 102 |  |  | 78 |
Total net unrecognized tax benefits on uncertain tax positions reflected in the balance sheet, which would impact the effective tax rate if recognized | $ | 886 |  |  | $ | 798 |  |  | $ | 596 |
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 2019. 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 and are not expected to result in a material changes in 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://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI https://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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