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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | Note 11. Income Taxes On December 22, 2017, the U. S. government enacted comprehensive tax legislation. The U.S. Tax Cuts and Jobs Act of 2017 reduces the U.S. federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and creates new taxes on certain foreign sourced earnings. As a result of the U.S. Tax Cuts and Jobs Act of 2017, we recognized a $51.8 million net tax benefit in 2017. At December 31, 2017, we have made a reasonable estimate of the effects of the one-time transition tax and included this in our provisional amount. The ultimate impact could differ materially from this provisional amount due to, among other things, additional analysis, changes in interpretations and assumptions we have made, and additional interpretive regulatory guidance which may be issued. In accordance with SAB 118, we may record additional provisional amounts during a measurement period not to extend beyond one year of the enactment date of the U.S. Tax Cuts and Jobs Act of 2017. The accounting is expected to be complete when our 2017 U.S. corporate income tax return is filed in 2018, and any measurement period adjustments will be recognized as income tax expense or benefit in 2018. Loss from continuing operations before benefit for income taxes was as follows:
|  | Year ended December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
Income / (Loss) from continuing operations before expense / (benefit) for income taxes and share of net income from joint venture |  |  |  |  |  |  |  |  |  |  |  |
United States |  |  | (71,603 | ) |  |  | (39,160 | ) |  |  | (50,831 | )
Foreign |  |  | 12,730 |  |  |  | 8,294 |  |  |  | 1,613 |
Total |  |  | (58,873 | ) |  |  | (30,866 | ) |  |  | (49,218 | )
Total income tax benefit was as follows:
|  | Year ended December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
Tax Expense: |  |  |  |  |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  |  | (47,916 | ) |  |  | (2,595 | ) |  |  | (2,228 | )
State |  |  | (12,226 | ) |  |  | 679 |  |  |  | 189 |
Foreign |  |  | 4,310 |  |  |  | 2,004 |  |  |  | 1,340 |
Total current expense |  |  | (55,832 | ) |  |  | 88 |  |  |  | (699 | )
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  |  | (25,017 | ) |  |  | (9,679 | ) |  |  | (16,007 | )
State |  |  | 3,009 |  |  |  | (6,406 | ) |  |  | (1,913 | )
Deferred tax valuation allowance |  |  | 710 |  |  |  | 1,882 |  |  |  | — |
Foreign |  |  | (1,896 | ) |  |  | (1,323 | ) |  |  | (1,223 | )
Total deferred expense (benefit) |  |  | (23,194 | ) |  |  | (15,526 | ) |  |  | (19,143 | )
Total expense (benefit) |  |  | (79,026 | ) |  |  | (15,438 | ) |  |  | (19,842 | )
A reconciliation of income taxes based on the U.S. federal statutory rate is summarized as follows:
|  | Year ended December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
Rate Rec: Percentages |  |  |  |  |  |  |  |  |  |  |  |
Income taxes at the federal statutory rate |  |  | 35.0 | % |  |  | 34.0 | % |  |  | 34.0 | %
Change in valuation allowance |  |  | -1.2 | % |  |  | -6.1 | % |  |  | 0.0 | %
Foreign tax credits, exclusive of tax reform |  |  | -13.8 | % |  |  | 8.2 | % |  |  | 2.7 | %
State taxes, net of federal taxes, exclusive of tax reform |  |  | 9.1 | % |  |  | 5.7 | % |  |  | 3.6 | %
Non-U.S. earnings taxed at different rates |  |  | 1.7 | % |  |  | 4.8 | % |  |  | 3.2 | %
Non-deductible mergers and acquisitions costs |  |  | 0.0 | % |  |  | 0.0 | % |  |  | -2.6 | %
R&D Tax credit |  |  | 0.3 | % |  |  | 0.9 | % |  |  | 1.3 | %
Change in uncertain tax positions |  |  | -0.4 | % |  |  | 3.2 | % |  |  | 0.0 | %
Impact of Tax Reform |  |  |  |  |  |  |  |  |  |  |  |
Toll Charge, net of foreign tax credit |  |  | -11.5 | % |  |  | 0.0 | % |  |  | 0.0 | %
Remeasurement of deferred taxes pursuant to tax reform |  |  | 65.6 | % |  |  | 0.0 | % |  |  | 0.0 | %
Tax Reform impact on divestiture of business segment |  |  | 33.9 | % |  |  | 0.0 | % |  |  | 0.0 | %
Section 199/Domestic Production Deduction |  |  | 0.8 | % |  |  | 0.0 | % |  |  | 0.0 | %
Divestiture of Business Segment, exclusive of tax reform |  |  | 13.6 | % |  |  | 0.0 | % |  |  | 0.0 | %
Prior period revisions |  |  | 0.5 | % |  |  | 4.2 | % |  |  | 1.8 | %
Foreign JV Net Income |  |  | 0.0 | % |  |  | -4.1 | % |  |  | -2.3 | %
Other adjustments, net |  |  | 0.7 | % |  |  | -0.8 | % |  |  | -1.3 | %
|  |  | 134.2 | % |  |  | 50.0 | % |  |  | 40.3 | %
The 2017 effective tax rate of 134.2% was heavily influenced by the remeasurement of our ending domestic deferred balances, an estimate of the one-time transition tax (net of foreign tax credits) on earnings of our foreign subsidiaries in accordance with the U.S. Tax Cuts and Jobs Act of 2017, and the impact of the U.S. Tax Cuts and Jobs Act of 2017 on the divestiture of the PBC Business. The principal components of the deferred tax assets and liabilities are as follows:
Summary of Deferred’s |  |  |  |  |  |  |  |  |  |  |  |
Deferred income tax liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Tax in excess of book depreciation |  |  | 34,143 |  |  |  | 40,389 |  |  |  | 39,447 |
Goodwill |  |  | 58 |  |  |  | 23 |  |  |  | — |
Intangible assets |  |  | 50,688 |  |  |  | 86,492 |  |  |  | 91,947 |
Other deferred tax liabilities |  |  | 389 |  |  |  | 720 |  |  |  | (0 | )
Total deferred income tax liabilities |  |  | 85,278 |  |  |  | 127,624 |  |  |  | 131,394 |
Deferred income tax assets: |  |  |  |  |  |  |  |  |  |  |  |
Goodwill |  |  | 2,067 |  |  |  | 1,165 |  |  |  | 1,697 |
Inventories |  |  | 2,248 |  |  |  | 740 |  |  |  | 4,370 |
Pension/Personnel accruals |  |  | 1,596 |  |  |  | 1,395 |  |  |  | 2,669 |
Net operating loss carry forwards |  |  | 6,950 |  |  |  | 10,297 |  |  |  | 6,289 |
Foreign tax credits |  |  | — |  |  |  | 5,759 |  |  |  | 3,242 |
Guarantee claim deduction |  |  | — |  |  |  | 414 |  |  |  | 1,141 |
Credit carry forwards |  |  | 3,427 |  |  |  | 4,581 |  |  |  | 4,958 |
Accruals and reserves |  |  | 2,015 |  |  |  | 1,151 |  |  |  | 0 |
Other deferred tax assets |  |  | 3,019 |  |  |  | 10,193 |  |  |  | 2,084 |
Deferred income tax assets before Valuation Allowance |  |  | 21,322 |  |  |  | 35,695 |  |  |  | 26,451 |
Valuation allowance on deferred tax assets |  |  | (7,608 | ) |  |  | (4,090 | ) |  |  | (2,376 | )
Total deferred income tax assets |  |  | 13,714 |  |  |  | 31,605 |  |  |  | 24,075 |
Net deferred income tax liabilities (1) |  |  | 71,564 |  |  |  | 96,019 |  |  |  | 107,319 |
(1) | In accordance with the U.S. Tax Cuts and Jobs Act of 2017, our ending domestic deferred balances have been remeasured to 21% for the year ended December 31, 2017.
As realization of certain deferred tax assets is not assured, management believes it is more likely than not that those net deferred tax assets will be realized. However, the amount of the deferred tax assets considered realizable could be reduced based on changing conditions. The following table summarizes our total valuation allowances:
|  | Balance at Beginning of Year |  |  | Additions |  |  | Recoveries |  |  | Reprice |  |  | Balance at End of Year |
Year ended December 31, 2017 |  | $ | 4,090 |  |  | $ | 3,518 |  |  | $ | — |  |  | $ | — |  |  | $ | 7,608 |
Year ended December 31, 2016 |  | $ | 2,376 |  |  | $ | 1,882 |  |  | $ | (168 | ) |  | $ | — |  |  | $ | 4,090 |
Year ended December 31, 2015 |  | $ | — |  |  | $ | 2,376 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,376 |
During 2017, the valuation allowance increased by approximately $3.5 million. This consisted of a $2.3 million increase due to the uncertainty of realizing certain state net operating loss (NOL) carryforwards, and a $1.2 million increase for foreign NOL’s. During 2016, the valuation allowance increased by approximately $1.7 million, consisting of a $1.9 million increase due to the uncertainty of realizing certain state NOL carryforwards and a decrease of $0.2 million. The decrease reflects the Company’s expectation that it is more likely than not that it will generate future taxable income to utilize this amount of net deferred tax assets. During 2015, the valuation allowance increased by approximately $2.4 million, consisting solely of an increase due to the uncertainty of realizing certain local tax credits of a foreign subsidiary. There has been no change in our long term international expansion plans as of December 31, 2017, and our intent and ability is to indefinitely reinvest our foreign earnings. We base this assertion on two factors. The first factor is our intention to invest in foreign countries that are strategically important to our PEP and APC businesses. Due to the acquisitions completed in 2015 and 2014, we have operations in Mexico, Brazil, Poland, France and China which will require more foreign investment. Second, we have sufficient access to funds in the U.S. through projected free cash flows and the availability of our U.S. credit facilities to fund currently anticipated domestic operational and investment needs. With respect to accumulated earnings of foreign subsidiaries, no additional US federal income taxes have been provided as all accumulated earnings of foreign subsidiaries are deemed to have been remitted as part of the one-time transition tax. The Company continues to evaluate its indefinite reinvestment assertion in light of the U.S. Tax Cuts and Jobs Act of 2017, as the Company could still be subject to foreign withholding taxes, US state taxes, and foreign currency adjustments if this assertion is not maintained. The accounting is expected to be completed within the one-year measurement period as allowed by SAB 118. A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties, is as follows:
|  | Year Ended December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
Beginning balance |  | $ | 4,741 |  |  | $ | 5,724 |  |  | $ | 3,834 |
Additions for tax positions of prior years |  |  | 1,404 |  |  |  | 179 |  |  |  | 2,516 |
Reductions for tax positions of prior years |  |  | (490 | ) |  |  | (1,162 | ) |  |  | (626 | )
Ending balance |  | $ | 5,655 |  |  | $ | 4,741 |  |  | $ | 5,724 |
As of December 31, 2017, the $5.7 million of unrecognized tax benefits would, if recognized, impact our effective tax rate by $5.2 million. The 2017 addition is related to a foreign NOL. Interest and penalties related to federal, state, and foreign income tax matters are recorded as a component of the provision for income taxes in our Consolidated Statements of Operations. During 2017, we released $0.2 million of previously accrued U.S. interest. During 2016, we released less than $0.1 million of previously accrued foreign interest and accrued $0.2 million in U.S. interest. During 2015, we accrued less than $0.1 million in foreign interest and $0.3 million in U.S. interest. Management believes that it is reasonably possible that the amount of unrecognized income benefits and interest may decrease during the next 12 months by approximately $1.0 million, related to the expiration of the statutes of limitations. As of December 31, 2017, the Company has $81.4 million of state NOL carryovers. The state NOL’s begin to expire in 2030. We also have $26.6 million of foreign NOL carryovers at December 31, 2017. The foreign NOL’s have an indefinite life. The Company has $18.0 million of tax credits in foreign jurisdictions at December 31, 2017. The tax credits in foreign jurisdictions begin to expire in 2026. The state NOL’s and foreign credits have a full valuation allowance. These amounts are included in the valuation allowance table on the previous page. We or our subsidiaries file income tax returns in the U.S. federal jurisdiction, and in various states and foreign jurisdictions. During the third quarter of 2017, the Internal Revenue Service commenced an examination of the federal tax return for the pre-acquisition period of January 1, 2015, through October 19, 2015, for Precision Engineered Products. The Company is no longer subject to federal examinations by tax authorities for years before 2010. The Company is also subject to examination by various state and international tax authorities. The tax years subject to examination vary by jurisdiction. The Company regularly assesses the outcomes of both ongoing and future examinations for the current or prior years to ensure the Company’s provision for income taxes is sufficient. The Company recognizes liabilities based on estimates of whether additional taxes will be due and believes its reserves are adequate in relation to any potential assessments. The outcome of any one examination, some of which may conclude during the next 12 months, is not expected to have a material impact on the Company’s financial position or results of operations. We operate under tax holidays in other countries, which are effective through December 31, 2026, and may be extended if certain additional requirements are satisfied. The tax holidays are conditional upon our meeting certain employment and investment thresholds. The impact of these tax holidays decreased foreign taxes by $0.8 million, $0.7 million, and $0.2 million for 2017, 2016, and 2015, respectively. The benefit of the tax holidays on net income per share (diluted) was $0.03, $0.03, and $0.01 for 2017, 2016, and 2015, respectively.

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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