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Income Taxes | 12 Months Ended
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Dec. 31, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The following table summarizes the loss from continuing operations before benefit (provision) for income taxes and share of net income (loss) from joint venture.
|  | Year Ended December 31,
|  | 2020 |  | 2019 |  | 2018
United States |  | $ | (146,963) |  |  | $ | (31,760) |  |  | $ | (200,164) |
Foreign |  | (5,125) |  |  | (365) |  |  | (8,214) |
Loss from continuing operations before benefit (provision) for income taxes and share of net income (loss) from joint venture |  | $ | (152,088) |  |  | $ | (32,125) |  |  | $ | (208,378) |
The following table summarizes total income tax expense (benefit) recognized in each year.
|  | Year Ended December 31,
|  | 2020 |  | 2019 |  | 2018
Current taxes: |  |  |  |  |  |
U.S. Federal |  | $ | (299) |  |  | $ | (5,948) |  |  | $ | 5,684 |
State |  | 4,599 |  |  | 1,656 |  |  | 58 |
Foreign |  | 2,250 |  |  | 2,247 |  |  | 2,271 |
Total current tax expense (benefit) |  | 6,550 |  |  | (2,045) |  |  | 8,013 |
Deferred taxes: |  |  |  |  |  |
U.S. Federal |  | $ | (10,368) |  |  | $ | (1,430) |  |  | $ | (6,028) |
State |  | (5,368) |  |  | 3,850 |  |  | (214) |
U.S. federal and foreign valuation allowance |  | 2,066 |  |  | (592) |  |  | 2,263 |
Foreign |  | (1,852) |  |  | 522 |  |  | (5,582) |
Total deferred tax expense (benefit) |  | (15,522) |  |  | 2,350 |  |  | (9,561) |
Total income tax expense (benefit) |  | $ | (8,972) |  |  | $ | 305 |  |  | $ | (1,548) |
The following table presents a reconciliation of income taxes based on the U.S. federal statutory income tax rate.
|  | Year Ended December 31,
|  | 2020 |  | 2019 |  | 2018
U.S federal statutory income tax rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Change in valuation allowance, exclusive of state |  | (1.3) | % |  | 1.8 | % |  | (1.1) | %
State taxes, net of federal taxes, exclusive of tax reform |  | 0.2 | % |  | (13.6) | % |  | 0.1 | %
Non-U.S. earnings taxed at different rates |  | 1.4 | % |  | 3.0 | % |  | 0.3 | %
GILTI |  | (0.1) | % |  | — | % |  | — | %
Goodwill impairment |  | (12.7) | % |  | — | % |  | (17.7) | %
Nondeductible asset loss |  | — | % |  | (2.2) | % |  | (0.2) | %
Research and development tax credit |  | 0.4 | % |  | 2.2 | % |  | 0.3 | %
Change in uncertain tax positions |  | 2.2 | % |  | 4.3 | % |  | 0.5 | %
Impact of tax reform: |  |  |  |  |  |
Toll charge, net of foreign tax credit |  | — | % |  | — | % |  | 0.7 | %
Remeasurement of deferred taxes pursuant to tax reform |  | — | % |  | — | % |  | (1.2) | %
Impact of 2019 Treasury regulations |  | — | % |  | (18.4) | % |  | — | %
CARES Act |  | 2.7 | % |  | — | % |  | — | %
Divestiture of business segment, exclusive of tax reform |  | — | % |  | — | % |  | (1.1) | %
Return to provision |  | (0.5) | % |  | (0.2) | % |  | (1.0) | %
Taxes on unremitted foreign earnings |  | (3.9) | % |  | (2.2) | % |  | — | %
Restructuring gain |  | (2.6) | % |  | — | % |  | — | %
Other adjustments, net |  | (0.9) | % |  | 3.3 | % |  | 0.1 | %
Effective tax rate |  | 5.9 | % |  | (1.0) | % |  | 0.7 | %
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. Among other provisions, the CARES Act allows for the carryback of certain tax losses and favorably impacts the deductibility of interest expense and depreciation. The CARES Act had a material impact on our consolidated financial statements, primarily due to enacted federal rate difference in the carryback periods, and has been accounted for in the benefit for income taxes for the twelve months ended December 31, 2020. On October 6, 2020, we sold our Life Sciences business via a sale of our equity interest in Precision Engineered Products Holdings, Inc., a wholly owned U.S. domestic subsidiary. Prior to the sale, we completed tax restructuring in which Precision Engineered Products Holdings, Inc., distributed to NN, Inc., all of its asset and equity holdings related to the Power Solutions segment. The restructuring process created a deferred gain, required to be realized upon the third party equity sale, equal to the fair market value of the distributed assets over tax basis. The associated U.S. federal, state and foreign tax impacts are reflected in the tables within this footnote. The tax impacts of the sale of the Life Sciences business are included in income from discontinued operations and excluded from the tables presented within this footnote. For comparative purposes, the prior period information contained in the tables in this footnote have been adjusted to exclude the Life Sciences business, unless otherwise noted. Our effective tax rate for continuing operations was 5.9% for 2020. The 2020 effective tax rate for continuing operations differs from the U.S. federal statutory tax rate of 21% primarily due to (1) the impact of the impairment of nondeductible goodwill which is treated as a permanent difference and (2) the company’s accrual of taxes on unremitted earnings of foreign subsidiaries which may be repatriated. Our effective tax rate for continuing operations was (1.0)% for 2019. The 2019 effective tax rate for continuing operations differs from the U.S. federal statutory tax rate of 21% principally due to a discrete tax charge of $6.0 million related to final tax regulations published by the Department of the Treasury and Internal Revenue Service on February 4, 2019. The tax rate was also impacted by valuation of its state tax attributes. Our effective tax rate for continuing operations was 0.7% for 2018. The 2018 effective tax rate for continuing operations differs from the U.S. federal statutory income tax rate of 21% primarily due to the impact of goodwill impairment which was nondeductible for tax purposes. The following table summarizes the principal components of the deferred tax assets and liabilities.
|  | As of December 31,
|  | 2020 |  | 2019
Deferred income tax liabilities: |  |  |  |
Tax in excess of book depreciation |  | $ | 27,459 |  |  | $ | 28,329 |
Intangible assets |  | 23,695 |  |  | 26,474 |
Operating leases |  | 11,149 |  |  | 12,697 |
Taxes on unremitted foreign earnings |  | 6,601 |  |  | — |
Other deferred tax liabilities |  | 533 |  |  | 2,178 |
Total deferred income tax liabilities |  | 69,437 |  |  | 69,678 |
Deferred income tax assets: |  |  |  |
Interest expense limitation |  | 3,811 |  |  | 14,073 |
Goodwill |  | 25,653 |  |  | 386 |
Inventories |  | 3,224 |  |  | 2,447 |
Interest rate swap |  | 3,611 |  |  | 2,838 |
Pension/Personnel accruals |  | 2,909 |  |  | 1,669 |
Operating leases |  | 13,209 |  |  | 14,438 |
Net operating loss carryforwards |  | 18,659 |  |  | 15,486 |
R&D credit carryforwards |  | — |  |  | 2,463 |
Non-U.S. credit carryforwards |  | 3,574 |  |  | 3,419 |
Accruals and reserves |  | 2,399 |  |  | 2,335 |
Other deferred tax assets |  | 2,891 |  |  | 1,157 |
Deferred income tax assets before valuation allowance |  | 79,940 |  |  | 60,711 |
Valuation allowance on deferred tax assets |  | (21,681) |  |  | (15,494) |
Total deferred income tax assets |  | 58,259 |  |  | 45,217 |
Net deferred income tax liabilities |  | $ | 11,178 |  |  | $ | 24,461 |
As of December 31, 2020, we had no U.S. federal net operating loss (“NOL”) carryover, $3.8 million of consolidated state NOL carryovers, and $234.8 million of separate state NOL carryovers. The state NOLs begin to expire in 2030. Management believes that certain of the state NOL carryovers will more likely than not expire prior to utilization. As such, a valuation allowance of $12.6 million (net of federal benefit) has been established to reduce the state attribute balance to the amount expected to be utilized before expiration. We also have $6.1 million, tax-effected, of foreign NOL carryovers at December 31, 2020. The foreign NOLs have an indefinite life; however, management believes that benefit for certain of the foreign NOLs may not be realized. Therefore, we have established a valuation allowance of $3.1 million to reduce the carrying value of the asset related to foreign NOLs to the amount that has been determined to be more likely than not realized. We have $0.2 million of state credit carryforwards and $0.7 million of other consolidated state deferred tax assets for which we believe recognition is not appropriate. In addition, we have $3.4 million of tax credits in other foreign jurisdictions as of December 31, 2020. The tax credits in these jurisdictions begin to expire in 2026. Valuation allowances have been recorded for these state and foreign items accordingly. We have a U.S. federal and state deferred tax asset related to currency losses on intercompany loans. Management believes it is more likely than not that the benefit for the asset will not be realized based on timing of expected repayment of the intercompany loans. We have established a valuation allowance of $1.7 million to eliminate the carrying value of this asset. Management believes all remaining tax assets will more likely than not be realized. However, the amount of the deferred tax considered realizable could be reduced based on changing conditions. During 2020, the state valuation allowance increased by approximately $3.1 million, primarily due to a valuation allowance recorded to offset the current year generation of separate state loss carryforwards that management does not believe are realizable given anticipated changes in state nexus. The federal valuation allowance increased by approximately $1.0 million, to offset current year changes in unrealized exchange losses on intercompany loans. The foreign valuation allowance increased by $2.2 million in 2020 primarily to offset current year loss generation in jurisdictions where realization of the asset is not more likely than not. As a result of the deemed mandatory repatriation provisions in the Tax Act and our recognition in income of GILTI as part of the changes from the Tax Act, we do not have material basis differences related to cumulative unremitted earnings for U.S. income tax purposes. However, we continue to evaluate quarterly the impact that repatriation of foreign earnings would have on withholding and other taxes. As of December 31, 2020, we have recorded a liability of $6.6 million for the anticipated withholding taxes that would be due upon repatriation of the unremitted earnings of those subsidiaries for which management does not intend to permanently reinvest all earnings. We are subject to U.S. federal income tax as well as tax in several foreign jurisdictions. We are also subject to tax by various state authorities. The tax years subject to examination vary by jurisdiction. We are no longer subject to U.S. federal examination for periods before 2017. During 2020 we concluded, with no material findings, an audit by French tax authorities for the 2016 tax year. We regularly assess the outcomes of both ongoing and future examinations for the current or prior years to ensure our provision for income taxes is sufficient. We recognize liabilities based on estimates of whether additional taxes will be due, and we believe our reserves are adequate in relation to any potential assessments. The outcome of any one examination, some of which may conclude during the next twelve months, is not expected to have a material impact on our financial position or results of operations. 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 and Comprehensive Income (Loss). Accrued interest and penalties of $0.6 million, $1.5 million, and $1.3 million are included in other non-current liabilities as of December 31, 2020, 2019, and 2018, respectively. The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties.
|  | Year Ended December 31,
|  | 2020 |  | 2019 |  | 2018
Balance at beginning of year |  | $ | 2,589 |  |  | $ | 4,609 |  |  | $ | 5,655 |
Additions for tax positions of prior years |  | 121 |  |  | — |  |  | 304 |
Settlements for tax positions of prior years |  | — |  |  | (275) |  |  | — |
Reductions for tax positions of prior years |  | (2,463) |  |  | (1,745) |  |  | (1,350) |
Balance at end of year |  | $ | 247 |  |  | $ | 2,589 |  |  | $ | 4,609 |
The reduction to unrecognized tax benefits in 2020 is related to (1) expiring statutes of limitations in certain U.S. state and foreign jurisdictions and (2) the remeasurement of previously unrecognized tax benefits. As of December 31, 2020, the unrecognized tax benefits would, if recognized, impact our effective tax rate by $0.8 million, inclusive of the impact of interest and penalties. Management believes that it is reasonably possible that the amount of unrecognized income tax benefits, including interest and penalties, may not decrease during the next twelve months as no statutes are expected to lapse within the period. 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 $0.2 million for 2020. The tax holidays had no impact on our 2019 and 2018 foreign taxes.

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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 http://asc.fasb.org/extlink&oid=84230637&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 http://asc.fasb.org/extlink&oid=116825942&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 http://asc.fasb.org/extlink&oid=84230637&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 http://asc.fasb.org/extlink&oid=116825942&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 http://asc.fasb.org/extlink&oid=84230637&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 http://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 http://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 http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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