Income Taxes

12 Months Ended

Dec. 31, 2019

As described in Note 2. “Basis of Presentation and Summary of Significant Accounting Policies”, the following data contains certain corrections of immaterial errors identified in previously reported amounts.

Components of the Company’s income before income taxes and adjustment for noncontrolling interests were as follows:



	Year Ended December 31,
	2019		2018			2017
Domestic	$	53,425	$	103,228		$	138,477
Foreign	44,877		(33,573		)	74,270
	$	98,302	$	69,655		$	212,747

The Company’s income tax (benefit) expense consists of the following:



	Year Ended December 31,
	2019			2018			2017
Current
Federal	$	(227	)	$	(11,153	)	$	40,687
State	(171		)	(33		)	500
Foreign	20,613			20,717			22,344

Deferred
Federal	4,405			(4,532		)	14,513
State	(767		)	2,074			419
Foreign	12,236			(36,473		)	(6,957		)
	$	36,089		$	(29,400	)	$	71,506

A reconciliation of the U.S. statutory federal rate to the income tax provision was as follows:



	Year Ended December 31,
	2019			2018			2017
Tax at U.S. statutory rate	$	20,643		$	14,627		$	74,461
State and local taxes	209			1,273			1,177
Tax credits and incentives	(8,034		)	(11,702		)	(11,436		)
Changes in tax law, other	2,909			(3,008		)	7,279
U.S. tax reform/Global Intangible Low-Taxed Income ("GILTI")/foreign derived intangible income	1,102			(6,860		)	30,412
Effect of foreign tax rates	(1,656		)	(10,388		)	(23,103		)
Nonrecurring permanent items	(5,250		)	—			(13,947		)
Goodwill impairment	—			6,887			—
Capital loss	—			—			(19,931		)
Foreign branch	(2,258		)	(3,753		)	9,562
Stock compensation (ASU 2016-09)	1,596			(2,097		)	(3,563		)
Non deductible expenses	2,820			2,451			—
Tax reserves/audit settlements	(206		)	(3,760		)	1,701
Valuation allowance	24,625			(7,844		)	25,809
Other, net	(411		)	(5,226		)	(6,915		)
Income tax provision	$	36,089		$	(29,400	)	$	71,506
Effective income tax rate	36.7		%	(42.2		)%	33.6		%

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Act”) was enacted into law. The Act reduced the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. The Act required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously deferred. In 2018 and 2017, the Company recorded tax expense related to the enactment-date effects of the Act that included recording the one-time transition tax liability related to undistributed earnings of certain foreign subsidiaries that were not previously taxed and adjusting deferred tax assets and liabilities. Our accounting for the income tax effects of the Act was complete as of December 31, 2018.

Nonrecurring permanent items in 2019 are a result of the sale of the AVS product line recorded during the year and in 2017 relate to a worthless security deduction.

Deferred tax assets and liabilities reflect the estimated tax effect of accumulated temporary differences between the basis of assets and liabilities for tax and financial reporting purposes, as well as net operating losses, tax credit and other carryforwards. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2019 and 2018 were as follows:



	2019			2018
Deferred tax assets:
Pension, postretirement and other benefits	$	48,589		$	51,736
Capitalized expenditures	2,908			3,186
Capital loss carryforward	—			13,780
Net operating loss and tax credit carryforwards	167,719			157,319
Operating lease	20,599			—
Intangibles	4,220			2,122
All other items	49,394			44,999
Total deferred tax assets	293,429			273,142
Deferred tax liabilities:
Property, plant and equipment	(19,479		)	(23,312		)
Operating lease right-of-use	(20,599		)	—
All other items	(12,680		)	(13,221		)
Total deferred tax liabilities	(52,758		)	(36,533		)
Valuation allowances	(194,794		)	(171,126		)
Net deferred tax assets	$	45,877		$	65,483

As of December 31, 2019, the Company’s foreign subsidiaries, primarily in France, Brazil, Italy and Germany, have operating loss carryforwards aggregating $329,000, with indefinite expiration periods. Other foreign subsidiaries in China, Mexico, Netherlands, Spain, India and Korea have operating losses aggregating $277,000, with expiration dates beginning in 2020. The Company and its domestic subsidiaries have anticipated tax benefits of state net operating losses and credit carryforwards of $9,000 with expiration dates beginning in 2020.

The Company continues to maintain a valuation allowance related to its net deferred tax assets in several foreign jurisdictions. As of December 31, 2019, the Company had valuation allowances of $194,794 related to tax losses, credit carryforwards, and other deferred tax assets in the U.S. and several foreign jurisdictions. The Company’s valuation allowance increased in 2019 as a result of current year losses generated in certain foreign jurisdictions. The Company’s current and future provision for income taxes is significantly impacted by the initial recognition of and changes in valuation allowances in certain countries. The Company intends to maintain these allowances until it is more likely than not that the deferred tax assets will be realized. The Company’s future provision for income taxes will include no tax benefit with respect to losses incurred and no tax expense with respect to income generated in these countries until the respective valuation allowance is eliminated.

As of December 31, 2019, no material deferred income taxes have been recorded on the undistributed earnings of foreign subsidiaries, since a majority of these earnings will not be taxable upon repatriation to the United States. These earnings will be primarily treated as previously taxed income from either the one time transition tax or GILTI, or they will be offset with a 100% dividends received deduction. The Company has not recorded a deferred tax liability for foreign withholding taxes or state income taxes that may be incurred upon repatriation in the future as such undistributed foreign earnings are consider permanently reinvested.

As of December 31, 2019, the Company had $10,123 ($11,175 including interest and penalties) of total unrecognized tax benefits, all of which represented the amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate.

A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:




	2019			2018
Balance at beginning of period	$	9,631		$	9,000
Tax positions related to the current period
Gross additions	895			612
Gross reductions	—			—
Tax positions related to prior years
Gross additions	—			2,551
Gross reductions	(52		)	(1,736		)
Settlements	—			—
Lapses on statutes of limitations	(351		)	(796		)
Balance at end of period	$	10,123		$	9,631

The Company, or one of its subsidiaries, files income tax returns in the United States and other foreign jurisdictions. The Internal Revenue Service completed an examination of the Company’s U.S. income tax returns through 2011. The statute of limitations for U.S. state and local jurisdictions is closed for taxable years ending prior to 2014. The Company’s major foreign jurisdictions are Brazil, Canada, China, France, Germany, Italy, Mexico, and Poland. The Company is no longer subject to income tax examinations in major foreign jurisdictions for years prior to 2015.

During the next twelve months, it is reasonably possible that, as a result of audit settlements and the conclusion of current examinations, the Company may decrease the amount of its gross unrecognized tax benefits by approximately $6,510, all of which, if recognized, would impact the effective tax rate.

The Company classifies all income tax related interest and penalties as income tax expense. The Company has recorded in liabilities $1,052 and $842 as of December 31, 2019 and 2018, respectively, for tax related interest and penalties on its consolidated balance sheet.