Income Taxes

12 Months Ended

Dec. 31, 2020

Income Taxes [Abstract]

Income Taxes

11. Income Taxes

Income tax expense (benefit) is based on our earnings from continuing operations before income taxes as presented in the following table:

(Dollars in thousands)	2020		2019		2018
U.S.	$	7,961	$	18,709	$	13,854
Foreign		36,940		24,082		56,089
Total	$	44,901	$	42,791	$	69,943

Our income tax expense (benefit) from continuing operations consists of the following components:

(Dollars in thousands)	2020		2019		2018
Current:
U.S. federal	$	(3,298)	$	475	$	449
Foreign		20,238		18,204		19,311
State and local		104		168		211
Total current		17,044		18,847		19,971
Deferred:
U.S. federal		3,935		(3,832)		3,265
Foreign		(6,856)		(8,340)		(9,157)
State and local		738		1,290		(186)
Total deferred		(2,183)		(10,882)		(6,078)
Total income tax expense (benefit)	$	14,861	$	7,965	$	13,893

In addition, income tax expense (benefit) that we allocated directly to Ferro Corporation shareholders’ equity is detailed in the following table:

(Dollars in thousands)	2020		2019		2018
Interest rate swaps	$	(2,848)	$	(3,210)	$	(1,529)
Postretirement benefit liability adjustments		153		11		(32)
Net investment hedge		(2,113)		654		954
Foreign currency translations		44		27		—
Total income tax (benefit) expense allocated to Ferro Corporation shareholders' equity	$	(4,764)	$	(2,518)	$	(607)

A reconciliation of the U.S. federal statutory income tax rate and our effective tax rate follows:

	2020		2019		2018
U.S. federal statutory income tax rate	21.0	%	21.0	%	21.0	%
Foreign tax rate difference	7.2		9.8		7.4
Non-deductible expenses	4.5		4.4		2.9
Foreign currency	4.1		1.4		0.3
Global intangible low-taxed income, net	2.5		2.8		1.8
Tax rate changes	1.1		0.9		(3.0)
State taxes	1.0		1.3		0.7
Foreign withholding taxes	0.7		1.3		1.0
Net adjustment of prior year accrual	1.3		(5.0)		(4.2)
Goodwill dispositions, impairments and amortization	—		(1.2)		—
Foreign derived intangible income deduction	(0.7)		(3.2)		(1.6)
Adjustment of valuation allowances	(0.9)		(16.1)		(6.0)
Other	(1.7)		2.7		(2.5)
Uncertain tax positions, net of tax audit settlements	(2.6)		1.7		3.8
Tax credits	(4.4)		(3.2)		(1.7)
Effective tax rate	33.1	%	18.6	%	19.9	%

We have refundable income taxes of $9.5 million at December 31, 2020 and $16.9 million at December 31, 2019, classified as Other receivables on our consolidated balance sheets. We also have income taxes payable of $16.0 million at December 31, 2020, and $8.4 million at December 31, 2019, classified as Accrued expenses and other current liabilities on our consolidated balance sheets.

The components of deferred tax assets and liabilities at December 31, 2020 and 2019 were:

(Dollars in thousands)	2020		2019
Deferred tax assets:
Foreign operating loss carryforwards	$	36,631	$	35,394
Pension and other benefit programs		41,968		39,633
Foreign tax credit carryforwards		12,306		11,423
Accrued liabilities		12,883		10,726
Other credit carryforwards		8,639		6,707
Disallowed interest		7,692		2,633
Other		7,217		8,528
State and local operating loss carryforwards		1,900		2,058
Inventories		2,879		2,366
Allowance for doubtful accounts		589		746
Currency differences		5,605		1,407
Total deferred tax assets		138,309		121,621
Deferred tax liabilities:
Property, plant and equipment and intangibles -- depreciation and amortization		16,024		23,617
Unremitted earnings of foreign subsidiaries		1,903		1,594
Deferred gain		2,351		99
Other		2,030		2,016
Total deferred tax liabilities		22,308		27,326
Net deferred tax assets before valuation allowance		116,001		94,295
Valuation allowance		(10,872)		(10,447)
Net deferred tax assets	$	105,129	$	83,848

The amounts of foreign operating loss carryforwards, foreign tax credit carryforwards, and other credit carryforwards included in the table of temporary differences are net of reserves for unrecognized tax benefits.

At December 31, 2020, we had $28.1 million of state and local operating loss carryforwards and $167.1 million of foreign operating loss carryforwards, which can be carried forward indefinitely and others expire in 1 to 20 years. At December 31, 2020, we had $22.6 million in tax credit carryforwards, some of which can be carried forward indefinitely. These operating loss carryforwards and tax credit carryforwards expire as follows:

	Operating Loss		Tax Credit
(Dollars in thousands)	Carryforwards		Carryforwards
Expiring in:
2021	$	3,612	$	91
2022-2026		24,593		12,180
2027-2031		21,159		4,979
2032-2036		12,276		3,467
2037-2041		1,250		936
2042-Indefinitely		132,288		936
Total	$	195,178	$	22,589

We assess the available positive and negative evidence to determine if sufficient future taxable income will be generated to utilize the existing deferred tax assets. A significant piece of objective negative evidence evaluated by jurisdiction was whether a cumulative loss over the three-year period ended December 31, 2020 had been incurred. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future income.

Based on this assessment as of December 31, 2020, the Company has recorded a valuation allowance of $10.9 million in order to measure only the portion of the deferred tax assets that more likely than not will be realized.

We classified net deferred income tax assets as of December 31, 2020 and 2019 as detailed in the following table:

(Dollars in thousands)	2020		2019
Non-current assets	$	115,962	$	98,714
Non-current liabilities		(10,833)		(14,866)
Net deferred tax assets	$	105,129	$	83,848

Activity and balances of unrecognized tax benefits are summarized below:

(Dollars in thousands)	2020		2019		2018
Balance at beginning of year	$	26,000	$	24,869	$	28,470
Additions based on tax positions related to the current year		153		3,425		4,041
Additions for tax positions of prior years		260		—		24
Reductions for tax positions of prior years		(3,781)		—		(1,710)
Reductions as a results of expiring statutes of limitations		(1,394)		(688)		(420)
Foreign currency adjustments		1,245		(660)		(786)
Settlements with taxing authorities		—		(946)		(4,750)
Balance at end of year	$	22,483	$	26,000	$	24,869

The total amount of unrecognized tax benefits that, if recognized, would affect the effective rate was $8.5 million at December 31, 2020, $8.7 million at December 31, 2019, and $9.2 million at December 31, 2018. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as part of income tax expense. The Company recognized $0.6 million of expense in 2020, $0.5 million of expense in 2019, and $0.4 million of expense in 2018 for interest, net of tax, and related penalties. The Company accrued $2.9 million at December 31, 2020, $2.9 million at December 31, 2019, and $1.8 million at December 31, 2018 for payment of interest, net of tax, and penalties.

We anticipate that $7.0 million of liabilities for unrecognized tax benefits, including accrued interest and penalties, may be reversed within the next 12 months. These liabilities relate to international tax issues and are expected to reverse due to the expiration of the applicable statute of limitations periods and the anticipation of the closure of tax examinations.

The Company conducts business globally, and, as a result, the U.S. parent company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the U.S. parent company and its subsidiaries are subject to examination by taxing authorities. With few exceptions, we are not subject to federal, state, local or non-U.S. income tax examinations for years before 2005.

At December 31, 2020, we provided $1.9 million for deferred income taxes on $13.8 million of undistributed earnings of foreign subsidiaries that are not considered to be indefinitely reinvested. For certain other of the Company’s foreign subsidiaries, undistributed earnings of approximately $232.9 million are considered to be indefinitely reinvested, and we have not provided for deferred taxes on such earnings. We have not disclosed deferred income taxes on undistributed earnings of foreign subsidiaries where they are considered to be indefinitely reinvested, as it is not practicable to estimate the additional taxes that might be payable on the eventual remittance of such earnings, given the uncertain timing of when any such eventual remittance may occur, the significant number of foreign subsidiaries we have, the multiple layers within our legal entity structure, and the complexities of tax regulations across those foreign subsidiaries.