Income Taxes

Income before income taxes consists of the following:



	Year Ended December 31,
	2019		2018		2017
United States	$	26.2	$	35.1	$	21.4
Outside the United States	28.7		36.7		26.3
	$	54.9	$	71.8	$	47.7

Income taxes consists of the following:



	Year Ended December 31,
	2019			2018			2017
Current expense:
Federal	$	5.9		$	6.4		$	14.3
State	0.7			0.6			0.7
Foreign	7.2			9.0			7.6
	13.8			16.0			22.6
Deferred expense (benefit):
Federal	1.8			1.3			(5.4		)
State	(0.2		)	0.1			0.3
Foreign	(0.2		)	(0.8		)	0.7
	1.4			0.6			(4.4		)
Income tax expense	$	15.2		$	16.6		$	18.2

The Tax Cuts and Jobs Act (the “TCJA”) was enacted on December 22, 2017. The TCJA reduced the US federal corporate tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, created new taxes on its global intangible low-taxed income (“GILTI”), and provided a foreign-derived intangible income deduction (“FDII”). In 2017, we recorded provisional amounts for certain enactment-date effects of the TCJA by applying the guidance in Staff Accounting Bulletin (“SAB”) 118 because we had not yet completed our enactment-date accounting for these effects. During 2018, the Company finalized its accounting for the 2017 enactment of the TCJA and recorded net expense of $0.3 million related to the remeasurement of taxes and the one-time transition tax.

The TCJA subjects a U.S. shareholder to tax on GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense. We have elected to account for GILTI as a current period expense. The impact of GILTI at December 31, 2019 and 2018 was an increase in tax expense of $1.9 million and $3.1 million, respectively. The impact of FDII at December 31, 2019 and 2018 was a decrease in tax expense of $0.8 million and $0.6 million, respectively.

A reconciliation of income tax expense computed by applying the statutory federal income tax rate to income tax expense as recorded is as follows:



	Year Ended December 31,
	2019			2018			2017
Income tax at U.S. statutory rate	$	11.5		$	15.1		$	16.7
Effect of state income taxes, net	0.3			0.6			0.7
Effect of foreign operations	1.9			3.5			(5.2		)
Valuation allowance	0.6			(3.0		)	5.3
Uncertain tax positions	0.1			(0.3		)	(2.0		)
Non-deductible items	0.3			0.5			0.5
Non-deductible compensation	2.2			0.8			0.4
Manufacturer's deduction	—			—			(0.8		)
Foreign tax credit	(1.7		)	(2.2		)	—
Other tax credits	(0.8		)	—			—
GILTI	1.9			3.1			—
FDII	(0.8		)	(0.6		)	—
Net impact of TCJA	—			0.3			4.2
Other, net	(0.3		)	(1.2		)	(1.6		)
Income tax as recorded	$	15.2		$	16.6		$	18.2

Significant components of the Company’s net deferred income tax assets and liabilities are as follows:



	Year Ended December 31,
	2019			2018
Deferred income tax assets:
Postretirement benefit obligation	$	1.7		$	1.8
Inventory	8.7			8.5
Net operating loss and credit carryforwards	11.6			11.4
Operating lease liabilities	13.8			—
Accrued litigation	—			0.1
Compensation	2.9			4.7
Disallowed interest	4.6			2.7
Other	4.8			4.0
Total deferred income tax assets	48.1			33.2
Deferred income tax liabilities:
Depreciation and amortization	21.0			17.6
Pension	13.9			12.3
Intangible assets	16.8			16.1
Right-of-use assets	13.5			—
Other	3.0			3.2
Total deferred income tax liabilities	68.2			49.2
Net deferred income tax liabilities prior to valuation allowances	(20.1		)	(16.0		)
Valuation allowances	(4.8		)	(5.3		)
Net deferred income tax liability	$	(24.9	)	$	(21.3	)

At December 31, 2019, the Company has U.S., state and foreign net operating loss carryforwards and U.S. foreign tax credit carryforwards for income tax purposes. The foreign net operating loss carryforward is $26.5 million, of which $12.4 million expires between 2020 and 2039 and the remainder has no expiration date. The Company has a tax benefit from a state net operating loss carryforward of $2.3 million that expires between 2020 and 2039. The Company also has a non-consolidated U.S. net operating loss carryforward of $1.5 million that expires between 2036 and 2037. The foreign tax credit carryforward is $0.1 million and expires in 2029.

As of December 31, 2019 and 2018, the Company was not in a cumulative three-year loss position and it was determined that it was more likely than not that its U.S. deferred tax assets will be realized. For the year ended December 31, 2018, the Company recorded a tax benefit of $6.3 million related to the reversal of valuation allowance, of which $3.0 million was recorded in income tax expense with the remainder reflected in deferred taxes. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income (including reversals of deferred tax liabilities). The Company reviews all valuation allowances related to deferred tax assets and will reverse these valuation allowances, partially or totally, when appropriate under ASC 740.

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



	2019			2018			2017
Unrecognized Tax Benefit — January 1,	$	0.9		$	1.2		$	2.9
Gross Increases to Tax Positions Related to Current Year	0.5			0.1			0.1
Gross Increases to Tax Positions Related to Prior Years	2.6			—			0.6
Gross Decreases to Tax Positions Related to Prior Years	—			(0.1		)	—
Gross Decreases related to settlements with taxing authorities	—			(0.1		)	(0.4		)
Expiration of Statute of Limitations	(0.3		)	(0.2		)	(1.9		)
Other	—			—			(0.1		)
Unrecognized Tax Benefit — December 31,	$	3.7		$	0.9		$	1.2

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $1.0 million at December 31, 2019 and $0.8 million at December 31, 2018. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2019 and 2018, the Company recognized a tax expense of approximately $0.1 million and a tax benefit of $0.1 million, respectively, in net interest and penalties due to the expiration of various uncertain tax positions. The Company had approximately $0.2 million and $0.1 million for the payment of interest and penalties accrued at December 31, 2019 and 2018, respectively. It is reasonably possible that within the next twelve months the amount of gross unrecognized tax benefits could be reduced by approximately $0.1 million as a result of the closure of tax statutes related to existing uncertain tax positions.

The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. The Company’s tax years for 2016 through 2019 remain open for examination by the Internal Revenue Service and 2014 through 2019 remain open for examination by various state and foreign taxing authorities.

As of December 31, 2019, the Company has accumulated undistributed earnings generated by our foreign subsidiaries of approximately $194.9 million. Because $146.8 million of such earnings have previously been subject to the one-time transition taxes required by the TCJA, any additional taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of our foreign investments would generally be limited to foreign withholding and state income taxes. We intend, however, to indefinitely reinvest these earnings and expect future U.S. cash generation to be sufficient to meet future U.S. cash needs.