Income Taxes

9 Months Ended

Sep. 30, 2017

Income Tax Disclosure [Abstract]

Income Taxes

7. Income Taxes

The following table presents components of income tax expense for the three and nine months ended September 30, 2017 and 2016:

	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2017		2016		2017		2016
Income tax based on income from continuing operations, at estimated tax rates of 36.4% and 37.5%, respectively	$6,935		$7,838		$14,420		$21,545
Provision for change in estimated tax rates	741		(424	)	-		-
Income tax before discrete items	7,676		7,414		14,420		21,545
Discrete tax expense:
Provision for/resolution of tax audits and contingencies, net	-		-		961		(825	)
Adjustments to prior period tax liabilities	(73	)	(11	)	606		(254	)
Other discrete tax adjustments, net	(7	)	85		(62	)	113
Provision for/adjustment to beginning of year valuation allowance	(3,787	)	-		(3,787	)	-
Enacted tax legislation	-		-				34
Total income tax expense	$3,809		$7,488		$12,138		$20,613

The third quarter estimated effective tax rate on continuing operations was 36.4 percent in 2017, compared to 37.5 percent for the same period in 2016.

The Company records the residual U.S. and foreign taxes on certain amounts of foreign earnings that have been targeted for repatriation to the U.S. These amounts are not considered to be permanently reinvested, and the Company accrued for the tax cost on these earnings to the extent they cannot be repatriated in a tax-free manner. At September 30, 2017 the Company calculated a deferred tax liability of $3.7 million on $62.8 million of non-U.S. earnings that have been targeted for future repatriation to the U.S.

The Company conducts business globally and, as a result, files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities throughout the world, including major jurisdictions such as the United States, Brazil, Canada, France, Germany, Italy, Mexico, and Switzerland. The open tax years in these jurisdictions range from 2007 to 2016. The Company is currently under audit in non-U.S. tax jurisdictions, including but not limited to Canada and Italy. 

It is reasonably possible that over the next twelve months the amount of unrecognized tax benefits may decrease up to $0.2 million, from the reevaluation of uncertain tax positions arising in examinations, in appeals, or in the courts, or from the closure of tax statutes of limitations.

As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of September 2017, primarily as the Company achieved three years of cumulative pretax income in Canada and Japan, management determined that there was sufficient positive evidence to conclude that it is more likely than not that additional deferred tax assets of $3.4 million in Canada and $0.4 million in Japan are realizable. Therefore, in the third quarter of 2017, we reversed previously recorded valuation allowances which resulted in a discrete tax benefit of $3.8 million.

In March 2016, an accounting update was issued which simplifies several aspects related to accounting for share-based payment transactions, including the income tax consequences. The income tax consequences which relate to accounting for excess tax benefits have been adopted prospectively, resulting in recognition of excess tax benefits against income tax expense, rather than additional paid-in capital, of $0.1 million for the nine months ended September 30, 2017. No adjustment was necessary related to the deferred tax balances. The Company adopted this update on January 1, 2017.