Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.20.1
Income Taxes
12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
U.S. Tax Reform

On December 22, 2017, the U.S government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Act”). The Tax Reform Act made broad and complex changes to the U.S. tax code that has impacted our fiscal year ending December 31, 2018, including, but not limited, reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, limiting the carryover of net operating losses to 80% of taxable income, and modifying the deductibility of certain expenses.

We recognized the income tax effects of the Tax Reform Act in our 2017 Consolidated Financial Statements in accordance with SAB No. 118, which provides SEC staff guidance for the application of ASC Topic 740, "Income Taxes," in the reporting period in which the Tax Reform Act was signed into law. We completed our analysis of the Tax Reform Act during 2018 and recorded an additional income tax expense of $0.1 million in 2018, due to the impact of filing our 2017 U.S. Federal Tax Return.

The following table presents loss from continuing operations before income taxes for U.S. and international operations based on the location of the entity to which such earnings are attributable:
 
Year Ended December 31,
 
2019
 
2018
 
2017
Domestic
$
(65.6
)
 
$
(28.1
)
 
$
(18.0
)
Foreign
(1.7
)
 
3.0

 
(1.1
)
Total
$
(67.3
)
 
$
(25.1
)
 
$
(19.1
)


The following table presents the components of the income tax benefit:
 
Year Ended December 31,
 
2019
 
2018
 
2017
Current
 
 
 
 
 
Federal
$
0.3

 
$
0.3

 
$
(4.7
)
Foreign
0.4

 
0.6

 
(0.4
)
State and local
0.1

 
0.2

 

Subtotal
0.8

 
1.1

 
(5.1
)
Deferred
 
 
 
 
 
Federal
0.1

 
(4.6
)
 
(0.3
)
Foreign
0.6

 
(2.5
)
 
0.1

State and local
0.1

 

 
3.3

Subtotal
0.8

 
(7.1
)
 
3.1

Total
$
1.6

 
$
(6.0
)
 
$
(2.0
)


As of December 31, 2019, we reviewed our position with regard to foreign unremitted earnings and determined that unremitted earnings would continue to be permanently reinvested. Accordingly, we have not recorded foreign withholding taxes on approximately $12.7 million of undistributed earnings of foreign subsidiaries that could be subject to taxation if remitted to the U.S. because we currently plan to keep these amounts permanently invested overseas. It is not practicable to calculate the residual income tax that would result if these basis differences reversed due to the complexities of the tax law and the hypothetical nature of the calculations.

The following table presents the differences between our income tax benefit at the U.S. federal statutory income tax rate and our effective income tax rate:
 
Year Ended December 31,
 
2019
 
2018
 
2017
Continuing operations tax at statutory rate
$
(14.1
)
 
$
(5.3
)
 
$
(6.7
)
Increase in valuation allowances on deferred federal income tax assets
14.3

 
0.2

 

Increase in valuation allowances on deferred state income tax assets
2.1

 
0.7

 
5.2

State income tax benefit, net of federal benefit
(1.8
)
 
(0.6
)
 
(0.8
)
Tax on foreign and foreign-source income
1.2

 
1.1

 
(1.4
)
Permanent book/tax differences
1.1

 
1.7

 
0.6

Research and development credits
(0.9
)
 
(0.6
)
 
(0.7
)
Increase/(decrease) in valuation allowances on deferred foreign income tax assets
0.1

 
(3.4
)
 
2.0

State law changes, net of federal benefit

 

 
(1.1
)
Impact of Tax Reform Act

 
0.1

 
0.8

Other
(0.4
)
 
0.1

 
0.1

Total
$
1.6

 
$
(6.0
)
 
$
(2.0
)

The tax effects of principal temporary differences between the carrying amounts of assets and liabilities and their tax bases are summarized in the following table. Management believes it is more likely than not that the results of future operations will generate sufficient taxable income in the appropriate jurisdiction and foreign source income to realize deferred tax assets, net of valuation allowances. In arriving at this conclusion, we considered the profit or loss before tax generated for the years 2017 through 2019, as well as future reversals of existing taxable temporary differences and projections of future profit before tax and foreign source income.
 
December 31, 2019
 
December 31, 2018
Deferred income tax assets (liabilities)
 
 
 
Postretirement and postemployment benefits
$
17.5

 
$
16.7

Net operating losses
25.1

 
19.3

Accrued expenses
4.2

 
9.1

Deferred compensation
2.6

 
5.5

Customer claims reserves
4.2

 
2.9

Goodwill
2.2

 
2.2

Pension benefit liabilities
3.5

 
2.3

Tax credit carryforwards
3.4

 
2.6

Intangibles
2.8

 
1.7

Other
2.6

 
0.8

Total deferred income tax assets
68.1

 
63.1

Valuation allowances
(35.8
)
 
(29.7
)
Net deferred income tax assets
32.3

 
33.4

Accumulated depreciation
(20.6
)
 
(20.2
)
Inventories
(6.7
)
 
(8.7
)
Other
(2.1
)
 
(1.0
)
Total deferred income tax liabilities
(29.4
)
 
(29.9
)
Net deferred income tax assets
$
2.9

 
$
3.5

Deferred income taxes have been classified in the Consolidated Balance Sheet as:
 
 
 
Deferred income tax assets—noncurrent
$
5.3

 
$
5.6

Deferred income tax liabilities—noncurrent
(2.4
)
 
(2.1
)
Net deferred income tax assets
$
2.9

 
$
3.5



We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. The need to establish valuation allowances for deferred tax assets is assessed quarterly. In assessing the requirement for, and amount of, a valuation allowance in accordance with the more likely than not standard for all periods, we give appropriate consideration to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability and foreign source income, the duration of statutory carryforward periods, and our experience with operating loss and tax credit carryforward expirations. A history of cumulative losses is a significant piece of negative evidence used in our assessment. If a history of cumulative losses is incurred for a tax jurisdiction, forecasts of future profitability are not used as positive evidence related to the realization of the deferred tax assets in the assessment.


The following table presents the components of our valuation allowance against deferred income tax assets:
 
Year Ended December 31,
 
2019
 
2018
Federal
$
20.3


$
9.4

State
5.4


2.8

Foreign
10.1

 
17.5

Total
$
35.8

 
$
29.7



The valuation allowances offset federal, state and foreign deferred tax assets, credits, and operating loss carryforwards.

The following is a summary of our net operating loss (“NOL”) carryforwards:
 
Year Ended December 31,
 
2019
 
2018
State
$
56.7

 
$
17.6

Foreign
42.0

 
65.3

Federal
54.7

 
14.0



As of December 31, 2019, $41.2 million of state NOL carryforwards expire between 2020 and 2038, and $41.6 million of foreign NOL carryforwards expire between 2020 and 2024. The remainder are available for carryforward indefinitely.

We estimate we will need to generate future taxable income of approximately $142.7 million for state income tax purposes during the respective realization periods (ranging from 2020 to 2039) in order to fully realize the net deferred income tax assets discussed above.

We have $0.7 million of unrecognized tax benefits ("UTBs") as of December 31, 2019. Of this amount, $0.1 million, net of federal benefit, if recognized in future periods, would impact the reported effective tax rate.

It is reasonably possible that certain UTBs may increase or decrease within the next twelve months due to tax examination changes, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities. Over the next twelve months, we estimate UTB's may decrease by $0.1 million related to state statutes expiring.

The following table presents a reconciliation of the total amounts of UTBs, excluding interest and penalties:
 
2019
 
2018
 
2017
Unrecognized tax benefits as of January 1
$
1.6

 
$
4.8

 
$
5.0

Gross change for current year positions

 
0.2

 
0.4

(Decreases) for prior period positions
(0.9
)
 
(3.4
)
 
(0.6
)
Unrecognized tax benefits balance as of December 31
$
0.7

 
$
1.6

 
$
4.8



The 2018 decrease related to prior period positions includes $3.1 million related to discontinued operations.

We conduct business globally, and as a result, we file income tax returns in the U.S., various states and international jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world in such major jurisdictions as Australia, Canada, China and the U.S. Generally, we have open tax years subject to tax audit on average of between three years and six years. With few exceptions, the statute of limitations is no longer open
for state or non-U.S. income tax examinations for the years before 2013. We have not significantly extended any open statutes of limitation for any major jurisdiction and have reviewed and accrued for, where necessary, tax liabilities for open periods. The tax years 2013 through 2019 are subject to future potential tax adjustments.

The following table details amounts related to certain other taxes:
 
Year Ended December 31,
 
2019
 
2018
 
2017
Payroll taxes
$
10.0

 
$
11.7

 
$
10.9

Property and franchise taxes
3.2

 
2.5

 
2.5