Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

 Income Taxes

The following summarizes pretax income:

	2019		2018		2017
U.S.	$	552.4	$	655.0	$	426.6
International	110.7		101.2		108.0
Total (before equity earnings)	$	663.1	$	756.2	$	534.6

The tax provision contains the following components:

	2019			2018			2017
Current
Federal	$	57.8		$	159.4		$	107.3
State	0.7			4.1			0.7
Foreign	(12.8		)	11.4			20.0
Total current	$	45.7		$	174.9		$	128.0
Deferred
Federal	$	71.8		$	(27.8	)	$	53.6
State	(11.4		)	(12.8		)	(0.2		)
Foreign	26.7			5.5			(1.4		)
Total deferred	87.1			(35.1		)	52.0
Total income tax provision	$	132.8		$	139.8		$	180.0

The income tax provision from operations differs from the tax provision computed at the U.S. federal statutory income tax rate due to the following:

	2019					2018					2017
Tax at U.S. Federal statutory rate	$	139.3		21.0	%	$	158.8		21.0	%	$	187.1		35.0	%
State income taxes, net of Federal benefit	14.9			2.3		18.1			2.4		8.8			1.6
State income tax credits, net of Federal benefit	(22.6		)	(3.4	)	(22.7		)	(3.0	)	(9.7		)	(1.8	)
Foreign rate differences	(7.1		)	(1.1	)	(6.2		)	(0.8	)	(20.6		)	(3.8	)
Research and experimentation	0.7			0.1		(5.4		)	(0.7	)	(2.6		)	(0.5	)
Domestic Production Activities Deduction	—			—		—			—		(7.1		)	(1.3	)
Interest on assessments	—			—		—			—		(0.1		)	—
Excess tax benefits	(2.5		)	(0.4	)	(4.0		)	(0.5	)	(4.8		)	(0.9	)
Non-deductible expenses	4.0			0.6		4.6			0.6		2.4			0.5
Transition tax	1.6			0.2		(5.4		)	(0.7	)	44.9			8.4
Re-measurement of Deferred Taxes	(2.0		)	(0.3	)	—			—		(16.2		)	(3.0	)
Global Intangible Low-Taxed Income (GILTI) Tax	7.1			1.1		1.8			0.2		—			—
Other	(0.6		)	(0.1	)	0.2			—		(2.1		)	(0.5	)
Total income tax provision	$	132.8		20.0	%	$	139.8		18.5	%	$	180.0		33.7	%

In 2019, an amended tax return was filed in a foreign jurisdiction for one of the Company’s foreign subsidiaries impacting the amount of undistributed earnings included in the transition tax liability enacted by TCJA. The increase to the transition tax in 2019 is $1.6 which has been included as a component of income tax expense from continuing operations.

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 only. The Company has elected to account for GILTI in the year the tax is incurred.  As of December 31, 2019 there was $7.1 of GILTI tax expense resulting from $0.6 of income tax expense related to activity in 2019 and $6.5 of income tax expense related to the finalization of the 2018 amounts related to GILTI reported in the tax return as agreed upon with the IRS in the course of the Company’s participation in the Internal Revenue Service’s Compliance Assurance Process (“CAP”) program.  As of December 31, 2018 there was $1.8 of GILTI tax expense. Tax expense related to GILTI is included as a component of income tax expense from continuing operations.   

Significant tax effected temporary differences comprising the net deferred tax asset are as follows:

	2019			2018
Long-term contracts	$	107.5		$	210.2
Post-retirement benefits other than pensions	9.8			9.5
Pension and other employee benefit plans	(88.5		)	(60.4		)
Employee compensation accruals	39.2			36.1
Depreciation and amortization	(117.8		)	(115.1		)
Inventory	0.4			0.5
State income tax credits	108.3			94.1
Accruals and reserves	40.3			46.2
Deferred production	—			(1.8		)
Net operating loss carryforward	0.4			0.4
Interest swap contract	0.2			—
Other	8.6			(2.3		)
Net deferred tax asset	108.4			217.4
Valuation allowance	(10.2		)	(13.2		)
Net deferred tax asset	98.2			204.2

Deferred tax detail above is included in the balance sheet and supplemental information as follows:

	2019			2018
Non-current deferred tax assets	106.5			205.0
Non-current deferred tax liabilities	(8.3		)	(0.8		)
Net non-current deferred tax assets	$	98.2		$	204.2
Total deferred tax asset	$	98.2		$	204.2

The following is a roll forward of the deferred tax valuation allowance at December 31, 2019, 2018 and 2017:

	2019			2018			2017
Balance at January 1	$	13.2		$	15.0		$	13.5
Income tax credits	(3.2		)	(2.2		)	1.6
Depreciation and amortization	0.2			0.1			0.1
Other	—			0.3			(0.2		)
Balance at December 31	$	10.2		$	13.2		$	15.0

A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. When determining the amount of net deferred tax assets that are more likely than not to be realized, we assess all available positive and negative evidence. The weight given to the positive and negative evidence is commensurate with the extent the evidence may be objectively verified.

The Company continues to maintain $10.2 in valuation allowances primarily against separate company North Carolina income tax credit deferred tax assets and North Carolina state net operating loss carryforwards. It is the Company's opinion that none of these North Carolina state income tax credits will be utilized before they expire and an $8.8 valuation allowance is recorded against the deferred tax asset. Additionally, it is the Company's opinion that none of the $16.0 North Carolina loss carryforwards, resulting in a $0.4 deferred tax asset, will be utilized before they expire and a $0.4 valuation allowance is recorded against the deferred tax asset.

Certain provisions within the TCJA effectively transition the U.S. to a territorial system and eliminates deferral on U.S. taxation for certain amounts of income which is not taxed at a minimum level. At this time, we continue to maintain that earnings of all foreign operating subsidiaries are indefinitely invested outside the U.S. on the basis of estimates that future domestic cash generation, inclusive of management actions and plans associated with the 737MAX production halt and slowdown, will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings to fund working capital requirements, service existing obligations, execute M&A transactions, and invest in efforts to secure future business. As a result, no additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities.

To the extent cash in excess of the needs identified above are generated from a key international operating subsidiary and a dividend is declared, we have completed analysis regarding potential dividend withholding taxes and anticipate that any associated withholding taxes would be immaterial based upon current law. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in these entities (i.e., basis difference in excess of that subject to the one-time transition tax) is not practicable at this time.

The beginning and ending unrecognized tax benefits reconciliation is as follows:

	2019			2018		2017
Beginning balance at January 1	$	7.2		$	6.7	$	6.3
Gross increases related to current period tax positions	0.4			—		—
Gross increases related to prior period tax positions	—			0.5		0.4
Gross decreases related to prior period tax positions	(2.2		)	—		—
Statute of limitations' expiration	—			—		—
Settlements	—			—		—
Ending balance at December 31	$	5.4		$	7.2	$	6.7

Included in the December 31, 2019 balance was $5.4 in unrecognized tax benefits of which $4.2 would reduce the Company's effective tax rate if ultimately recognized. The Company’s federal audit is effectively complete under the CAP program for the 2018 tax year. The Company will continue to participate in the CAP program for the 2019 and 2020 tax year. The CAP program’s objective is to resolve issues in a timely, contemporaneous manner and eliminate the need for a lengthy post-filing examination. There are no open audits in the Company’s foreign jurisdictions.

The Company reports interest and penalties, if any, related to unrecognized tax benefits in the income tax provision. As of December 31, 2019, and December 31, 2018, there was no accrued interest on the unrecognized tax benefit liability included in the balance sheets and there was no impact of interest on the Company’s unrecognized tax benefit liability during 2019 and 2018.

The Company continues to operate under a tax holiday in Malaysia effective through September 2024. The Company’s 2019 income tax expense reflects $5.7 of Malaysia tax holiday benefit for the year ended December 31, 2019.

Included in the deferred tax assets at December 31, 2019 are $94.1 in Kansas High Performance Incentive Program ("HPIP") Credit and $9.6 in Kansas Research & Development ("R&D") Credit, totaling $103.7 in gross Kansas state income tax credit carryforwards, net of federal benefit. The HPIP Credit provides a 10% investment tax credit for qualified business facilities located in Kansas for which $8.9 expires in 2029, $14.6 expires in 2030, $8.7 expires in 2031, $14.6 expires in 2032, $15.2 expires in 2033, $28.8 expires in 2034, and $28.3 expires in 2035. The R&D Credit provides a credit for qualified research and development expenditures conducted within Kansas. This credit can be carried forward indefinitely.

The Company had $74.2 and $13.3 of income tax receivable as of December 31, 2019 and December 31, 2018, respectively, which is reflected within other current assets on the balance sheet as well as $6.3 and $5.8 of income tax payable as of December 31, 2019 and December 31, 2018, respectively, which is reflected within other current liabilities on the balance sheet. The Company had $5.3 and $3.7 of non-current income tax payable as of December 31, 2019 and December 31, 2018, respectively, which is reflected within other liabilities on the balance sheet.