INCOME TAXES

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

13. INCOME TAXES

2017 Tax Cuts and Jobs Act

In conjunction with the enactment of the 2017 Tax Cuts and Jobs Act (the Tax Act), the Corporation recorded provisional income tax expense of $18.2 million for the year ended December 31, 2017 related to the one-time transition tax on certain foreign earnings. The finalized transition tax of $23.6 million was to be paid over 8 years pursuant to the Tax Act. The transition tax liability, which is expected to be paid in 2024 and 2025, was $7.4 million and $9.0 million as of December 31, 2021 and December 31, 2020, respectively.

As of December 31, 2021, the Corporation reassessed its assertion around whether foreign undistributed earnings should continue to no longer be considered permanently reinvested. Based on such assessment, Corporation revised its assertion with respect to prior and current earnings of a foreign subsidiary, which resulted in the reversal of $2.8 million of tax liabilities previously recorded. The Corporation maintains its previous assertion for all other foreign subsidiaries, and has recorded a liability for withholding taxes that would arise upon distribution of the Corporation’s foreign undistributed earnings.

During the fourth quarter of 2020, the Corporation committed to a plan to sell its industrial valve business in Germany. As a result, the tax consequences from those temporary differences resulting from the held for sale designation are no longer considered to be permanently reinvested. However, the Corporation has not recorded any provision, as it expects under tax law to recover the outside basis difference in a tax-free manner. With respect to the sale of the German industrial valves business in January 2022, the Corporation has determined that the global intangible low-taxed income (GILTI)-related impact associated with the sale is immaterial.

Except as noted above, the Corporation remains permanently reinvested to the extent of any outside basis differences in its foreign subsidiaries in excess of the amount of undistributed earnings as it is not practicable to determine the provision impact, if any, due to the complexities associated with this calculation.

Earnings before income taxes for the years ended December 31 consist of:

(In thousands)	2021		2020		2019
Domestic	$	271,694	$	212,613	$	273,036
Foreign(1)	82,816		50,438		123,426
	$	354,510	$	263,051	$	396,462

(1) The Corporation recognized pre-tax impairment losses of $19 million in 2021 and $33 million in 2020 pertaining to its industrial valve business in Germany, which was classified as held for sale during the fourth quarter of 2020.

The provision for income taxes for the years ended December 31 consists of:

(In thousands)	2021		2020		2019
Current:
Federal	$	57,910	$	36,793	$	14,195
State	15,477		11,882		3,766
Foreign	22,034		21,841		24,816
Total current	95,421		70,516		42,777
Deferred:
Federal	(7,167)		1,043		38,647
State	(477)		(527)		6,632
Foreign	(426)		(9,373)		823
Total deferred	(8,070)		(8,857)		46,102
Provision for income taxes	$	87,351	$	61,659	$	88,879

The effective tax rate varies from the U.S. federal statutory tax rate for the years ended December 31, principally:

	2021		2020		2019
U.S. federal statutory tax rate	21.0	%	21.0	%	21.0	%
Add (deduct):
State and local taxes, net of federal benefit	3.6		3.7		2.4
Foreign asset impairment (held for sale)	1.6		1.2		—
Valuation allowance for foreign assets held for sale	0.2		1.3		—
R&D tax credits	(1.3)		(0.9)		(1.2)
Foreign earnings(1)	0.2		(0.9)		1.4
Foreign-derived intangible income	(1.4)		(2.8)		(1.3)
All other, net	0.7		0.8		0.1
Effective tax rate	24.6	%	23.4	%	22.4	%

(1) Foreign earnings primarily include the net impact of differences between local statutory rates and the U.S. Federal statutory rate, the cost of repatriating foreign earnings, and the impact of changes to foreign valuation allowances, excluding items related to foreign assets classified as held for sale.

The components of the Corporation’s deferred tax assets and liabilities as of December 31 are as follows:

(In thousands)	2021		2020
Deferred tax assets:
Operating lease liabilities	$	32,868	$	33,371
Inventories, net	17,237		16,734
Net operating loss	5,384		5,518
Environmental reserves	9,262		8,698
Incentive compensation	6,936		8,102
Pension and other postretirement liabilities	—		13,533
Legal reserves	6,991		—
Other	32,665		33,401
Total deferred tax assets	111,343		119,357
Deferred tax liabilities:
Goodwill amortization	98,947		90,112
Operating lease right-of-use assets, net	30,911		31,292
Other intangible amortization	59,056		65,549
Depreciation	13,694		22,780
Withholding taxes	12,776		12,549
Pension and other postretirement assets	29,385		—
Other	7,149		8,757
Total deferred tax liabilities	251,918		231,039
Valuation allowance	2,625		1,240
Net deferred tax liabilities	$	143,200	$	112,922

Deferred tax assets and liabilities are reflected on the Corporation’s consolidated balance sheet as of December 31 as follows:

(In thousands)	2021		2020
Net noncurrent deferred tax assets	$	4,149	$	2,085
Net noncurrent deferred tax liabilities	147,349		115,007
Net deferred tax liabilities	$	143,200	$	112,922

The Corporation has income tax net operating loss carryforwards related to international operations of $6.1 million, of which $3.4 million have an indefinite life and $2.7 million which expire through 2028. The Corporation has federal and state income tax net loss carryforwards of $61.8 million, all of which are net operating losses that expire through 2040. The Corporation has recorded a deferred tax asset of $5.4 million, reflecting the benefit of the loss carryforwards related to international and domestic operations.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2021 in certain of the Corporation’s foreign locations. Such objective evidence limits the ability to consider other subjective evidence, such as projections for future growth. As of December 31, 2021, the Corporation increased its valuation allowance by $1.4 million to $2.6 million, in order to measure only the portion of the deferred tax asset that more likely than not will be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as projections for growth.

As of December 31, 2021, the Corporation recorded a deferred tax asset of $4.4 million on net operating losses of $14.7 million related to the held for sale industrial valve business in Germany. A provision of $0.7 million was recorded during the year ended December 31, 2021, resulting in a full valuation allowance against the deferred tax asset, as it is more likely than not that the losses will be forfeited.

Income tax payments, net of refunds, of $107.1 million, $54.0 million, and $63.9 million were made in 2021, 2020, and 2019, respectively.

The Corporation has recorded a liability in Other liabilities for interest of $3.9 million and penalties of $2.0 million as of December 31, 2021.

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

(In thousands)	2021		2020		2019
Balance as of January 1,	$	15,585	$	12,676	$	13,563
Additions for tax positions of prior periods	2,877		1,497		581
Reductions for tax positions of prior periods	(1,861)		(615)		(2,184)
Additions for tax positions related to the current year	655		2,041		936
Settlements	(238)		(14)		(220)
Balance as of December 31,	$	17,018	$	15,585	$	12,676

In many cases, the Corporation’s uncertain tax positions are related to tax years that remain subject to examination by tax authorities.

The following describes the open tax years, by major tax jurisdiction, as of December 31, 2021:

United States (Federal)	2018	-	present
United States (Various states)	2010	-	present
United Kingdom	2020	-	present
Canada	2018	-	present

The Corporation does not expect any significant changes to the estimated amount of liability associated with its uncertain tax positions through the next twelve months. Included in total unrecognized tax benefits as of December 31, 2021, 2020, and 2019 is $14.1 million, $13.0 million, and $10.2 million, respectively, which if recognized, would favorably impact the effective income tax rate.