Income Taxes

12 Months Ended

Oct. 31, 2020

INCOME TAXES

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted into law in response to the COVID-19 pandemic. The CARES Act contains numerous income tax provisions, such as enhanced interest deductibility, repeal of the 80% limitation with respect to net operating losses arising in taxable years 2018, 2019, and 2020, and additional depreciation deductions related to qualified improvement property. The Company has concluded the analysis of these provisions as of year-end and the CARES Act did not have a material impact on the Company’s income taxes for 2020.

In addition, on December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”) was enacted into law. The Tax Reform Act also established new tax provisions that impacted the Company beginning in fiscal year 2018, including (1) eliminating the U.S. manufacturing deduction; (2) establishing new limitations on deductible interest expense and certain executive compensation; (3) creating the base erosion anti-abuse tax (“BEAT”); (4) creating a new provision designed to tax global intangible low-tax income (“GILTI”); (5) establishing a deduction for foreign-derived intangible income (“FDII”); and (6) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries. Regarding the new GILTI tax rules, the Company is allowed to make an accounting policy election to either (i) treat taxes due on future GILTI inclusions in U.S. taxable income as a current period expense when incurred or (ii) reflect such portion of the future GILTI exclusions in U.S. taxable income that relate to existing basis differences in the Company’s measurement of deferred taxes. The Company has elected to treat taxes due to future GILTI inclusions in U.S. taxable income as a current period expense.

Effective October 31, 2018, the Tax Reform Act caused the Company to re-evaluate its indefinite reinvestment assertion related to undistributed foreign earnings. As a result, the Company concluded that the unremitted earnings and profits of certain non-U.S. subsidiaries and affiliates will no longer be indefinitely reinvested. Total deferred taxes accrued by the Company relative

to undistributed earnings was $7.0 million and $6.6 million at October 31, 2020 and 2019, respectively. The net increase in the liability was the result of accrued withholding taxes on future distributions offset by tax-deductible foreign currency losses that would be recognized on distributions of previously taxed earnings to the U.S.

The provision for income taxes consists of the following:


	Year Ended October 31,
(in millions)	2020		2019		2018
Current
Federal	$	(9.7)	$	26.6	$	74.0
State and local	3.3		6.1		8.0
Non-U.S.	53.0		35.9		36.1
	46.6		68.6		118.1
Deferred
Federal	7.9		2.1		(45.2)
State and local	10.2		0.9		0.8
Non-U.S.	(1.4)		(0.9)		(0.4)
	16.7		2.1		(44.8)
	$	63.3	$	70.7	$	73.3

The non-U.S. income before income tax expense was $160.6 million, $132.1 million and $102.3 million in 2020, 2019, and 2018, respectively. The U.S. income before income tax was $25.5 million, $129.9 million and $197.5 million in 2020, 2019, and 2018, respectively.

The following is a reconciliation of the provision for income taxes based on the federal statutory rate to the Company’s effective income tax rate:


	Year Ended October 31,
	2020		2019		2018
Federal statutory rate	21.00	%	21.00	%	23.33	%
Impact of foreign tax rate differential	0.49	%	0.10	%	(0.57)	%
State and local taxes, net of federal tax benefit	5.71	%	1.99	%	2.38	%
Net impact of changes in valuation allowances	(15.23)	%	2.41	%	5.65	%

Non-deductible write-off and impairment of goodwill and other intangible assets	4.02	%	0.29	%	0.06	%
Unrecognized tax benefits	(0.75)	%	(0.76)	%	3.41	%
Permanent book-tax differences	16.56	%	(0.87)	%	(4.03)	%
Withholding taxes	5.28	%	2.43	%	1.84	%
Tax Reform Act (1)	—	%	(0.19)	%	(7.31)	%
Other items, net	(3.07)	%	0.58	%	(0.33)	%
	34.01	%	26.98	%	24.43	%

(1)Reflects the net impact of the change in deferred tax assets and liabilities and the estimated transition tax resulting from the Tax Reform Act.

The primary items which increased the Company’s effective income tax rate from the federal statutory rate in 2020 were state and local taxes, non-deductible goodwill allocated to the CPG divestiture, increases in permanent book-tax differences including a one-time elimination related to an intra-company sale, and withholding tax liabilities, offset by a reduction in valuation allowances as a result of utilization of foreign tax credits.

The primary items which increased the Company’s effective income tax rate from the federal statutory rate in 2019 were state and local taxes, increases in valuation allowances, and withholding tax liabilities.

The primary items which increased the Company’s effective income tax rate from the federal statutory rate in 2018 were increases in valuation allowances and unrecognized tax benefits; offset primarily by the remeasurement of the domestic deferred tax liabilities, net of the transition tax liability due to the Tax Reform Act, and permanent book-tax differences.

The components of the Company’s deferred tax assets and liabilities as of October 31 for the years indicated were as follows:


(in millions)	2020		2019
Deferred Tax Assets
Net operating loss and other carryforwards	$	179.3	$	206.9
Foreign tax credits	—		21.5
Pension liabilities	12.9		24.1

Incentive liabilities	8.2		12.0
Workers compensation accruals	10.0		12.1

Inventories	7.8		6.7
Operating lease liabilities	76.9		—
State income taxes	10.2		9.4
Other reserves	21.0		17.0
Deferred compensation	2.4		2.3
Other	28.5		24.2





Total Deferred Tax Assets	357.2		336.2
Valuation allowance	(146.4)		(175.0)
Net Deferred Tax Assets	$	210.8	$	161.2

Deferred Tax Liabilities
Properties, plants and equipment	$	158.1	$	152.7
Operating lease assets	76.9		—
Timberland transactions	74.2		74.2
Goodwill and other intangible assets	200.2		207.5


Other	29.3		23.9
Total Deferred Tax Liabilities	538.7		458.3
Net Deferred Tax Liability	$	327.9	$	297.1

As of October 31, 2020 and 2019, the Company had deferred income tax benefits of $179.3 million and $206.9 million, respectively, from net operating loss and other tax credit carryforwards. For fiscal year ended October 31, 2020, these carryforwards are comprised of $30.6 million, $25.1 million, and $123.6 million in U.S. Federal, U.S. state, and non-U.S. jurisdictions, respectively. For fiscal year ended October 31, 2019, these carryforwards are comprised of $49.4 million, $27.3 million, and $130.2 million in U.S. Federal, U.S. state, and non-U.S. jurisdictions, respectively. The Company has recorded valuation allowances of $136.9 million and $142.3 million against non-U.S. deferred tax assets as of October 31, 2020 and 2019 respectively. The Company has also recorded valuation allowances of $9.5 million and $32.7 million, as of October 31, 2020 and 2019, respectively, against U.S. deferred tax assets. The Company had net changes in valuation allowances in 2020 of $28.6 million.

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


(in millions)	2020		2019		2018
Balance of unrecognized tax benefit at November 1	$	38.8	$	36.2	$	26.8
Increases in tax positions for prior years	10.1		5.1		7.8
Decreases in tax positions for prior years	(10.5)		(0.7)		(1.4)
Increases in tax positions for current years	2.6		4.3		8.0
Settlements with taxing authorities	—		(3.6)		—
Lapse in statute of limitations	(5.5)		(2.0)		(3.6)
Currency translation	0.5		(0.5)		(1.4)
Balance at October 31	$	36.0	$	38.8	$	36.2

The 2020 net decrease in unrecognized tax benefits is primarily related to decreases in unrecognized tax benefits related to 2019 and 2020, offset by decreases related to lapses in statute of limitations. The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and various non-U.S. jurisdictions and is subject to audit by various taxing authorities for 2013 through the current year. The Company has completed its U.S. federal tax audit for the tax years through 2014.

The October 31, 2020, 2019, 2018 balances include $36.0 million, $38.8 million and $36.2 million, respectively, of unrecognized tax benefits that, if recognized, would have an impact on the effective tax rate. The Company also recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense net of tax, as applicable. As of October 31, 2020 and October 31, 2019, the Company had $7.2 million and $6.3 million, respectively, accrued for the payment of interest and penalties.

The Company has estimated the reasonably possible expected net change in unrecognized tax benefits through October 31, 2020 under ASC 740. The Company’s estimate is based on lapses of the applicable statutes of limitations, settlements and payments of uncertain tax positions. The estimated net decrease in unrecognized tax benefits for the next 12 months ranges from zero to $10.7 million. Actual results may differ materially from this estimate.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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