Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of earnings from continuing operations before income taxes are as follows:

	Year Ended December 31
	2019		2018		2017
Domestic	$	195.5	$	149.1	$	188.6
Foreign	234.6		235.3		243.4
	$	430.1	$	384.4	$	432.0

Income tax expense from continuing operations is comprised of the following components:

	Year Ended December 31
	2019			2018			2017
Current
Federal	$	34.6		$	21.2		$	76.0
State and local	5.3			4.9			3.8
Foreign	48.7			55.6			43.2
	88.6			81.7			123.0
Deferred
Federal	7.5			8.8			5.8
State and local	.6			(12.0		)	(2.6		)
Foreign	(.5		)	(.2		)	12.2
	7.6			(3.4		)	15.4
	$	96.2		$	78.3		$	138.4

The U.S. statutory federal income tax rate was significantly impacted by the enactment of the Tax Cuts and Jobs Act (TCJA) in the fourth quarter of 2017, which reduced our U.S. federal corporate income tax rate from 35% in 2017, to 21% in 2018 and 2019. Income tax expense from continuing operations, as a percentage of earnings before income taxes, differs from these statutory federal income tax rates as follows:

	Year Ended December 31
	2019		2018		2017
Statutory federal income tax rate	21.0	%	21.0	%	35.0	%
Increases (decreases) in rate resulting from:
State taxes, net of federal benefit	1.4		.9		1.0
Tax effect of foreign operations	(1.6	)	(.7	)	(8.8	)
Global intangible low-taxed income	2.2		.7		—
Current and deferred foreign withholding taxes	1.2		3.8		3.5
Deemed repatriation of foreign earnings	—		(.3	)	15.6
Deferred tax revaluation	(.1	)	(.1	)	(6.0	)
Stock-based compensation	(1.1	)	(.8	)	(2.0	)
Tax benefit for outside basis in subsidiary	—		—		(1.8	)
Change in valuation allowance	.4		(2.0	)	(.4	)
Change in uncertain tax positions, net	(.3	)	(.3	)	(.6	)
Domestic production activities deduction	—		—		(1.2	)
Other permanent differences, net	(.3	)	(1.4	)	(1.6	)
Other, net	(.4	)	(.4	)	(.7	)
Effective tax rate	22.4	%	20.4	%	32.0	%

In 2017, we recognized a provisional net tax expense totaling $50.4 from the impact of TCJA related to the one-time deemed repatriation tax ($67.3), additional foreign withholding taxes recorded for expected foreign cash repatriations ($9.0) and other items ($.2), offset by the revaluation of our U.S. deferred taxes ($26.1). We refined and finalized our accounting for these provisional amounts under SAB 118 in 2018 and recorded measurement period adjustment benefits related to the deemed repatriation tax and our deferred tax revaluation of $1.3 and $.5, respectively. In addition, in 2018, the United States Internal Revenue Service (IRS) applied our prepaid income taxes and taxes receivable of $28.4 against the December 31, 2017 deemed repatriation tax liability. In 2019, the application of prepaid income taxes and taxes receivable was reduced to $27.8, increasing the deemed repatriation tax outstanding as of December 31, 2019 to $32.8 which will be paid on a graduated scale beginning in 2022 over a four-year period.

For all periods presented, the tax rate benefited from income earned in various foreign jurisdictions at rates lower than the U.S. federal statutory rate, primarily related to China, Croatia, and Luxembourg.

In 2019, we recognized tax detriments of $12.9, primarily related to the U.S. taxation of Global Intangible Low-Taxed Income of $9.3 and other net tax detriments of $3.6.

In 2018, our rate benefited by $2.3, primarily related to the net reduction of valuation allowances of $7.8 and other net benefits totaling $9.1, including measurement period adjustments. These benefits were offset by tax detriments recorded in 2018 totaling $14.6 related to current and deferred foreign withholding taxes.

In 2017, we recognized net tax benefits totaling $25.2, including those associated with tax attributes from a divested business and the impact of stock-based compensation.

We file tax returns in each jurisdiction where we are required to do so. In these jurisdictions, a statute of limitations period exists. After a statute period expires, the tax authorities can no longer assess additional income tax for the expired period. In addition, once the statute expires we are no longer eligible to file claims for refund for any tax that we may have overpaid.

Unrecognized Tax Benefits

The total amount of our gross unrecognized tax benefits at December 31, 2019 was $8.6, of which $6.7 would impact our effective tax rate, if recognized. A reconciliation of the beginning and ending balance of our gross unrecognized tax benefits for the periods presented is as follows:

	2019			2018			2017
Gross unrecognized tax benefits, January 1	$	8.2		$	10.1		$	12.1
Gross increases—tax positions in prior periods	—			—			.1
Gross decreases—tax positions in prior periods	(.4		)	(.5		)	(.4		)
Gross increases—current period tax positions	.7			1.3			1.5
Change due to exchange rate fluctuations	—			(.2		)	.3
Settlements	—			—			(.9		)
Lapse of statute of limitations	(2.1		)	(2.5		)	(2.6		)
Gross unrecognized tax benefits, December 31	6.4			8.2			10.1
Interest	1.9			2.4			3.0
Penalties	.3			.4			.5
Total gross unrecognized tax benefits, December 31	$	8.6		$	11.0		$	13.6

We recognize interest and penalties related to unrecognized tax benefits as part of income tax expense in the Consolidated Statements of Operations, which is consistent with prior reporting periods.

We are currently in various stages of audit by certain governmental tax authorities. We have established liabilities for unrecognized tax benefits as appropriate, with such amounts representing a reasonable provision for taxes we ultimately might be required to pay. However, these liabilities could be adjusted over time as more information becomes known relative to these audits. We are no longer subject to significant U.S. federal tax examinations for years prior to 2016, or significant U.S. state or foreign income tax examinations for years prior to 2012.

It is reasonably possible that the resolution of certain tax audits could reduce our unrecognized tax benefits within the next 12 months, as certain tax positions may either be sustained on audit or we may agree to certain adjustments, or resulting from the expiration of statutes of limitations in various jurisdictions. It is not expected that any change would have a material impact on our Consolidated Financial Statements.

Deferred Income Taxes

Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. The major temporary differences and their associated deferred tax assets or liabilities are as follows:

	December 31
	2019						2018
	Assets			Liabilities			Assets			Liabilities
Property, plant and equipment	$	19.1		$	(84.8	)	$	19.7		$	(67.8	)
Inventories	2.3			(13.2		)	2.1			(10.3		)
Accrued expenses	59.9			(4.2		)	60.3			(.1		)
Net operating losses and other tax carryforwards	31.9			—			27.2			—
Pension cost and other post-retirement benefits	18.2			(.7		)	13.4			(.6		)
Intangible assets	.3			(199.5		)	.4			(84.6		)
Derivative financial instruments	3.0			(1.7		)	5.0			(1.3		)
Tax on undistributed earnings (primarily from Canada and China)	—			(16.8		)	—			(18.8		)
Uncertain tax positions	1.4			—			2.4			—
Other	5.2			(6.3		)	6.9			(6.1		)
Gross deferred tax assets (liabilities)	141.3			(327.2		)	137.4			(189.6		)
Valuation allowance	(16.8		)	—			(13.2		)	—
Total deferred taxes	$	124.5		$	(327.2	)	$	124.2		$	(189.6	)
Net deferred tax liability				$	(202.7	)				$	(65.4	)

Deferred tax assets (liabilities) included in the consolidated balance sheets are as follows:

	December 31
	2019			2018
Sundry	$	11.5		$	20.2
Deferred income taxes	(214.2		)	(85.6		)
	$	(202.7	)	$	(65.4	)

Significant fluctuations in our deferred taxes from 2018 to 2019 relate to the following:

• The increase of $17.0 in our deferred tax liability associated with property, plant, and equipment relates primarily to accelerated bonus depreciation resulting from TCJA; and

• The increase of $114.9 in our deferred tax liability associated with intangible assets relates primarily to the acquisition of ECS in 2019.

The valuation allowance recorded primarily relates to net operating loss, tax credit, and capital loss carryforwards for which utilization is uncertain. Cumulative tax losses in certain state and foreign jurisdictions during recent years, limited carryforward periods in certain jurisdictions, future reversals of existing taxable temporary differences, and reasonable tax planning strategies were among the factors considered in determining the valuation allowance. Individually, none of these tax carryforwards presents a material exposure.

Most of our tax carryforwards have expiration dates that vary generally over the next 20 years, with no amount greater than $10.0 expiring in any one year.

Deferred withholding taxes (tax on undistributed earnings) have been provided on the earnings of our foreign subsidiaries to the extent it is anticipated that the earnings will be remitted in the future as dividends. We are not asserting

permanent reinvestment on $754.5 of our earnings, and have accrued incremental tax on these undistributed earnings as presented in the table above.

Foreign withholding taxes have not been provided on certain foreign earnings which are indefinitely reinvested outside the U.S. The cumulative undistributed earnings which are indefinitely reinvested as of December 31, 2019, are $326.5. If such earnings were repatriated to the U.S. through dividends, the resulting incremental tax expense would approximate $16.0, based on present income tax laws and after consideration of the tax recorded in 2017 for the mandatory deemed repatriation of our foreign earnings in connection with TCJA.