INCOME TAXES

12 Months Ended

Dec. 31, 2022

INCOME TAXES

INCOME TAXES

NOTE 13 – INCOME TAXES

The components of income before income taxes were as follows:

	Year Ended December 31,
	2022		2021		2020
U.S.	$	359,760	$	143,290	$	179,650
Non-U.S.		233,067		181,708		84,390
Total	$	592,827	$	324,998	$	264,040

The components of income tax expense (benefit) were as follows:

	Year Ended December 31,
	2022		2021		2020
Current:
Federal	$	88,974	$	23,415	$	30,091
Non-U.S.		55,664		44,828		18,020
State and local		24,423		10,298		8,770
		169,061		78,541		56,881
Deferred:
Federal		(38,462)		(21,538)		(1,898)
Non-U.S.		(3,281)		(4,488)		3,196
State and local		(6,715)		(4,097)		(283)
		(48,458)		(30,123)		1,015
Total	$	120,603	$	48,418	$	57,896

The differences between total income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes for the three years ended December 31, 2022 were as follows:

	Year Ended December 31,
	2022			2021			2020
Statutory rate applied to pre-tax income	$	124,492		$	68,250		$	55,448
State and local income taxes, net of federal tax benefit		12,904			4,005			6,148
Excess tax benefits resulting from exercises of stock-based compensation		(2,500)			(4,681)			(2,471)
Resolution and settlements to uncertain tax positions		(350)			577			(4,146)
Foreign Derived Intangible Income Deduction		(13,356)			(2,197)			(1,267)
Foreign rate variance		5,020			2,131			85
Valuation allowances		(4,547)			(4,209)			4,753
Research and development credit		(6,800)			(5,300)			(4,400)
Pension plan termination adjustment		—			(14,711)			—
U.S. tax cost (benefit) of foreign source income		783			3,488			269
Other		4,957			1,065			3,477
Total	$	120,603		$	48,418		$	57,896
Effective tax rate		20.3	%		14.9	%		21.9	%

The 2022 effective tax rate was higher than 2021 primarily due to a change in the mix of earnings, as well as the impact of the 2021 pension plan termination.

Total income tax payments, net of refunds, were $151,818 in 2022, $87,288 in 2021 and $59,360 in 2020.

Deferred Taxes

Significant components of deferred tax assets and liabilities at December 31, 2022 and 2021, were as follows:

	December 31,
	2022		2021
Deferred tax assets:
Tax loss and credit carry-forwards	$	44,674	$	46,967
Inventory		937		1,929
Other accruals		29,601		13,395
Research and development capitalization		26,982		—
Employee benefits		26,674		25,741
Pension obligations		6,218		9,760
Other		7,344		5,073
Deferred tax assets, gross		142,430		102,865
Valuation allowance		(44,627)		(51,983)
Deferred tax assets, net		97,803		50,882
Deferred tax liabilities:
Property, plant and equipment		40,198		40,422
Intangible assets		23,790		18,253
Inventory		3,846		3,716
Pension and other benefit liabilities		13,787		16,397
Other		10,393		10,494
Deferred tax liabilities		92,014		89,282
Total deferred taxes	$	5,789	$	(38,400)

At December 31, 2022, certain subsidiaries had net operating loss carry-forwards of approximately $6,995 that expire in various years from 2023 through 2036, plus $157,288 for which there is no expiration date.

In assessing the realizability of deferred tax assets, the Company assesses whether it is more-likely-than-not that a portion or all of the deferred tax assets will not be realized. The Company considers the scheduled reversal of deferred tax liabilities, tax planning strategies and projected future taxable income in making this assessment. At December 31, 2022, a valuation allowance of $44,627 was recorded against certain deferred tax assets based on this assessment. The Company believes it is more-likely-than-not that the tax benefit of the remaining net deferred tax assets will be realized. The amount of net deferred tax assets considered realizable could be increased or reduced in the future if the Company’s assessment of future taxable income or tax planning strategies changes.

The Company determined it will repatriate earnings for certain non-U.S. subsidiaries, which are subject to foreign withholding taxes. The Company has estimated the associated tax to be $75. The Company considers remaining earnings and outside basis in all other non-U.S. subsidiaries to be indefinitely reinvested and has not recorded any deferred taxes as such estimate is not practicable.

Unrecognized Tax Benefits

Liabilities for unrecognized tax benefits related to uncertain tax positions are classified as Other liabilities unless expected to be paid in one year. Additionally, to the extent a position would not result in a cash tax liability, those amounts are generally recorded to Deferred income taxes to offset tax attributes. The Company recognizes interest and penalties related to unrecognized tax benefits in Income taxes. Current income tax expense included benefits of $486 for the year ended December 31, 2022 and benefits of $485 for the year ended December 31, 2021 for interest and penalties. For those same years, the Company’s accrual for interest and penalties related to unrecognized tax benefits totaled $2,292 and $3,209, respectively.

The following table summarizes the activity related to unrecognized tax benefits:

	2022		2021
Balance at beginning of year	$	18,211	$	17,596
Increase related to current year tax provisions		2,263		2,693
Increase/(decrease) related to prior years' tax positions		91		(17)
Decrease related to settlements with taxing authorities		(868)		—
Resolution of and other decreases in prior years' tax liabilities		(1,379)		(1,585)
Other		(895)		(476)
Balance at end of year	$	17,423	$	18,211

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $14,504 at December 31, 2022 and $14,918 at December 31, 2021.

The Company files income tax returns in the U.S. and various state, local and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2018. The Company is currently subject to various state audits and non-U.S. income tax audits. The Company is generally not able to precisely estimate the ultimate settlement amounts or timing until after the close of an audit. The Company evaluates its tax positions and establishes liabilities for unrecognized tax benefits related to uncertain tax positions that may be challenged by local authorities and may not be fully sustained.

Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including management’s judgment in the interpretation of applicable tax law, regulation or tax ruling, the progress of tax audits and closing of statutes of limitations. Based on information currently available, management believes that additional audit activity could be completed and/or statutes of limitations may close relating to existing unrecognized tax benefits. It is reasonably possible there could be a further reduction of $1,279 in prior years’ unrecognized tax benefits in 2023.