Income Taxes

12 Months Ended

Oct. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income taxes

Income tax expense includes the following:

	2021		2020		2019
Current:
U.S. federal	$	41,983	$	19,265	$	40,012
State and local	4,429		984		3,429
Foreign	69,325		45,657		51,590
Total current	115,737		65,906		95,031
Deferred:
U.S. federal	6,631		(10,143)		1,470
State and local	1,470		(1,023)		633
Foreign	(4,030)		(2,790)		(3,121)
Total deferred	4,071		(13,956)		(1,018)
	$	119,808	$	51,950	$	94,013

Earnings before income taxes of domestic operations, which are calculated after intercompany profit eliminations, were $287,409, $120,054 and $222,435 in 2021, 2020 and 2019, respectively.

Our income tax provision for 2021 included a tax benefit of $5,982 due to our share-based payment transactions.

Our income tax provision for 2020 included a tax benefit of $15,661 due to our share-based payment transactions. Income before taxes in 2020 included a non-cash, assets held for sale impairment charge of $87,371 related to our commitment to sell our screws and barrels product line within the Adhesives reporting unit under our Industrial Precision Solutions segment and the tax benefit of the impairment was $15,254. A portion of the impairment charge did not have related tax benefits.

Our income tax provision for 2019 included a provisional tax benefit of $4,866 to reflect the adjustment to the provisional amounts recognized in 2018 due to changes in interpretations and assumptions and the finalization of estimates related to the U.S. Tax Cuts and Jobs Act (the "Act"). We are paying the transition tax in installments over the eight-year period allowable under the Act. The remaining transition tax is included in other long-term liabilities in the Consolidated Balance Sheet at October 31, 2021.

Other provisions of the Act became effective for us in 2019. The Foreign-Derived Intangible Income provision generates a deduction against our U.S. taxable income for U.S. earnings derived offshore that utilize intangibles held in the U.S. Conversely, the Global Intangible Low-Taxed Income (“GILTI”) provision requires us to be subject to U.S. taxation on a portion of our foreign subsidiary earnings that exceed an allowable return. We elected to treat any GILTI inclusion as a period expense in the year incurred.

A reconciliation of the U.S. statutory federal rate to the worldwide consolidated effective tax rate follows:

	2021		2020		2019
Statutory federal income tax rate	21.00	%	21.00	%	21.00	%
Transition tax	—		—		1.46
Share-based and other compensation	(0.30)		(4.15)		(0.55)
Foreign tax rate variances, net of foreign tax credits	0.92		1.51		1.16
State and local taxes, net of federal income tax benefit	0.81		(0.01)		0.74
Amounts related to prior years	(0.18)		(0.04)		(0.55)
Foreign-Derived Intangible Income Deduction	(1.19)		(0.95)		(1.51)
Global Intangible Low-Taxed Income net of foreign tax credits	0.44		0.97		0.85
Other – net	(0.63)		(1.10)		(0.79)
Effective tax rate	20.87	%	17.23	%	21.81	%

Earnings before income taxes of international operations, which are calculated before intercompany profit elimination entries, were $286,767, $181,435 and $208,669 in 2021, 2020 and 2019, respectively. Deferred income taxes are not provided on undistributed earnings of international subsidiaries that are intended to be permanently invested in their operations. These undistributed earnings represent the post-income tax earnings under U.S. GAAP not adjusted for previously taxed income which aggregated approximately $1,255,112 and $1,045,389 at October 31, 2021 and 2020, respectively. Should these earnings be distributed, applicable foreign tax credits, distributions of previously taxed income, and utilization of other attributes would substantially offset taxes due upon the distribution. It is not practical to estimate the amount of additional taxes that might be payable on these basis differences because of the multiple methods by which these differences could reverse and the impact of withholding, U.S. state and local taxes and currency translation considerations.

At October 31, 2021 and 2020, total unrecognized tax benefits were $3,720 and $6,717, respectively. The amounts that, if recognized, would impact the effective tax rate were $3,567 and $5,998 at October 31, 2021 and 2020, respectively. During 2021, unrecognized tax benefits related primarily to domestic positions and, as recognized, a substantial portion of the gross unrecognized tax benefits were offset against assets recorded in the Consolidated Balance Sheet. A reconciliation of the beginning and ending amount of unrecognized tax benefits for 2021, 2020 and 2019 is as follows:

	2021		2020		2019
Balance at beginning of year	$	6,717	$	2,909	$	2,891
Additions based on tax positions related to the current year	370		370		370
Additions for tax positions of prior years	—		4,068		547
Reductions for tax positions of prior years	(350)		—		—
Settlements	—		(137)		—
Lapse of statute of limitations	(3,017)		(493)		(899)
Balance at end of year	$	3,720	$	6,717	$	2,909

At October 31, 2021 and 2020, we had accrued interest and penalty expense related to unrecognized tax benefits of $859 and $2,179, respectively. We include interest accrued related to unrecognized tax benefits in interest expense. Penalties, if incurred, would be recognized as other income (expense).

We are subject to United States Federal income tax as well as income taxes in numerous state and foreign jurisdictions. We are subject to examination in the U.S. by the Internal Revenue Service (IRS) for the 2018 through 2021 tax years; tax years prior to the 2018 year are closed to further examination by the IRS. Generally, major state and foreign jurisdiction tax years remain open to examination for tax years after 2015. Within the next twelve months, it is reasonably possible that certain statute of limitations periods would expire, which could result in a minimal decrease in our unrecognized tax benefits.

Significant components of deferred tax assets and liabilities are as follows:

	2021		2020
Deferred tax assets:
Employee benefits	$	39,798	$	70,838
Other accruals not currently deductible for taxes	17,499		16,207
Tax credit and loss carryforwards	19,269		20,268
Inventory adjustments	6,924		8,757
Total deferred tax assets	83,490		116,070
Valuation allowance	(14,141)		(22,233)
Total deferred tax assets	69,349		93,837
Deferred tax liabilities:
Depreciation and amortization	145,494		150,591
Other - net	941		410
Total deferred tax liabilities	146,435		151,001
Net deferred tax liabilities	$	(77,086)	$	(57,164)

At October 31, 2021, we had $11,128 of tax credit carryforwards, $3,543 of which expires in 2028-2031 and $7,585 of which has an indefinite carryforward period. We also had $34,680 of state operating loss carryforwards, $19,525 of foreign operating loss carryforwards, and a $20,149 capital loss carryforward, of which $57,758 will expire in 2022 through 2039, and $16,596 of which has an indefinite carryforward period. The net change in the valuation allowance was a decrease of $8,092 in 2021 and an increase of $6,932 in 2020. The valuation allowance of $14,141 at October 31, 2021, related primarily to tax credits and loss carryforwards that may expire before being realized. We continue to assess the need for valuation allowances against deferred tax assets based on determinations of whether it is more likely than not that deferred tax benefits will be realized.