Income Taxes

12 Months Ended

Oct. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income taxes

Income tax expense includes the following:

	2022		2021		2020
Current:
U.S. federal	$	59,639	$	40,879	$	17,507
State and local	7,535		4,429		984
Foreign	79,734		70,429		47,415
Total current	146,908		115,737		65,906
Deferred:
U.S. federal	(9,408)		6,371		(9,919)
State and local	(596)		1,470		(1,023)
Foreign	(728)		(3,770)		(3,014)
Total deferred	(10,732)		4,071		(13,956)
	$	136,176	$	119,808	$	51,950

Earnings before income taxes of domestic operations, which are calculated after intercompany profit eliminations, were $302,549, $279,701 and $111,704 in 2022, 2021 and 2020, respectively.

Our income tax provision for 2022 included a tax benefit of $3,273 due to our share-based payment transactions.

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.

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

	2022		2021		2020
Statutory federal income tax rate	21.00	%	21.00	%	21.00	%
Share-based and other compensation	0.26		(0.30)		(4.15)
Foreign tax rate variances	0.95		0.84		1.51
State and local taxes, net of federal income tax benefit	0.84		0.81		(0.01)
Foreign-Derived Intangible Income Deduction	(1.59)		(1.19)		(0.95)
Global Intangible Low-Taxed Income net of foreign tax credits	0.23		0.44		0.97
Other – net	(0.72)		(0.73)		(1.14)
Effective tax rate	20.97	%	20.87	%	17.23	%

Earnings before income taxes of international operations, which are calculated before intercompany profit elimination entries, were $346,730, $294,475 and $189,785 in 2022, 2021 and 2020, 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 $1,485,360 and $1,255,112 at October 31, 2022 and 2021, 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, 2022 and 2021, total unrecognized tax benefits were $2,872 and $3,720, respectively. The amounts that, if recognized, would impact the effective tax rate were $2,769 and $3,567 at October 31, 2022 and 2021, respectively. During 2022, 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 2022, 2021 and 2020 is as follows:

	2022		2021		2020
Balance at beginning of year	$	3,720	$	6,717	$	2,909
Additions based on tax positions related to the current year	310		370		370
Additions for tax positions of prior years	—		—		4,068
Reductions for tax positions of prior years	(70)		(350)		—
Settlements	—		—		(137)
Lapse of statute of limitations	(1,088)		(3,017)		(493)
Balance at end of year	$	2,872	$	3,720	$	6,717

At October 31, 2022 and 2021, we had accrued interest and penalty expense related to unrecognized tax benefits of $541 and $859, 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 2019 through 2022 tax years; tax years prior to the 2019 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 2016. 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:

	2022		2021
Deferred tax assets:
Lease Liabilities	$	28,413	$	32,572
Employee benefits	22,079		39,798
Tax credit and loss carryforwards	15,616		19,269
Other accruals not currently deductible for taxes	11,336		16,542
Inventory adjustments	6,423		6,924
Total deferred tax assets	83,867		115,105
Valuation allowance	(10,130)		(14,141)
Total deferred tax assets	73,737		100,964
Deferred tax liabilities:
Depreciation and amortization	145,285		145,494
Lease right-of-use assets	27,548		31,615
Other - net	1,238		941
Total deferred tax liabilities	174,071		178,050
Net deferred tax liabilities	$	(100,334)	$	(77,086)

At October 31, 2022, we had $12,648 of tax credit carryforwards, $5,053 of which expires in 2028-2032 and $7,595 of which has an indefinite carryforward period. We also had $34,352 of state operating loss carryforwards, $16,965 of foreign operating loss carryforwards, and a $3,570 capital loss carryforward, of which $41,269 will expire in 2023 through 2038, and $13,618 of which has an indefinite carryforward period. The net change in the valuation allowance was a decrease of $4,011 in 2022 and a decrease of $8,092 in 2021. The valuation allowance of $10,130 at October 31, 2022, 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.