Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes

Income Taxes

Note 6—Income Taxes

The components of income from continuing operations before income taxes and the provision for income taxes are as follows:

	Year Ended December 31,
	2021		2020		2019
Income from continuing operations before income taxes:
United States	$	407.3	$	310.3	$	318.6
Foreign		1,581.9		1,216.3		1,177.3
	$	1,989.2	$	1,526.6	$	1,495.9
Current tax provision (benefit):
United States	$	86.8	$	(5.7)	$	22.9
Foreign		351.9		288.2		293.8
		438.7		282.5		316.7
Deferred tax provision (benefit):
United States		(35.4)		43.0		35.8
Foreign		5.8		(12.2)		(20.6)
		(29.6)		30.8		15.2
Total provision for income taxes	$	409.1	$	313.3	$	331.9

The United States federal government enacted the Tax Cuts and Jobs Act (“Tax Act”) in 2017. As a result, in 2017, the Company recorded a transition tax (“Transition Tax”) related to the deemed repatriation of the accumulated unremitted earnings and profits of the Company’s foreign subsidiaries. In the second quarter of 2021, the Company paid the fourth annual installment of the Transition Tax, net of applicable tax credits and deductions. The Company will pay the balance of the Transition Tax, net of applicable tax credits and deductions, over the remainder of the eight-year period ending 2025, as permitted under the Tax Act. The current and long-term portions of the Transition Tax are recorded in Accrued income taxes and Other long-term liabilities, respectively, on the Consolidated Balance Sheets as of December 31, 2021 and 2020. In addition, as a result of the Tax Act, the Company also recorded a tax charge, in 2017, related to changes in the Company’s permanent reinvestment assertion, due to our intention to repatriate prior accumulated unremitted earnings from certain foreign subsidiaries over time. We will pay such taxes when those respective earnings are repatriated.

At December 31, 2021, the Company had $156.7 of foreign tax loss carryforwards, $84.1 of U.S. state tax loss carryforwards and $13.8 of U.S. federal tax loss carryforwards, of which $114.3, $84.1 and $13.8, respectively, will either expire or be refunded at various dates through 2041 and the balance can be carried forward indefinitely.  At December 31, 2021, the Company had $0.6 of foreign tax credit carryforwards, $17.0 of U.S. state tax credit carryforwards, and $0.9 of U.S. federal tax credit carryforwards, of which $0.4, $11.0, and $0.9, respectively, will either expire or be refunded at various dates through 2041 and the balance can be carried forward indefinitely.

A valuation allowance of $44.9 and $40.1 at December 31, 2021 and 2020, respectively, has been recorded which relates primarily to the U.S. state and foreign net operating loss carryforwards and U.S. state tax credits. The valuation allowance for deferred tax assets increased by $4.8 and $4.9 in 2021 and 2020, respectively, which was primarily driven by U.S. state and foreign net operating loss carryforwards in both years.

Differences between the U.S. statutory federal tax rate and the Company’s effective income tax rate are analyzed below:

	Year Ended December 31,
	2021		2020		2019
U.S. statutory federal tax rate	21.0	%	21.0	%	21.0	%
State and local taxes	0.8		0.8		0.7
Foreign earnings and dividends taxed at different rates	1.8		2.1		1.4
U.S. tax on foreign income	0.6		0.8		1.2
Excess tax benefits related to stock-based compensation	(3.2)		(2.8)		(2.5)
Settlements of uncertain tax positions in foreign jurisdictions including refund claims and related deferred taxes	(0.7)		(1.3)		—
Other, net	0.3		(0.1)		0.4
Effective tax rate	20.6	%	20.5	%	22.2	%

The components of the Company’s deferred tax assets and liabilities are comprised of the following:

	December 31,
	2021		2020
Deferred tax assets relating to:
Accrued liabilities and reserves	$	60.0	$	54.2
Operating lease liabilities		56.4		52.7
Operating loss and tax credit carryforwards		62.6		62.8
Pensions		20.3		36.4
Inventories		60.2		49.0
Employee benefits		37.9		35.2
Total deferred tax assets		297.4		290.3
Valuation allowance		(44.9)		(40.1)
Total deferred tax assets, net of valuation allowances		252.5		250.2
Deferred tax liabilities relating to:
Goodwill		234.2		202.1
Depreciation and amortization		176.0		81.5
Operating lease right-of-use assets		56.4		52.7
Unremitted foreign earnings		119.1		114.9
Total deferred tax liabilities		585.7		451.2
Net deferred tax liability	$	333.2	$	201.0
Classification of deferred tax assets and liabilities, as reflected on the Consolidated Balance Sheets:
Other long-term assets	$	91.0	$	98.1
Deferred income taxes		424.2		299.1
Net deferred tax liability, long-term	$	333.2	$	201.0

A tabular reconciliation of the gross amounts of unrecognized tax benefits excluding interest and penalties at the beginning and end of the year for 2021, 2020 and 2019 is shown below.

	2021		2020		2019
Unrecognized tax benefits as of January 1	$	135.3	$	159.1	$	130.5
Gross increases for tax positions in prior periods		6.5		5.4		20.9
Gross increases for tax positions in current period		8.2		16.4		9.0
Settlements		—		(38.8)		—
Lapse of statutes of limitations		(2.3)		(6.8)		(1.3)
Unrecognized tax benefits as of December 31	$	147.7	$	135.3	$	159.1

The Company includes estimated interest and penalties related to unrecognized tax benefits in the provision for income taxes. During the years ended December 31, 2021, 2020 and 2019, the provision for income taxes included a net (benefit) expense of ($4.6), $2.8 and $4.4, respectively, in estimated interest and penalties. As of December 31, 2021, 2020 and 2019, the liability for unrecognized tax benefits included $34.5, $39.2 and $42.2, respectively, for tax-related interest and penalties.

The Company operates in the U.S. and numerous foreign taxable jurisdictions, and at any point in time has numerous audits underway at various stages of completion. With few exceptions, the Company is subject to income tax examinations by tax authorities for the years 2017 and after. The Company is generally not able to precisely estimate the ultimate settlement amounts or timing until the close of an audit. The Company evaluates its tax positions and establishes liabilities for uncertain tax positions that may be challenged by tax authorities and may not be fully sustained, despite the Company’s belief that the underlying tax positions are fully supportable. As of December 31, 2021 and 2020, the amount of unrecognized tax benefits, including penalties and interest, which if recognized would impact the effective tax rate, was approximately $177.6 and $169.3, respectively. Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including the progress of tax audits and the closing of statutes of limitations. Based on information currently available, management anticipates that over the next twelve-month period, audit activity could be completed and statutes of limitations may close relating to existing unrecognized tax benefits of approximately $12.6.