Income Taxes

12 Months Ended

Dec. 31, 2019

35% in 2017) to income before taxes:



	2019			2018			2017
Income tax at the U.S. federal statutory rate	$	99.2		$	85.7		$	91.0
Adjustments:
State and local income taxes, net of federal tax benefit	7.4			6.8			3.1
Tax on foreign remittances and U.S. tax on foreign income	26.4			21.1			93.0
Tax expense related to undistributed earnings of foreign subsidiaries	6.0			—			—
Foreign losses without current tax benefits	3.2			3.7			8.9
Foreign earnings taxed at different rates including tax holidays	12.6			11.1			(18.0		)
U.S. domestic manufacturing deduction	—			—			(3.9		)
U.S. foreign tax credit	(18.3		)	(21.2		)	(104.2		)
Accruals and settlements related to tax audits	11.1			(3.8		)	(34.4		)
Valuation allowance changes	(44.5		)	—			(12.6		)
Deferred taxes related to branch operations	5.3			—			—
U.S. Tax Reform	—			(10.6		)	35.3
Other tax rate change	(5.0		)	(2.4		)	—
Other items, net	(5.7		)	12.2			(0.6		)
Provision for income taxes	$	97.7		$	102.6		$	57.6
Effective income tax rate	20.7		%	25.1		%	22.2		%

The Company released $44.5 million of foreign valuation allowances for the year ended December 31, 2019, $40.7 million of which relates to the valuation allowance that was recorded against German indefinite-lived loss carryforwards and pension deferred tax assets. Once established, the valuation allowance is released when, based on the weight of all available evidence, management concludes that related deferred tax assets are more likely than not to be realized. As a result of the execution of a tax planning strategy in the fourth quarter of 2019, management reached this conclusion and accordingly released the valuation allowance. Because the local German entity is treated as a branch under U.S. tax law, the valuation allowance release was partially offset by income tax expense of $5.3 million related to a U.S. deferred tax liability.

U.S. Tax Reform reduced the U.S. federal statutory rate from 35% to 21% beginning in 2018. U.S. Tax Reform also required companies to pay a one-time net charge related to the taxation of unremitted foreign earnings and to remeasure its U.S. deferred tax balances to the lower corporate income tax rate for the 2017 tax year. Additionally, U.S. Tax Reform created taxes on certain foreign sourced earnings known as the global intangible low-taxed income (“GILTI”) tax beginning with tax year 2018. The Company has elected to account for GILTI as a period cost in the year the tax is incurred. The accounting for the tax effects of U.S. Tax Reform was completed as of December 31, 2018 under Staff Accounting Bulletin No. 118.

Provisional estimates of $25.2 million for the one-time net charge related to the taxation of unremitted foreign earnings and $10.1 million related to the remeasurement of U.S. deferred tax balances to reflect the new U.S. corporate income tax rate were recognized as components of income tax expense for the year ended December 31, 2017. For the year ended December 31, 2018, the Company recorded $8.2 million of tax benefit for changes to the provisional estimate for the remeasurement of net U.S. deferred tax balances as a result of adjustments to finalize purchase accounting for prior-year acquisitions, the remeasurement of anticipatory tax credits for foreign branches and changes to U.S. deferred tax assets included in the 2017 U.S. federal income tax return. Over the same period, the Company recorded $2.4 million of tax benefit for changes in the provisional estimate of the 2017 one-time net charge related to the taxation of unremitted foreign earnings as a result of additional federal and state regulatory guidance issued and the filing of the Company's 2017 U.S. federal income tax return.

There are no changes to the Company’s assertion about its permanent reinvestment in undistributed foreign earnings. For the year ended December 31, 2019, the Company recorded $6.0 million of income tax expense related to foreign withholding taxes on planned one-time distributions. No additional deferred taxes have been recorded for any other outside basis differences as these amounts continue to be indefinitely reinvested in foreign operations. The amounts of undistributed foreign earnings were $785.3 million and $651.1 million at December 31, 2019 and December 31, 2018, respectively. It is not practicable to calculate the additional taxes that might be payable on such unremitted earnings due to the variety of circumstances and tax laws applicable at the time of distribution.

The effect of temporary differences giving rise to deferred tax assets and liabilities at December 31, 2019 and 2018 was as follows:



	2019			2018
Deferred tax assets:
Accrued postretirement benefits cost	$	0.1		$	28.9
Accrued pension cost	55.1			59.5
Other employee benefit accruals	10.9			16.8
Tax loss and credit carryforwards	86.0			86.1
Other, net	46.9			42.9
Valuation allowances	(33.7		)	(77.5		)
	$	165.3		$	156.7
Deferred tax liabilities - principally depreciation and amortization	(261.6		)	(235.7		)
Net deferred tax (liabilities) assets	$	(96.3	)	$	(79.0	)

The Company has U.S. federal and state tax credit and loss carryforwards with tax benefits totaling $3.7 million, portions of which will expire in 2020 and continue until 2039. In addition, the Company has loss carryforwards in various non-U.S. jurisdictions with tax benefits totaling $82.3 million, portions of which will expire in 2020 while others will be carried forward indefinitely. The Company has provided valuation allowances of $33.5 million against certain of these carryforwards and $0.2 million against other deferred tax assets. A majority of the non-U.S. loss carryforwards represent local country net operating losses for branches of the Company or entities treated as branches of the Company under U.S. tax law for which deferred taxes have been recorded.

As of December 31, 2019, the Company had $38.9 million of total gross unrecognized tax benefits, $36.1 million of which would favorably impact the Company’s effective income tax rate in any future period if such benefits were recognized. As of December 31, 2019, the Company believes it is reasonably possible that the amount of unrecognized tax positions could decrease by approximately $7.7 million during the next 12 months. The potential decrease would be primarily driven by settlements with tax authorities and the expiration of various applicable statutes of limitation. As of December 31, 2019, the Company had accrued $5.0 million of interest and penalties related to uncertain tax positions. The Company records interest and penalties related to uncertain tax positions as a component of income tax expense.

As of December 31, 2018, the Company had $26.0 million of total gross unrecognized tax benefits, all of which would favorably impact the Company’s effective income tax rate in any future period if such benefits were recognized. As of December 31, 2018, the Company had accrued $2.5 million of interest and penalties related to uncertain tax positions. The Company records interest and penalties related to uncertain tax positions as a component of income tax expense.

As of December 31, 2017, the Company had $14.0 million of total gross unrecognized tax benefits, all of which would favorably impact the Company’s effective income tax rate in any future period if such benefits were recognized. As of December 31, 2017, the Company had accrued $3.0 million of interest and penalties related to uncertain tax positions.

The following table reconciles the Company’s total gross unrecognized tax benefits for the years ended December 31, 2019, 2018 and 2017:



	2019			2018			2017
Beginning balance, January 1	$	26.0		$	14.0		$	39.2
Tax positions related to the current year:
Additions	3.6			0.4			2.7
Tax positions related to prior years:
Additions	11.7			17.8			6.9
Reductions	(1.1		)	(2.9		)	(5.2		)
Settlements with tax authorities	(1.2		)	(2.2		)	—
Lapses in statutes of limitation	(0.1		)	(1.1		)	(29.6		)
Ending balance, December 31	$	38.9		$	26.0		$	14.0

During 2019, gross unrecognized tax benefits increased primarily for additional accruals for uncertain tax positions related to U.S. Tax Reform along with prior year tax matters in multiple jurisdictions related to acquisitions. These increases were partially offset by settlements with the tax authorities for prior year tax matters related to the Company’s foreign operations.

During 2018, gross unrecognized tax benefits increased primarily for prior year tax matters in multiple jurisdictions related to acquisitions. These increases were partially offset by settlements with the tax authorities for prior year tax matters related to the Company’s international operations.

During 2017, gross unrecognized tax benefits decreased primarily due to expiration of applicable statutes of limitations in multiple jurisdictions. These decreases were partially offset by accruals related to both current and prior year tax matters, including certain U.S. federal taxes, U.S. state and local taxes and taxes related to the Company’s international operations.

As of December 31, 2019, the Company is subject to examination by the IRS for tax years 2016 to the present. The Company also is subject to tax examination in various U.S. state and local tax jurisdictions for tax years 2012 to the present, as well as various foreign tax jurisdictions, including Mexico, China, Poland, France, Germany and India for tax years as early as 2003 to the present. The Company’s unrecognized tax benefits were presented on the Consolidated Balance Sheets as a component of other non-current liabilities.