Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 5 - Income Taxes

Income before income taxes, based on geographic location of the operations to which such earnings are attributable, is provided below. As the Company has elected to treat certain foreign subsidiaries as branches for U.S. income tax purposes, pretax income attributable to the United States shown below may differ from the pretax income reported in the Company’s annual U.S. federal income tax return.

Income before income taxes:

	2021		2020		2019
United States	$	125.8	$	144.1	$	190.7
Non-United States	350.8		252.2		281.7
Income before income taxes	$	476.6	$	396.3	$	472.4

The provision for income taxes consisted of the following:

	2021		2020		2019
Current:
Federal	$	8.1	$	40.3	$	20.8
State and local	3.9		7.9		4.8
Foreign	98.2		78.9		81.0
	$	110.2	$	127.1	$	106.6
Deferred:
Federal	$	(5.2)	$	(19.5)	$	39.8
State and local	(3.4)		(1.3)		6.5
Foreign	(6.5)		(2.4)		(55.2)
	$	(15.1)	$	(23.2)	$	(8.9)
United States and foreign tax provision on income	$	95.1	$	103.9	$	97.7

The Company made net income tax payments of $100.7 million, $119.3 million and $118.6 million in 2021, 2020 and 2019, respectively.

The following table is the reconciliation between the provision for income taxes and the amount computed by applying the U.S. federal income tax rate of 21% to income before taxes:

	2021			2020			2019
Income tax at the U.S. federal statutory rate	$	100.1		$	83.2		$	99.2
Adjustments:
State and local income taxes, net of federal tax benefit	4.0			4.8			7.4
Tax on foreign remittances and U.S. tax on foreign income	15.4			22.5			26.4
Tax expense related to undistributed earnings of foreign subsidiaries	0.1			0.1			6.0
Foreign losses without current tax benefits	2.6			2.5			3.2
Foreign earnings taxed at different rates including tax holidays	15.4			11.1			12.6
U.S. foreign tax credit	(11.5)			(13.8)			(18.3)
Accruals and settlements related to tax audits	(7.7)			3.4			11.1
Valuation allowance changes	(7.8)			(0.7)			(44.5)
Deferred taxes related to branch operations	—			—			5.3
Stock based compensation	(8.1)			(3.1)			(1.8)
Other tax rate change	(1.7)			0.8			(5.0)
Other items, net	(5.7)			(6.9)			(3.9)
Provision for income taxes	$	95.1		$	103.9		$	97.7
Effective income tax rate	20.0		%	26.2		%	20.7		%

Note 5 - Income Taxes (continued)

The Company released $7.8 million of foreign valuation allowance for the year ended December 31, 2021, which relates to a valuation allowance that was recorded against Chinese net operating loss carryforwards. 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. Management concluded in the fourth quarter of 2021 that there was sufficient evidence to release the valuation allowance.

For the year ended December 31, 2019, the Company released $44.5 million of foreign valuation allowances, $40.7 million of which relates to the valuation allowance that was recorded against German indefinite-lived loss carryforwards and pension deferred tax assets. 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.

There are no changes to the Company’s assertion about its permanent reinvestment in undistributed foreign earnings. The Company recorded $0.1 million of income tax expense related to foreign withholding taxes on planned one-time distribution for the years ended December 31, 2021 and 2020, respectively. 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 $1,249.1 million and $810.3 million at December 31, 2021 and December 31, 2020, 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, 2021 and 2020 was as follows:

	2021		2020
Deferred tax assets:
Accrued postretirement benefits cost	$	12.4	$	15.4
Accrued pension cost	49.9		57.4
Other employee benefit accruals	15.7		11.0
Tax loss and credit carryforwards	83.2		90.2
Other, net	63.9		46.7
Valuation allowances	(31.0)		(36.7)
	$	194.1	$	184.0
Deferred tax liabilities - principally depreciation and amortization	(247.9)		(255.7)
Net deferred tax liabilities	$	(53.8)	$	(71.7)

The Company has U.S. federal and state tax credit and loss carryforwards with tax benefits totaling $8.6 million, portions of which will expire in 2022 and continue until 2039. In addition, the Company has loss carryforwards in various non-U.S. jurisdictions with tax benefits totaling $74.5 million, portions of which will expire in 2022 while others will be carried forward indefinitely. The Company has provided valuation allowances of $31.0 million against certain of these carryforwards. 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.

Note 5 - Income Taxes (continued)

As of December 31, 2021, the Company had $36.1 million of total gross unrecognized tax benefits, $30.7 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, 2021, the Company believes it is reasonably possible that the amount of unrecognized tax positions could decrease by approximately $3.2 million during the next 12 months. The potential decrease would primarily be driven by settlements with tax authorities and the expiration of various applicable statutes of limitation. As of December 31, 2021, the Company had accrued $8.9 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, 2020, the Company had $45.6 million of total gross unrecognized tax benefits, $39.2 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, 2020, the Company had accrued $8.6 million of interest and penalties related to uncertain tax positions.

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 had accrued $5.0 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, 2021, 2020 and 2019:

	2021		2020		2019
Beginning balance, January 1	$	45.6	$	38.9	$	26.0
Tax positions related to the current year:
Additions	1.6		2.2		3.6
Tax positions related to prior years:
Additions	3.7		8.7		11.7
Reductions	(8.1)		(1.0)		(1.1)
Settlements with tax authorities	(1.7)		(0.3)		(1.2)
Lapses in statutes of limitation	(5.0)		(2.9)		(0.1)
Ending balance, December 31	$	36.1	$	45.6	$	38.9

During 2021, gross unrecognized tax benefits decreased primarily for releases of accruals related to closing agreements and lapses in statute of limitations for the U.S. and a favorable non-U.S. transfer pricing settlement. These decreases were partially offset by accruals for uncertain tax positions related to non-U.S. non-deductible expenses.

During 2020, gross unrecognized tax benefits increased primarily for additional accruals for uncertain tax positions related to non-U.S. transfer pricing along with prior year tax matters in multiple jurisdictions related to previous acquisitions and non-deductible expenses. These increases were partially offset by releases of accrual for lapses in statutes of limitations.

During 2019, gross unrecognized tax benefits increased primarily for additional accruals for uncertain tax positions related to The Tax Cut and Jobs Act of 2017 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.

As of December 31, 2021 the Company is subject to examination by the IRS for tax years 2017 to the present. The Company also is subject to tax examination in various U.S. state and local tax jurisdictions for tax years 2014 to the present, as well as various foreign tax jurisdictions, including Mexico, China, Poland, France, Germany and India for tax years as early as 1999 to the present. The Company’s unrecognized tax benefits are presented on the Consolidated Balance Sheets as a component of other non-current liabilities, or in certain instances, as a reduction to deferred income taxes.