Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of Income from continuing operations before income taxes and Income taxes follow:

	2021		2020		2019
Income from continuing operations before income taxes:
U.S.	$	(28,832)	$	(21,538)	$	2,424
International	156,649		123,033		204,420
Income from continuing operations before income taxes	$	127,817	$	101,495	$	206,844
Income tax provision:
Current:
U.S. – federal	$	4,733	$	3,697	$	2,068
U.S. – state	1,009		(92)		(1,873)
International	38,609		41,506		60,866
	44,351		45,111		61,061
Deferred:
U.S. – federal	$	(6,800)	$	1,914	$	(1,356)
U.S. – state	(1,051)		222		344
International	(8,556)		(9,127)		(11,555)
	(16,407)		(6,991)		(12,567)
Income taxes	$	27,944	$	38,120	$	48,494

The Company has recognized a deferred tax liability for foreign withholding taxes of $185 on $3,501 of undistributed earnings of its international subsidiaries, earned before 2017. All remaining earnings are considered indefinitely reinvested as defined per the indefinite reversal criterion within the accounting guidance for income taxes. If the earnings were distributed in the form of dividends, the Company would not be subject to U.S. Tax but could be subject to foreign income and withholding taxes. Determination of the amount of this unrecognized deferred income tax liability is not practicable. The Company repatriated dividends of $68,262 and $85,000, as noted above, to the U.S. from accumulated foreign earnings in 2021 and 2020, respectively. On December 31, 2021, the Company's unremitted foreign earnings were approximately $1,712,000.

Deferred income tax assets and liabilities at December 31 consist of the tax effects of temporary differences related to the following:

	2021		2020
Deferred tax assets:
Pension	$	8,803	$	15,403
Tax loss carryforwards	11,067		9,521
Inventory valuation	10,660		10,642
Other postretirement/postemployment costs	7,741		7,735
Accrued compensation	9,775		8,085
Goodwill	14,960		4,006
Lease obligation	9,790		9,846
Other	16,609		12,302
Valuation allowance	(3,869)		(3,757)
Total deferred tax assets	85,536		73,784
Deferred tax liabilities:
Depreciation and amortization	(94,286)		(109,391)
Goodwill	(9,909)		(9,850)
Swedish tax incentive	(8,531)		(9,170)
Right of use liability	(9,826)		(9,758)
Other	(7,712)		(5,191)
Total deferred tax liabilities	(130,264)		(143,360)
Net deferred tax liabilities	$	(44,728)	$	(69,576)

Amounts related to deferred taxes in the balance sheets as of December 31, 2021 and 2020 are presented as follows:

	2021		2020
Non-current deferred tax assets	$	21,976	$	22,092
Non-current deferred tax liabilities	(66,704)		(91,668)
Net deferred tax liabilities	$	(44,728)	$	(69,576)

The standards related to accounting for income taxes require that deferred tax assets be reduced by a valuation allowance if, based on all available evidence, it is more likely than not that the deferred tax asset will not be realized. Available evidence includes the reversal of existing taxable temporary differences, future taxable income exclusive of temporary differences, taxable income in carryback years and tax planning strategies.

In the second quarter of 2021, the Italian tax authorities released tax guidance related to the application of tax basis realignment rules for intangible property ("Realignment") which provides Italian taxpayers with the opportunity to step up the basis of goodwill and intangibles to their fair market value and amortize the step up over 18 years for tax purposes in exchange for paying a 3% tax on the step up, payable over a three years period. The Company opted to elect the Realignment in June 2021 and accordingly recorded a tax payable of $3,008 and a long-term tax payable of $6,016. The Company made its first required installment payment of $3,008 during the third quarter of 2021, reducing the long-term tax payable accordingly. The Company also recorded a deferred tax asset of $83,921 related to the Realignment. Accounting guidance requires that when a deferred tax asset is realigned for tax purposes, a corresponding revaluation reserve also be recorded. Under Italian tax rules, any dividends paid out of this revaluation reserve are subject to tax at a 24% rate. Accordingly, the Company recorded a deferred tax liability of $72,190 related to the potential 24% tax due on any dividends, paid out of the revaluation reserve. The deferred tax asset and liability balances have been presented on a net basis on the Consolidated Balance Sheets. The Company also recorded a one-time $2,707 benefit to the provision related to this election and related accounting. In December 2021 the Italian government increased the amortization period to 50 years; however the change has no impact on the accounting for the transaction as reported above.

The realization of these assets is dependent in part on the amount and timing of future taxable income in the jurisdictions where deferred tax assets reside. As of December 31, 2021, the Company has gross tax loss carryforwards of $35,965; $3,619 of which relates to U.S tax loss carryforwards which have carryforward periods up to 20 years for federal purposes and ranging from one to 20 years for state purposes; $3,778 of which relates to international tax loss carryforwards with carryforward periods ranging from one to twenty years; and $28,568 of which relates to international tax loss carryforwards with unlimited carryforward periods. In addition, the Company has tax credit carryforwards of $417 with remaining carryforward periods ranging from one to five years. Currently the Company has a valuation allowance of $3,503 and $366 related to loss carryforwards and credit carryforwards, respectively, as it believes it is more likely than not that future income will not be earned to timely utilize certain net operating losses or credit carryforwards which have expiration dates. As the ultimate realization of the remaining net deferred tax assets is dependent upon future taxable income, if such future taxable income is not earned and it becomes necessary to recognize a valuation allowance, it could result in a material increase in the Company’s tax expense which could have a material adverse effect on the Company’s financial condition and results of operations.

Management is required to assess whether its valuation allowance analysis is affected by various components of tax law including future GILTI inclusions, changes to the deductibility of executive compensation and interest expense and changes to the NOL and FTC rules. The Company has determined that a valuation allowance of $638 is appropriate relating to deferred taxes recognized for stock compensation granted to executives which the Company believes will not be deductible in future years.

A reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate from continuing operations follows:

	2021		2020		2019
U.S. federal statutory income tax rate	21.0	%	21.0	%	21.0	%
State taxes (net of federal benefit)	—		—		0.1
Foreign operations taxed at different rates	0.1		5.6		2.0
Foreign losses without tax benefit	1.9		3.0		2.0
Foreign tax rate change	0.4		—		—
Italian goodwill & intangible realignment	(2.1)		—		—
GILTI	2.3		3.0		0.6
Tax holidays	(2.5)		(1.0)		(1.3)
Stock awards excess tax expense/(benefit)	0.4		0.6		(0.9)
Audit settlements including MAP application	(1.5)		0.2		0.3
Adjustment to prior years tax return	1.0		—		—
Tax on Seeger transaction	—		4.9		—
Benefit for change in valuation allowances	—		(0.5)		(0.3)
Other	0.9		0.8		(0.1)
Consolidated effective income tax rate	21.9	%	37.6	%	23.4	%

In 2019 and 2017, the Company recorded additional income taxes resulting from audits at certain subsidiaries in Germany. The Company filed applications with the Internal Revenue Service ("IRS") under the Mutual Aid Process ("MAP") to allow for offsetting positions within the US tax filings for the Germany-related adjustments. In 2021 the MAP applications were approved by the IRS. The Company recognized a tax benefit of $1,967 in 2021 to reflect the tax benefit realized as a result of the IRS approval.

Payment of the Transition Tax assessed is required over an eight-year period. The short-term portion of the Transition Tax payable, $6,949, has been included within Accrued Liabilities on the Consolidated Balance Sheet as of December 31, 2021. The long-term portion of the assessment, $52,114, is included as a long-term tax liability on the Consolidated Balance Sheet and is payable as follows: $6,949 in 2022; $13,029 in 2023; $17,371 in 2024 and $21,714 in 2025.

The Aerospace and Industrial segments have a number of multi-year tax holidays in Singapore, China and Malaysia. Tax benefits of $3,219 ($0.06 per diluted share), $1,065 ($0.02 per diluted share) and $2,718 ($0.05 per diluted share) were realized in 2021, 2020 and 2019, respectively. These holidays are subject to the Company meeting certain commitments in the

respective jurisdictions. Aerospace was granted an income tax holiday for operations recently established in Malaysia. This holiday commenced effective November 2020 and remains effective for a period of ten years. The China tax holiday expired at the end of 2020 and a new holiday was granted in December 2021. The holiday is effective for three years beginning with the 2021 tax year. The Singapore tax holiday is scheduled to expire in December 2022.

Income taxes paid globally, net of refunds, were $58,324, $60,427, and $59,003 in 2021, 2020 and 2019, respectively.

As of December 31, 2021, 2020 and 2019, the total amount of unrecognized tax benefits recorded in the consolidated balance sheet was $8,671, $9,156 and $8,919, respectively, which, if recognized, would have reduced the effective tax rate in prior years, with the exception of amounts related to acquisitions. A reconciliation of the unrecognized tax benefits for 2021, 2020 and 2019 follows:

	2021		2020		2019
Balance at January 1	$	9,156	$	8,919	$	11,594
Increase (decrease) in unrecognized tax benefits due to:
Tax positions taken during prior periods	—		550		11
Tax positions taken during the current period	637		649		1,114
Settlements	(70)		—		(1,351)
Lapse of the applicable statute of limitations	(1,218)		(900)		(2,344)
Foreign currency translation	166		(62)		(105)
Balance at December 31	$	8,671	$	9,156	$	8,919

The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense. The Company recognized interest and penalties as a component of income taxes of $(93), $(196), and $(206) in the years 2021, 2020 and 2019, respectively. The liability for unrecognized tax benefits includes gross accrued interest and penalties of $3,582, $3,675 and $3,906 at December 31, 2021, 2020 and 2019, respectively.

The Company or its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by various taxing authorities, including the IRS in the U.S. and the taxing authorities in other major jurisdictions including China, Germany, Singapore, Sweden and Switzerland. With a few exceptions, tax years remaining open to examination in significant foreign jurisdictions include tax years 2016 and forward and for the U.S. include tax years 2016 and forward. The Company is undergoing a tax audit by the IRS for the 2016, 2017 and 2018 tax year. The Company is under German tax audits for the FOBOHA business group in 2017 through 2018 and the Seeger business group for the years 2015 through 2017. Pursuant to the sale and purchase agreement, the Company agreed to certain indemnifications for taxes assessed for audit periods related to the Seeger business. Refer to Note 2.