Income Taxes

12 Months Ended

Dec. 31, 2020

Income TaxesAs a global organization, we and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. During 2020, the statute of limitations for the 2016 U.S. federal tax year lapsed, leaving tax years 2017 through 2020 open to examination. For U.S. state and local jurisdictions, tax years 2013 through 2020 are open to examination. We are also subject to examination in various foreign jurisdictions for tax years 2013 through 2020.

A reconciliation of the beginning and ending amount of the liability for unrecognized tax benefits is as follows:


($ in millions)	2020		2019
Balance at January 1	$	5.0	$	3.9
Increase due to current year position	4.9		1.6
Increase due to prior year position	0.6		—
Reduction for expiration of statute of limitations/audits	(0.1)		(0.5)
Balance at December 31	$	10.4	$	5.0

In addition, we had balances in accrued liabilities for interest and penalties of $0.3 million and $0.2 million at December 31, 2020 and 2019, respectively. As of December 31, 2020, we had $10.4 million of total gross unrecognized tax benefits, which, if recognized, would favorably impact the effective income tax rate. It is reasonably possible that, due to the expiration of statutes and the closing of tax audits, the amount of gross unrecognized tax benefits may be reduced by approximately $0.3 million during the next twelve months, which would favorably impact our effective tax rate.

The components of income before income taxes are:


($ in millions)	2020		2019		2018
U.S. operations	$	227.0	$	161.2	$	132.9
International operations	174.3		130.6		107.8
Total income before income taxes	$	401.3	$	291.8	$	240.7

The related provision for income taxes consists of:


($ in millions)	2020		2019		2018
Current:
Federal	$	28.9	$	10.8	$	2.1
State	3.4		2.4		3.3
International	46.0		30.5		35.1
Current income tax provision	78.3		43.7		40.5
Deferred:
Federal and state	0.2		10.3		1.4
International	(6.0)		5.0		(0.5)
Deferred income tax provision	(5.8)		15.3		0.9
Income tax expense	$	72.5	$	59.0	$	41.4

Deferred income taxes result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes.

The significant components of our deferred tax assets and liabilities at December 31 are:


($ in millions)	2020		2019
Deferred tax assets
Net operating loss carryforwards	$	21.4	$	21.9
Tax credit carryforwards	2.0		2.8
Restructuring and impairment charges	0.4		—
Pension and deferred compensation	35.3		25.6
Other	10.6		9.2
Valuation allowance	(15.1)		(15.9)
Total deferred tax assets	54.6		43.6
Deferred tax liabilities:
Property, plant, and equipment	42.1		37.9
Tax on undistributed earnings of subsidiaries	6.5		6.3
Other	0.4		0.9
Total deferred tax liabilities	49.0		45.1
Net deferred tax (liability) asset	$	5.6	$	(1.5)

A reconciliation of the U.S. federal corporate tax rate to our effective consolidated tax rate on income before income taxes follows:


	2020		2019		2018
U.S. federal corporate tax rate	21.0	%	21.0	%	21.0	%
Tax on international operations other than U.S. tax rate	1.2		2.7		4.8


Adjustments to reserves for unrecognized tax benefits	1.4		0.4		0.2
U.S. tax on international earnings, net of foreign tax credits	0.4		0.4		(0.2)
Foreign-Derived Intangible Income Deductions (FDII)	(1.1)		(0.6)		(0.4)
State income taxes, net of federal tax effect	1.2		1.4		2.3
U.S. research and development credits	(0.7)		(1.0)		(0.9)
Excess tax benefits on share-based payments	(5.2)		(3.5)		(6.0)
Impact of 2017 Tax Act	—		—		(2.9)
Tax on undistributed earnings of subsidiaries	0.1		(0.2)		(1.3)




Other	(0.2)		(0.4)		0.6
Effective tax rate	18.1	%	20.2	%	17.2	%

During 2020, we recorded a tax benefit of $0.5 million due to the impact of tax law changes enacted during the year, as well as a tax benefit of $20.8 million associated with stock-based compensation.

During 2019, we recorded a tax benefit of $0.3 million due to the impact of tax law changes enacted during the year, as well as a tax benefit of $10.3 million associated with stock-based compensation.

During 2018, we recorded a net tax benefit of $2.5 million for the estimated impact of the 2017 Tax Act and a tax benefit of $14.3 million associated with stock-based compensation.

The 2017 Tax Act, which was signed into law on December 22, 2017, has resulted in significant changes to the U.S. corporate income tax system. These changes include, but are not limited to, a federal statutory rate reduction from 35.0% to 21.0% effective for tax years beginning after December 31, 2017. Changes in tax rates and tax laws are accounted for in the period of enactment.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. We recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in our consolidated financial statements for the year ended December 31, 2017. As of December 31, 2018, we finalized our calculations and tax positions used in our analysis of the impact of the 2017 Tax Act in consideration of proposed regulations and other guidance issued during 2018. As a result, we recorded a $7.5 million tax benefit related to a reduction of the Transition Toll Tax and an incremental tax expense of $4.0 million related to other adjustments. The final measurement reduced the Transition Toll Tax expense to $20.4 million from $27.9 million. The net impact of these adjustments resulted in a benefit of 1.45% to the 2018 effective tax rate.

The 2017 Tax Act created a provision known as global intangible low-tax income (“GILTI”) that imposes a U.S. tax on certain earnings of controlled foreign subsidiaries. We made an accounting policy election to reflect GILTI taxes, if any, as a current income tax expense in the period incurred.

As of December 31, 2020, we have fully utilized all of our U.S. federal net operating loss carryforwards. State operating loss carryforwards of $204.1 million created a deferred tax asset of $14.0 million, while foreign operating loss carryforwards of $56.7 million created a deferred tax asset of $7.4 million. Management estimates that certain state and foreign operating loss carryforwards are unlikely to be utilized and the associated deferred tax assets have been fully reserved. State loss carryforwards expire as follows: $25.7 million in 2021 and $178.4 million thereafter. Foreign loss carryforwards will begin to expire in 2030, while $54.1 million of the total $56.7 million will not expire.

As of December 31, 2020, we have utilized all available foreign tax credit carryforwards against the Transition Toll Tax. During 2019, we utilized all of our remaining U.S. federal research and development credit carryforwards. As of December 31, 2020, the $0.9 million of state research and development credits expire after 2024.

In response to the 2017 Tax Act, we reevaluated our position regarding permanent reinvestment of foreign subsidiary earnings and profits through 2017 (with the exception of China and Mexico) and decided that those profits were no longer permanently reinvested. As of January 1, 2018, we reasserted indefinite reinvestment related to all post-2017 unremitted earnings in all of our foreign subsidiaries. In general, it is our practice and intention to permanently reinvest the earnings of our foreign subsidiaries and repatriate earnings only when the tax impact is de minimis, and that position has not changed subsequent to the one-time transition tax under the 2017 Tax Act, except as noted above. Accordingly, no deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of approximately $345.6 million of undistributed earnings from foreign subsidiaries to the U.S., as those earnings continue to be permanently reinvested. Further, it is impracticable for us to estimate any future tax costs for any unrecognized deferred tax liabilities associated with our indefinite reinvestment assertion, because the actual tax liability, if any, would be dependent on complex analysis and calculations considering various tax laws, exchange rates, circumstances existing when there is a repatriation, sale or liquidation, or other factors.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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