INCOME TAXES

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

13. INCOME TAXES

2017 Tax Cuts and Jobs Act

On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted into law. The new legislation contained several key tax provisions, including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the U.S. corporate income tax rate to 21%. The Corporation will also generally be eligible for a 100% dividends received exemption on its foreign earnings. The Tax Act subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The Corporation has applied an accounting policy election to provide for the tax expense related to GILTI in the year in which the tax is incurred. 

The Corporation recorded provisional income tax expense of $18.2 million for the year ended December 31, 2017 related to the one-time transition tax on certain foreign earnings. The finalized transition tax of $23.6 million was to be paid over 8 years pursuant to the Tax Act, with $1.9 million paid in 2018. An additional $12.7 million carryforward from the 2017 income tax return further reduced the transition tax liability to $9.0 million as of December 31, 2018. The liability of $9.0 million, which is expected to be paid in 2024 and 2025, remained unchanged as of December 31, 2020.

Given that foreign undistributed earnings are no longer considered permanently reinvested, the Corporation has recorded a liability for withholding taxes that would arise upon distribution of the Corporation’s foreign undistributed earnings.

During the fourth quarter of 2020, the Corporation committed to a plan to sell its industrial valve business in Germany. As a result, the tax consequences from those temporary differences resulting from the held for sale designation are no longer considered to be permanently reinvested. However, the Corporation has not recorded any provision, as it expects under tax law to recover the outside basis difference in a tax-free manner. The Corporation will record tax expense related to GILTI in the period in which the future sale is completed.

Except as noted above, the Corporation remains permanently reinvested to the extent of any outside basis differences in its foreign subsidiaries in excess of the amount of undistributed earnings.

Earnings before income taxes for the years ended December 31 consist of:

(In thousands)	2020		2019		2018
Domestic	$	212,613	$	273,036	$	217,374
Foreign(1)	50,438		123,426		138,865
	$	263,051	$	396,462	$	356,239

(1) During the year ended December 31, 2020, the Corporation recognized a pre-tax impairment loss of $33.0 million pertaining to its industrial valve business in Germany, which was classified as held for sale during the fourth quarter of 2020.

The provision for income taxes for the years ended December 31 consists of:

(In thousands)	2020		2019		2018
Current:
Federal	$	36,793	$	14,195	$	37,648
State	11,882		3,766		9,228
Foreign	21,841		24,816		25,285
Total current	70,516		42,777		72,161
Deferred:
Federal	1,043		38,647		8,518
State	(527)		6,632		(1,047)
Foreign	(9,373)		823		858
Total deferred	(8,857)		46,102		8,329
Provision for income taxes	$	61,659	$	88,879	$	80,490

The effective tax rate varies from the U.S. federal statutory tax rate for the years ended December 31, principally:

	2020		2019		2018
U.S. federal statutory tax rate	21.0	%	21.0	%	21.0	%
Add (deduct):
State and local taxes, net of federal benefit	3.7		2.4		2.2
Impairment of goodwill (held-for-sale)	1.2		—		—
Valuation allowance for foreign assets held for sale	1.3		—		—
R&D tax credits	(0.9)		(1.2)		(1.0)
Foreign earnings (1)	(0.9)		1.4		0.9
Impacts related to the Tax Act	—		—		1.8
Foreign-derived intangible income	(2.8)		(1.3)		(0.8)
All other, net	0.8		0.1		(1.5)
Effective tax rate	23.4	%	22.4	%	22.6	%

(1) Foreign earnings primarily include the net impact of differences between local statutory rates and the U.S. Federal statutory rate, the cost of repatriating foreign earnings, and the impact of changes to foreign valuation allowances, excluding items related to foreign assets classified as held for sale.

The components of the Corporation’s deferred tax assets and liabilities as of December 31 are as follows:

(In thousands)	2020		2019
Deferred tax assets:
Operating lease liabilities	$	33,371	$	35,299
Inventories, net	16,734		15,220
Net operating loss	5,518		8,328
Environmental reserves	8,698		8,239
Incentive compensation	8,102		8,130
Pension and other postretirement liabilities	13,533		5,029
Capital loss carryover	—		955
Other	33,401		33,002
Total deferred tax assets	119,357		114,202
Deferred tax liabilities:
Goodwill amortization	90,112		77,620
Operating lease right-of-use assets, net	31,292		33,915
Other intangible amortization	65,549		30,954
Depreciation	22,780		25,562
Withholding taxes	12,549		13,097
Other	8,757		7,524
Total deferred tax liabilities	231,039		188,672
Valuation allowance	1,240		3,386
Net deferred tax liabilities	$	112,922	$	77,856

Deferred tax assets and liabilities are reflected on the Corporation’s consolidated balance sheet as of December 31 as follows:

(In thousands)	2020		2019
Net noncurrent deferred tax assets	2,085		2,303
Net noncurrent deferred tax liabilities	115,007		80,159
Net deferred tax liabilities	$	112,922	$	77,856

The Corporation has income tax net operating loss carryforwards related to international operations of $3.7 million, of which $0.3 million have an indefinite life and $3.4 million which expire through 2026. The Corporation has federal and state income tax net loss carryforwards of $77.3 million, all of which are net operating losses that expire through 2039. The Corporation has recorded a deferred tax asset of $5.5 million, reflecting the benefit of the loss carryforwards.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2020 in certain of the Corporation’s foreign locations. Such objective evidence limits the ability to consider other subjective evidence, such as projections for future growth. As of December 31, 2020, the Corporation decreased its valuation allowance by $2.2 million to $1.2 million, in order to measure only the portion of the deferred tax asset that more likely than not will be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as projections for growth.

As of December 31, 2020, the Corporation recorded a deferred tax asset of $3.8 million on net operating losses of $12.6 million related to the held for sale industrial valve business. A provision of $3.3 million was recorded during the year ended December 31, 2020, resulting in a full valuation allowance against the deferred tax asset, as it is more likely than not that the losses will be forfeited.

Income tax payments, net of refunds, of $54.0 million, $63.9 million, and $79.1 million were made in 2020, 2019, and 2018, respectively.

The Corporation has recorded a liability in Other liabilities for interest of $3.8 million and penalties of $1.7 million as of December 31, 2020.

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

(In thousands)	2020		2019		2018
Balance as of January 1,	$	12,676	$	13,563	$	13,174
Additions for tax positions of prior periods	1,497		581		88
Reductions for tax positions of prior periods	(615)		(2,184)		(290)
Additions for tax positions related to the current year	2,041		936		1,036
Settlements	(14)		(220)		(445)
Balance as of December 31,	$	15,585	$	12,676	$	13,563

In many cases, the Corporation’s uncertain tax positions are related to tax years that remain subject to examination by tax authorities.

The following describes the open tax years, by major tax jurisdiction, as of December 31, 2020:

United States (Federal)	2017	-	present
United States (Various states)	2009	-	present
United Kingdom	2019	-	present
Canada	2017	-	present

The Corporation does not expect any significant changes to the estimated amount of liability associated with its uncertain tax positions through the next twelve months. Included in total unrecognized tax benefits as of December 31, 2020, 2019, and 2018 is $13.0 million, $10.2 million, and $11.0 million, respectively, which if recognized, would favorably impact the effective income tax rate.