Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

15. Income Taxes

Income taxes have been based on the following components of earnings before provision for income taxes and discontinued operations in the Consolidated Statements of Earnings: 

	Years Ended December 31,
	2020		2019		2018
Domestic	$	464,145	$	448,301	$	344,793
Foreign	377,589		394,708		380,585
Total	$	841,734	$	843,009	$	725,378

Income tax expense (benefit) relating to continuing operations for the years ended December 31, 2020, 2019 and 2018 is comprised of the following:  

	Years Ended December 31,
	2020		2019		2018
Current:
U.S. federal	$	79,305	$	71,069	$	47,445
State and local	13,312		16,709		14,120
Foreign	97,106		102,284		86,523
Total current	189,723		190,062		148,088
Deferred:
U.S. federal	2,777		(6,033)		876
State and local	(10,526)		1,770		626
Foreign	(23,691)		(20,708)		(15,357)
Total deferred	(31,440)		(24,971)		(13,855)
Total expense	$	158,283	$	165,091	$	134,233

Differences between the effective income tax rate and the U.S. federal income statutory tax rate are as follows:

	Years Ended December 31,
	2020		2019		2018
U.S. federal income tax rate	21.0	%	21.0	%	21.0	%
State and local taxes, net of federal income tax benefit	1.7		1.7		1.6
Foreign operations tax effect	(0.8)		(1.3)		(1.1)
SAB 118	—		—		(0.6)
Foreign tax credits	—		(0.1)		(0.3)
Foreign-derived intangible income	(1.1)		(1.0)		(0.8)
Share awards	(1.2)		(1.7)		(2.0)
Disposition of businesses	—		1.2		—
Other	(0.8)		(0.2)		0.7
Effective tax rate from continuing operations	18.8	%	19.6	%	18.5	%

The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows:

	December 31, 2020		December 31, 2019
Deferred Tax Assets:
Accrued compensation, principally postretirement and other employee benefits	$	60,797	$	62,547
Accrued expenses, principally for state income taxes, interest and warranty	32,418		29,736
Net operating loss and other carryforwards	319,291		269,599
Inventories, principally due to reserves for financial reporting purposes and capitalization for tax purposes	23,723		17,671
Accounts receivable, principally due to allowance for doubtful accounts	7,118		3,409
Accrued insurance	4,165		2,001
Long-term liabilities, principally warranty, environmental and exit costs	2,273		3,305
Lease obligations	40,984		35,473
Total gross deferred tax assets	490,769		423,741
Valuation allowance	(287,679)		(244,153)
Total deferred tax assets, net of valuation allowances	$	203,090	$	179,588
Deferred Tax Liabilities:
Intangible assets, principally due to different tax and financial reporting bases and amortization lives	$	(387,897)	$	(364,843)
Property, plant and equipment, principally due to differences in depreciation	(62,667)		(56,401)
Lease right-of-use assets	(38,742)		(34,191)
Other liabilities	9,992		(19,716)
Total gross deferred tax liabilities	(479,314)		(475,151)
Net deferred tax liability	$	(276,224)	$	(295,563)
Classified as follows in the Consolidated Balance Sheets:
Other assets and deferred charges	$	22,199	$	26,473
Deferred income taxes	(298,423)		(322,036)
	$	(276,224)	$	(295,563)

As of December 31, 2020, the Company had non-U.S loss carryforwards of $1,031.2 million primarily resulting from non-operating activities. The entire balance of the non-U.S. losses as of December 31, 2020 is available to be carried forward, with $97.0 million of these losses expiring during the years 2021 through 2040. The remaining $934.2 million of such losses can be carried forward indefinitely.

The Company has $315.2 million and $54.1 million of state tax loss carryovers as of December 31, 2020 and 2019, respectively. The balance of the state losses as of December 31, 2020 is available for carry over, with $287.4 million of these losses expiring during the years 2021 and 2040, and the remaining $27.8 million being carried over indefinitely. The increase in loss carryovers is driven by favorable audit settlements.

The Company maintains valuation allowances by jurisdiction against the deferred tax assets related to certain of these carryforwards for which it is more likely than not that some portion or all will not be realized.

On December 22, 2017, the Tax Reform Act was enacted which permanently reduced the U.S. corporate income tax rate to a flat 21% rate along with other changes in corporate tax law. On that same date, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) SAB 118 to address situations when a registrant does not have the necessary information to complete the accounting for certain income tax effects of the Tax Reform Act. In accordance with the SAB 118 guidance, the Company recognized the provisional impacts of the Tax Reform Act in its Consolidated Financial Statements for the year ended December 31, 2017. For the year ended December 31, 2018, the Company recorded a $4.2 million net tax benefit, which resulted in a 0.6% decrease in the effective tax rate, as an adjustment to the provisional estimates as a result of additional regulatory guidance and changes in interpretations and assumptions the Company has made as a result of the Tax Reform Act.

Unrecognized Tax Benefits

The Company files federal, state, local and foreign tax returns. The Company is routinely audited by the tax authorities in these jurisdictions, and a number of audits are currently underway. It is reasonably possible during the next twelve months that uncertain tax positions may be settled, which could result in a decrease in the gross amount of unrecognized tax benefits. This decrease may result in an income tax benefit. Due to the potential for resolution of federal, state and foreign examinations, and the expiration of various statutes of limitation, the Company's gross unrecognized tax benefits balance may change within the next twelve months by a range of zero to $30.9 million. All significant federal, state, local and international matters have been concluded through 2016. The Company believes adequate provision has been made for all income tax uncertainties.

The following table is a reconciliation of the beginning and ending balances of the Company’s unrecognized tax benefits:

	Total
Unrecognized tax benefits at January 1, 2018	$	68,034
Additions based on tax positions related to the current year	15,580
Additions for tax positions of prior years	29,637
Reductions for tax positions of prior years	(5,226)
Cash settlements	(7,345)
Lapse of statutes	(7,219)
Unrecognized tax benefits at December 31, 2018	93,461
Additions based on tax positions related to the current year	4,493
Additions for tax positions of prior years	6,668
Reductions for tax positions of prior years	(9,217)
Cash settlements	(922)
Lapse of statutes	(11,269)
Unrecognized tax benefits at December 31, 2019	83,214
Additions based on tax positions related to the current year	3,134
Additions for tax positions of prior years	5,490
Reductions for tax positions of prior years	(3,599)
Cash settlements	(6,214)
Lapse of statutes	(9,687)
Unrecognized tax benefits at December 31, 2020 (1)	$	72,338

(1) If recognized, the net amount of potential tax benefits that would impact the Company’s effective tax rate is $65.5 million. During the years ended December 31, 2020, 2019 and 2018, the Company recorded (income) expense of $(0.1) million, $(0.6) million and $2.4 million, respectively, as a component of provision for income taxes related to the accrued interest and penalties on unrecognized tax benefits. The Company had accrued interest and penalties of $17.8 million at December 31, 2020 and $17.8 million at December 31, 2019, which are not included in the above table.