Income Taxes

12 Months Ended

Dec. 31, 2020

The following table sets forth selected data with respect to the Company’s income tax provisions for the years ended December 31, (in millions):


	2020		2019		2018
Income before income taxes:
United States	$	372.0	$	406.7	$	360.8
International	81.5		113.8		106.2
TOTAL INCOME BEFORE INCOME TAXES	$	453.5	$	520.5	$	467.0
Provision for income taxes — current:
Federal	$	60.7	$	65.0	$	12.3
State	16.1		16.6		21.8
International	17.4		25.4		17.8
Total provision — current	94.2		107.0		51.9
Provision for income taxes — deferred:
Federal	2.4		8.6		35.0
State	1.0		0.5		9.4
International	(0.1)		(3.0)		4.6
Total provision — deferred	3.3		6.1		49.0
TOTAL PROVISION FOR INCOME TAXES	$	97.5	$	113.1	$	100.9

As a result of the enactment of TCJA on December 22, 2017, the Company recognized a provisional estimate in the fourth quarter of 2017 to account for specific income tax effects of the TCJA for which a reasonable estimate could be determined. During 2018, the Company completed its analysis of the specific income tax effects of TCJA and recognized a net tax benefit of approximately $6 million from adjustments to the prior provisional estimates and to record amounts related to items for which a prior provisional estimate had not been made.

Deferred tax assets and liabilities result from differences in the basis of assets and liabilities for tax and financial statement purposes. The components of the deferred tax assets/(liabilities) at December 31, were as follows (in millions):


	2020		2019
Deferred tax assets:
Inventories	$	9.6	$	10.1
Lease Liabilities	26.0		24.8
Income tax credits	27.8		26.9
Accrued liabilities	42.6		37.8
Pension	49.6		53.4
Post retirement and post employment benefits	6.0		6.0
Stock-based compensation	7.4		9.7
Loss Carryforwards	20.5		21.3
Miscellaneous other	16.4		11.9
Gross deferred tax assets	205.9		201.9
Valuation allowance	(34.2)		(29.0)
Total deferred tax assets, net of valuation allowance	171.7		172.9
Deferred tax liabilities:
Liability on undistributed foreign earnings	(9.6)		(8.6)
Goodwill and Intangibles	(218.3)		(212.3)
Right-of-use assets	(25.1)		(24.2)
Property, plant, and equipment	(48.9)		(48.4)
Total deferred tax liabilities	(301.9)		(293.5)
TOTAL NET DEFERRED TAX LIABILITY	$	(130.2)	$	(120.6)
Deferred taxes are reflected in the Consolidated Balance Sheet as follows:
Non-current tax assets (included in Other long-term assets)	5.1		6.2
Non-current tax liabilities (included in Other Non-Current Liabilities)	(135.3)		(126.8)
TOTAL NET DEFERRED TAX LIABILITY	$	(130.2)	$	(120.6)

As of December 31, 2020, the Company had a total of $27.8 million of U.S. federal, state (net of federal benefit) and foreign tax credit carryforwards, available to offset future income taxes. As of December 31, 2020, $15.7 million of the tax credits may be carried forward indefinitely while the remaining $12.1 million will begin to expire at various times in 2021 through 2036. As of December 31, 2020, the Company had recorded tax benefits totaling $19.9 million for U.S. federal, state and foreign net operating loss carryforwards (“NOLs”). As of December 31, 2020, $7.8 million of NOLs may be carried forward indefinitely while the remaining $12.1 million will begin to expire at various times in 2021 through 2038. The tax benefit related to a portion of these NOLs has been adjusted to reflect an “ownership change” pursuant to Internal Revenue Code Section 382, which imposes an annual limitation on the utilization of pre-acquisition operating losses. The Company has recorded a net valuation allowance of $34.2 million on certain deferred tax assets including a portion of foreign and state tax credit carryforwards, capital loss carryforwards and NOLs that the Company anticipates will expire prior to utilization.

During 2018 and 2019, the Company repatriated certain of its foreign earnings. As of December 31, 2020, the Company also anticipates repatriating certain of its foreign earnings in the future. The accompanying financial statements reflect the income tax expense associated with actual and anticipated remittances related to certain of our outside basis differences. The Company has not provided for the income tax effects of distributing the remaining approximately $360 million of undistributed foreign earnings as those amounts are either permanently reinvested or intended to be reinvested in our international operations. It is not practicable to estimate the tax cost associated with a remittance of such earnings.

Cash payments of income taxes were $96.2 million, $91.9 million and $106.3 million in 2020, 2019, and 2018, respectively.

The Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. The IRS and other tax authorities routinely audit the Company’s tax returns. These audits can involve complex issues which may require an extended period of time to resolve. The Company is not currently under U.S. federal examination for any open tax year. With few exceptions, the Company is no longer subject to state, local, or income tax examinations by tax authorities for years prior to 2016.

The following tax years, by major jurisdiction, are still subject to examination by taxing authorities:


Jurisdiction			Open Years
United States			2017-2020
UK			2019-2020
Puerto Rico			2016-2020
Canada			2016-2020

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):


	2020		2019		2018
Unrecognized tax benefits at beginning of year	$	41.9	$	38.9	$	29.5
Additions based on tax positions relating to the current year	7.4		7.0		3.8
Reductions based on expiration of statute of limitations	(6.2)		(5.2)		(1.7)
Additions to tax positions relating to previous years	4.5		1.6		7.4
Settlements	—		(0.4)		(0.1)
TOTAL UNRECOGNIZED TAX BENEFITS	$	47.6	$	41.9	$	38.9

Included in the balance at December 31, 2020 are approximately $38.6 million of tax positions which, if in the future are determined to be recognizable, would affect the annual effective income tax rate. Additionally, there are $4.9 million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty as to the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the applicable taxing authority to an earlier period. It is reasonably possible that in the next twelve months, because of changes in facts and circumstances, the unrecognized tax benefits may increase or decrease.

The Company estimates a possible decrease of approximately $13 million to $15 million within the next twelve months due to the expiration of the statute of limitations and audit resolutions.

The Company’s policy is to record interest and penalties associated with the underpayment of income taxes within Provision for income taxes in the Consolidated Statement of Income. The Company recognized expense, before federal tax impact, related to interest and penalties of approximately $0.2 million in 2020, $0.1 million in 2019 and $1.8 million in 2018. The Company had $7.3 million and $7.1 million accrued for the payment of interest and penalties as of December 31, 2020 and December 31, 2019, respectively.

The consolidated effective income tax rate varied from the United States federal statutory income tax rate for the years ended December 31, as follows:


	2020		2019		2018
Federal statutory income tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	3.0		2.8		4.5
Foreign income taxes	(0.1)		(0.7)		(1.1)
Federal R&D Credit	(1.5)		(1.2)		(1.0)
TCJA and related	—		—		(1.3)
Other, net	(0.9)		(0.2)		(0.5)
CONSOLIDATED EFFECTIVE INCOME TAX RATE	21.5	%	21.7	%	21.6	%

The foreign income tax benefit shown is primarily due to lower statutory rates in foreign jurisdictions compared to the Federal statutory income tax rate. The TCJA and related benefit in 2018 is primarily related to net favorable adjustments to the TCJA provisional estimate recorded in 2017.

- 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.

+ References + Details