Income Taxes

12 Months Ended

Dec. 31, 2020

Income Taxes

Income Taxes

(9) Income Taxes

The significant components of the Company’s deferred income tax liabilities and assets are as follows:

	December 31,
	2020		2019
	(in millions)
Deferred income tax liabilities:
Excess tax over book depreciation	$	22.5	$	18.8
Intangibles		31.7		32.1
Goodwill		23.6		21.0
Foreign earnings		4.2		3.9
Operating lease ROU assets		11.0		10.3
Other		2.9		4.9
Total deferred tax liabilities		95.9		91.0
Deferred income tax assets:
Accrued expenses		7.8		7.8
Product liability		6.1		6.3
Operating lease liabilities		11.2		10.4
Stock based compensation		4.9		5.4
Foreign tax credits		34.4		32.7
Net operating loss carry forward		7.5		6.4
Capital loss carry forward		1.0		—
Inventory reserves		9.0		5.2
Other		9.4		9.5
Total deferred tax assets		91.3		83.7
Less: valuation allowance		(42.1)		(28.6)
Net deferred tax assets		49.2		55.1
Net deferred tax liabilities	$	(46.7)	$	(35.9)

The provision for income taxes is based on the following pre-tax income:

	Year Ended December 31,
	2020		2019		2018
	(in millions)
Domestic	$	96.8	$	119.9	$	103.2
Foreign		70.2		64.0		71.4
	$	167.0	$	183.9	$	174.6

The provision for income taxes consists of the following:

	Year Ended December 31,
	2020		2019		2018
	(in millions)
Current tax expense:
Federal	$	13.4	$	18.7	$	24.7
Foreign		25.3		25.5		29.0
State		6.9		6.4		7.7
		45.6		50.6		61.4
Deferred tax expense (benefit):
Federal		14.8		2.5		(3.2)
Foreign		(6.7)		(2.1)		(7.7)
State		(1.0)		1.4		(1.9)
		7.1		1.8		(12.8)
Deferred tax remeasurement of the 2017 Tax Act		—		—		(2.0)
	$	52.7	$	52.4	$	46.6

The 2017 Tax Cuts and Jobs Act (“2017 Tax Act”) was enacted on December 22, 2017 and resulted in significant changes to the U.S. corporate income tax system. These changes included lowering the U.S. Corporate income tax rate from 35% to 21% and the elimination or reduction of certain domestic deductions and credits. The 2017 Tax Act also transitioned international taxation from a worldwide system to a modified territorial system creating new taxes on certain foreign-sourced earnings and certain related party payments, which are referred to as the Global Intangible Low-taxed Income Tax (“GILTI”) and the Annual Anti-Base Erosion Tax, respectively. The 2017 Tax Act also imposed a one-time mandatory deemed repatriation tax (“Toll Tax”) on foreign subsidiaries’ previously untaxed accumulated foreign earnings.

Changes in tax rates and tax laws are accounted for in the period of enactment. Therefore, the Company recorded a provisional tax expense of $25.1 million related to the 2017 Tax Act, as of December 31, 2017. During the year ended December 31, 2018, the Company finalized the impact of the 2017 Tax Act and recorded a benefit of $3.7 million, reducing the net impact to $21.4 million. Included in the 2018 adjustment was a $10.6 million benefit related to the determination of our foreign tax credits and partial release of a related valuation allowance, partially offset by additional Toll Tax of $10.2 million.

In 2020, final tax regulations were released with respect to the GILTI tax regime. These regulations permit an exclusion from GILTI for items of foreign income subject to a high effective tax rate, referred to as the GILTI High Tax Exclusion (“HTE”). Under the new regulations, the Company was allowed to review its GILTI income for the 2018 and 2019 tax years. The Company elected the exclusion for both the 2018 and 2019 tax years resulting in a total tax benefit of $2.1 million which was recorded in 2020.

Toll Tax

The 2017 Tax Act imposed a one-time Toll Tax which required the Company to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and cash equivalents and 8% on the remaining earnings. For the year ended December 31, 2017, the Company recorded a provisional amount of $23.3 million related to the Toll Tax. As of December 31, 2018, the Company recorded tax expense based on final guidance on the 2017 Tax Act of $10.2 million, which resulted in a total Toll Tax charge of $33.5 million which is being paid over eight years beginning in 2018 and will not accrue interest.

Deferred Tax Remeasurement

As the Company’s deferred tax liabilities exceeded the balance of the Company’s deferred tax assets, for the year ended December 31, 2017, the Company recorded a provisional amount of tax benefit of $12 million, and as of December 31, 2018, the Company recorded a final tax benefit of $2 million, for a net $14 million benefit, reflecting the decrease in the U.S. Corporate income tax rate.

Tax on Foreign Earnings

As a result of the 2017 Tax Act, the Company can repatriate its cumulative undistributed foreign earnings through that date back to the U.S. with minimal U.S. income tax consequences other than the one-time Toll Tax. The Company recorded a provisional amount of deferred tax expense of $14.6 million, and as of December 31, 2018, the Company recorded a final tax benefit of $2 million, for a net deferred tax expense of $12.6 million for the future repatriation of foreign earnings.

Actual income taxes reported are different than what would have been computed by applying the federal statutory tax rate to income before income taxes. The reasons for these differences are as follows:

	Year Ended December 31,
	2020		2019		2018
	(in millions)
Computed expected federal income expense	$	35.0	$	38.6	$	36.6
State income taxes, net of federal tax benefit		4.6		6.3		5.3
Foreign tax rate differential		2.7		4.2		2.7
Impact of the 2017 Tax Act		—		—		(3.7)
Valuation allowance		12.9		—		—
GILTI HTE		(2.1)		—		—
Unrecognized tax benefits, net		(0.3)		0.7		3.2
Other, net		(0.1)		2.6		2.5
	$	52.7	$	52.4	$	46.6

At December 31, 2020, the Company had foreign and domestic net operating loss carry forwards of $27.2 million and $3.8 million, respectively, for income tax purposes before considering valuation allowances; $27.2 million of the losses can be carried forward indefinitely, $2.5 million of the domestic losses expire between 2035 and 2040 and $1.3 million can be carried forward indefinitely. The net operating losses consist of $27.2 million related to Austrian operations and $3.8 million related to United States operations.

At December 31, 2020, a new U.S. capital loss carry forward of $1.0 million before considering valuation allowances was generated and will expire in 2025.

At December 31, 2020 and December 31, 2019, the Company had foreign tax credit carry forwards of $34.4 million and $32.7 million, respectively, for income tax purposes before considering valuation allowances. The foreign tax credit carryforwards expire between 2027 and 2030.

At December 31, 2020 and December 31, 2019, the Company had valuation allowances of $42.1 million and $28.6 million, respectively.  At December 31, 2020, $34.4 million related to foreign tax credits, $6.7 million related to Austrian net operating losses, and $1.0 million related to the domestic capital loss carry forward. At December 31, 2019, $22.3 million related to foreign tax credits and $6.3 million related to Austrian and Korean net operating losses. The $12.1 million increase from December 31, 2019 to December 31, 2020 in the valuation allowance related to foreign tax credits was due to recently issued final tax regulations which changed certain requirements for determining foreign source income and the realizability of the foreign tax credits. Management believes that the ability of the Company to use such foreign tax credits and losses within the applicable carry forward period does not rise to the level of the more likely than not threshold. The Company does not have a valuation allowance on other deferred tax assets, as management believes that it is more likely than not that the Company will recover the net deferred tax assets. Management believes it is more likely than not that the future reversals of the deferred tax liabilities, together with forecasted income, will be sufficient to fully recover the deferred tax assets.

After December 31, 2017, the Company considered all of its foreign earnings to be permanently reinvested outside of the U.S. and has no plans to repatriate these foreign earnings to the U.S.

Unrecognized Tax Benefits

As of December 31, 2020, the Company had gross unrecognized tax benefits of approximately $11.7 million, approximately $5.1 million of which, if recognized, would affect the effective tax rate. The difference between the

amount of unrecognized tax benefits and the amount that would affect the effective tax rate consists of allowable correlative adjustments that are available for certain jurisdictions.

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

	(in millions)
Balance at January 1, 2020	$	9.3
Increases related to prior year tax positions		1.8
Decreases due to lapse in statutes		(0.2)
Currency movement		0.8
Balance at December 31, 2020	$	11.7

The Company estimates that it is reasonably possible that the balance of unrecognized tax benefits as of December 31, 2020 may decrease by $3.1 million to $5.6 million in the next twelve months, as a result of lapses in statutes of limitations and settlements and $2.3 million to $2.9 million of which, if recognized, would affect the effective tax rate.

In February 2018, the United States Internal Revenue Service concluded an audit of the Company’s 2016 and 2015 tax years.  There were no material adjustments as a result of the audit. The Company conducts business in a variety of locations throughout the world resulting in tax filings in numerous domestic and foreign jurisdictions. The Company is subject to tax examinations regularly as part of the normal course of business. The Company’s major jurisdictions are the U.S., France, Germany, Italy and Canada. The statute of limitations in the U.S. is subject to tax examination for 2017 and later; France, Germany, Italy and Canada are subject to tax examination for 2016 and later. All other jurisdictions, with few exceptions, are no longer subject to tax examinations in state, local or international jurisdictions for tax years before 2013.

The Company accounts for interest and penalties related to uncertain tax positions as a component of income tax expense.