Income Taxes

12 Months Ended

Dec. 31, 2020

The components of Income from continuing operations before income taxes and Income taxes follow:


	2020		2019		2018
Income from continuing operations before income taxes:
U.S.	$	(21,538)	$	2,424	$	(10,719)
International	123,033		204,420		218,214
Income from continuing operations before income taxes	$	101,495	$	206,844	$	207,495
Income tax provision:
Current:
U.S. – federal	$	3,697	$	2,068	$	3,110
U.S. – state	(92)		(1,873)		(623)
International	41,506		60,866		57,871
	45,111		61,061		60,358
Deferred:
U.S. – federal	$	1,914	$	(1,356)	$	(2,206)
U.S. – state	222		344		(826)
International	(9,127)		(11,555)		(16,017)
	(6,991)		(12,567)		(19,049)
Income taxes	$	38,120	$	48,494	$	41,309

On December 22, 2017 the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Act”). The Company was capable of reasonably estimating the Transition Tax and recorded a provisional Transition Tax expense of $86,707 in 2017. The U.S. Treasury issued certain Notices and proposed regulations ("interpretative guidance") in 2018. The interpretative guidance provided additional guidance to assist companies in calculating the one-time Transition Tax. The Company completed the accounting and recorded a final Transition Tax of $86,858. The U.S. Treasury issued Final Regulations addressing the Transition Tax in January 2019. The Final Regulations did not impact the computation of final income tax expense. The Company made a reasonable estimate of the state taxation of these earnings and recorded a provisional expense of $1,423 in 2017. In 2018, various states issued guidance related to calculating the tax impacts of the Act, as well as clarifications describing how States would tax income arising from the application of provisions within the Act. As a result, the Company reduced the tax expense related to the impact of the Act to $597 in 2018.

The Act required the mandatory deemed repatriation of the undistributed earnings of the Company’s international subsidiaries as of December 31, 2017. If the earnings were distributed in the form of cash dividends, the Company would not be subject to additional U.S. income taxes but could be subject to foreign income and withholding taxes. Under accounting standards (ASC 740) a deferred tax liability is not recorded for the excess of the tax basis over the financial reporting (book) basis of an investment in a foreign subsidiary if the indefinite reinvestment criteria is met. For amounts currently expected to be repatriated, the Company recorded a provisional expense of $6,932 during 2017. In 2018 the Company repatriated $62,383 between certain foreign entities, thereby reducing the previously recorded deferred tax liability by $5,245 and repatriated $228,750 to the U.S. In 2018, the Company revised its estimates and no longer expects to repatriate foreign earnings relating to $1,185 of taxes for which a deferred tax liability was previously recorded and as such, a benefit resulted. In 2020, the Company paid a dividend between subsidiaries which further reduced the deferred tax liability by $300. On December 31, 2020, the Company's unremitted foreign earnings were approximately $1,605,522.

The Company has recognized a deferred tax liability for U.S. taxes of $185 on $3,501 of undistributed earnings of its international subsidiaries, earned before 2017 and the application of the Transition Tax implemented by the Act. All remaining earnings are considered indefinitely reinvested as defined per the indefinite reversal criterion within the accounting guidance for income taxes. If the earnings were distributed in the form of dividends, the Company would not be subject to U.S. Tax but could be subject to foreign income and withholding taxes. Determination of the amount of this unrecognized deferred income tax liability is not practicable. The Company repatriated dividends of $85,000 and $152,992, as noted above, to the U.S. from accumulated foreign earnings in 2020 and 2019, respectively. Pursuant to the Act, neither dividend was subject to tax.

Deferred income tax assets and liabilities at December 31 consist of the tax effects of temporary differences related to the following:


	2020		2019
Deferred tax assets:
Pension	$	15,403	$	16,256
Tax loss carryforwards	9,521		9,167
Inventory valuation	10,642		12,251
Other postretirement/postemployment costs	7,735		8,066
Accrued compensation	8,085		7,753
Lease obligation	9,846		9,188
Other	16,309		14,769
Valuation allowance	(3,757)		(3,592)
Total deferred tax assets	73,784		73,858
Deferred tax liabilities:
Depreciation and amortization	(109,391)		(110,230)
Goodwill	(9,850)		(9,757)
Swedish tax incentive	(9,170)		(7,436)
Right of use liability	(9,758)		(9,050)
Other	(5,191)		(4,558)
Total deferred tax liabilities	(143,360)		(141,031)
Net deferred tax liabilities	$	(69,576)	$	(67,173)

Amounts related to deferred taxes in the balance sheets as of December 31, 2020 and 2019 are presented as follows:


	2020		2019

Non-current deferred tax assets	$	22,092	$	21,235

Non-current deferred tax liabilities	(91,668)		(88,408)
Net deferred tax liabilities	$	(69,576)	$	(67,173)

The standards related to accounting for income taxes require that deferred tax assets be reduced by a valuation allowance if, based on all available evidence, it is more likely than not that the deferred tax asset will not be realized. Available evidence includes the reversal of existing taxable temporary differences, future taxable income exclusive of temporary differences, taxable income in carryback years and tax planning strategies.

The realization of these assets is dependent in part on the amount and timing of future taxable income in the jurisdictions where deferred tax assets reside. As of December 31, 2020, the Company has gross tax loss carryforwards of $30,814; $3,638 of which relates to U.S tax loss carryforwards which have carryforward periods up to twenty years for federal purposes and ranging from one to twenty years for state purposes; $9,857 of which relates to international tax loss carryforwards with carryforward periods ranging from one to twenty years; and $17,319 of which relates to international tax loss carryforwards with unlimited carryforward periods. In addition, the Company has tax credit carryforwards of $382 with remaining carryforward periods ranging from one to five years. Currently the Company has a valuation allowance of $2,588 and $366 related to loss carryforwards and credit carryforwards, respectively, as it believes it is more likely than not that future income will not be earned to timely utilize certain net operating losses or credit carryforwards which have expiration dates. As the ultimate realization of the remaining net deferred tax assets is dependent upon future taxable income, if such future taxable income is not earned and it becomes necessary to recognize a valuation allowance, it could result in a material increase in the Company’s tax expense which could have a material adverse effect on the Company’s financial condition and results of operations.

Management is required to assess whether its valuation allowance analysis is affected by various components of the Act including the deemed mandatory repatriation of foreign income for the Transition Tax, future GILTI inclusions, changes to the

deductibility of executive compensation and interest expense and changes to the NOL and FTC rules. The Company has determined that a valuation allowance of $803 is appropriate relating to deferred taxes recognized for stock compensation granted to executives which the Company believes will not be deductible in future years.

A reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate from continuing operations follows:


	2020		2019		2018
U.S. federal statutory income tax rate	21.0	%	21.0	%	21.0	%
State taxes (net of federal benefit)	—		0.1		—
Foreign operations taxed at different rates	5.6		2.0		1.3
Foreign losses without tax benefit	3.0		2.0		1.5

GILTI	3.0		0.6		1.2
Tax holidays	(1.0)		(1.3)		(1.7)
Stock awards excess tax expense/(benefit)	0.6		(0.9)		(0.8)
Tax on Seeger transaction	4.9		—		—

Benefit for change in valuation allowances	(0.5)		(0.3)		(2.5)
Audit settlements	0.2		0.3		—
Transition tax	—		—		(0.3)
U.S. Corporate tax rate change	—		—		(0.4)
Indefinite reinvestment assertion	—		—		(0.6)
Other	0.8		(0.1)		1.2
Consolidated effective income tax rate	37.6	%	23.4	%	19.9	%

Payment of the Transition Tax assessed is required over an eight-year period. The short-term portion of the Transition Tax payable, $6,949, has been included within Accrued Liabilities on the Consolidated Balance Sheet as of December 31, 2020. The long-term portion of the assessment, $59,063, is included as a long-term tax liability on the Consolidated Balance Sheet and is payable as follows: $6,949 annually in 2022; $13,029 in 2023; $17,371 in 2024 and $21,714 in 2025.

The Aerospace and Industrial segments have a number of multi-year tax holidays in Singapore and China. Tax benefits of $1,065 ($0.02 per diluted share), $2,718 ($0.05 per diluted share) and $3,627 ($0.07 per diluted share) were realized in 2020, 2019 and 2018, respectively. These holidays are subject to the Company meeting certain commitments in the respective jurisdictions. Aerospace was granted an income tax holiday for operations recently established in Malaysia. The Company is in discussion with the Malaysian government as to the start date of the holiday in Malaysia and currently anticipates the holiday beginning in 2022 at a point to be determined. The China holiday expired at the end of 2020 and the Singapore holiday expires at the end of 2022, whereas the Malaysia holiday expires ten years after becoming effective.

Income taxes paid globally, net of refunds, were $60,427, $59,003, and $60,576 in 2020, 2019 and 2018, respectively.

As of December 31, 2020, 2019 and 2018, the total amount of unrecognized tax benefits recorded in the consolidated balance sheet was $9,156, $8,919 and $11,594, respectively, which, if recognized, would have reduced the effective tax rate in

prior years, with the exception of amounts related to acquisitions. A reconciliation of the unrecognized tax benefits for 2020, 2019 and 2018 follows:


	2020		2019		2018
Balance at January 1	$	8,919	$	11,594	$	9,209
Increase (decrease) in unrecognized tax benefits due to:
Tax positions taken during prior periods	550		11		649
Tax positions taken during the current period	649		1,114		367
Acquisition	—		—		2,516
Settlements	—		(1,351)		—
Lapse of the applicable statute of limitations	(900)		(2,344)		(1,290)
Foreign currency translation	(62)		(105)		143
Balance at December 31	$	9,156	$	8,919	$	11,594

The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense. The Company recognized interest and penalties as a component of income taxes of $(196), $(206), and $370 in the years 2020, 2019 and 2018, respectively. The liability for unrecognized tax benefits includes gross accrued interest and penalties of $3,675, $3,906 and $4,169 at December 31, 2020, 2019 and 2018, respectively.

The Company or its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by various taxing authorities, including the IRS in the U.S. and the taxing authorities in other major jurisdictions including China, Germany, Singapore, Sweden and Switzerland. With a few exceptions, tax years remaining open to examination in significant foreign jurisdictions include tax years 2015 and forward and for the U.S. include tax years 2016 and forward. The Company is undergoing a tax audit by the IRS for the 2016 and 2017 tax year and received notice of intent to audit the 2018 year. The Company remains under audit for the Synventive business group in 2015 through 2017 in Germany.