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INCOME TAXES | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The Company is responsible for filing consolidated U.S., foreign and combined, unitary or separate state income tax returns. The Company is responsible for paying the taxes relating to such returns, including any subsequent adjustments resulting from the redetermination of such tax liabilities by the applicable taxing authorities. On December 23, 2017, the French government enacted the Finance Act for 2018 and it was published in the Official Bulletin on December 31, 2017. The Finance act reduced the French corporate tax rate from 28% in 2020 to 25%, enacting an additional 1.5% reduction in each year 2021 and 2022. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex changes to the U.S. tax code that affected fiscal 2017, including, but not limited to requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years (the "Transition Tax"). The Tax Act also established new tax laws that affect 2018 and later years, including, but not limited to, a reduction of the U.S. federal corporate tax rate from 35% to 21%, repeals the Domestic Manufacturing Deduction, a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries, new provisions designed to tax global intangible low-taxed income ("GILTI"), tax certain deductible base erosion payments called base erosion and anti-abuse tax (“BEAT”), and new interest expense limitation provisions. In relation to the analysis of the impact of the all tax law changes, the Company recorded a net tax expense of $4.3 million in fiscal 2017. This included a provisional expense for the U.S. tax reform bill of $55.0 million, as well as a net benefit for the revaluation of deferred tax assets and liabilities of $50.7 million. Of this amount, net tax expense of $27.2 million is related to the Tax Act and a benefit of $22.9 million is related to the French Finance Act for 2018. In fiscal 2018, the Company completed its accounting for the income tax effects of the Tax Act. The Company adjusted the provisional amounts previously recorded in accordance with SEC Staff Accounting Bulletin No. 118. As such, the Company included the following tax provisions in its financial statements for the year ending December 31, 2018: Revaluation of deferred tax assets and liabilities: The Tax Act reduced the U.S. federal corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017. In addition, the Tax Act made certain changes to the depreciation rules and implemented new limits on the deductibility of certain executive compensation. The Company evaluated these changes and recorded a provisional benefit to net deferred taxes of $24.6 million at December 31, 2017. As a result of the completion of its 2017 U.S. corporate tax return in fiscal 2018, the Company adjusted its U.S. deferred tax balances which resulted in a benefit of $5.1 million being recorded fiscal 2018. The Company has completed its calculation of the impact of these changes on its deferred tax balances. As of December 31, 2018, the Company completed its analysis of the impact of the Tax Act on the deductibility of certain executive compensation. As a result, no further adjustments were made during the year ended December 31, 2018. Transition Tax on unrepatriated foreign earnings: The Transition Tax on unrepatriated foreign earnings is a tax on previously untaxed accumulated and current earnings and profits ("E&P") of the Company's foreign subsidiaries. To determine the amount of the Transition Tax, the Company had to determine, among other factors, the amount of post-1986 E&P of its foreign subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. The Company was able to make a reasonable estimate of the Transition Tax and recorded a provisional Transition Tax expense of $51.8 million at December 31, 2017. As of December 31, 2018, the Company completed its calculation of the Transition Tax which resulted in a benefit of $14.4 million for the twelve months ended December 31, 2018. Global intangible low taxed income ("GILTI"): The Tax Act created a new requirement that certain income (i.e., GILTI) earned by foreign subsidiaries must be included currently in the gross income of the U.S. shareholder. Under U.S. GAAP, the Company is permitted to make an accounting policy election to either treat taxes due on future inclusions in U.S. taxable income related to GILTI as a current-period expense when incurred or to factor such amounts into the Company's measurement of its deferred taxes. The Company has made the election to treat taxes due on future inclusions related to GILTI as current period expense and has included a current period expense of $11.9 million and $9.3 million in its financial statements for the twelve months ended December 31, 2019 and December 31, 2018, respectively. Indefinite reinvestment assertion: Beginning in 2018, the Tax Act provides a 100% deduction for dividends received from 10-percent owned foreign corporations by U.S. corporate shareholders, subject to a one-year holding period. Although dividend income is now exempt from U.S. federal tax in the hands of the U.S. corporate shareholders, companies must still apply the guidance of ASC 740 to account for the tax consequences of outside basis differences and other tax impacts of their investments in non-U.S. subsidiaries. While the Company has finalized its calculation of the Transition Tax on the deemed repatriated earnings that were previously indefinitely reinvested, the Company was unable to determine a reasonable estimate of the remaining tax liability, if any, under the Tax Act for its remaining outside basis differences. Therefore, the Company has not recorded deferred taxes for this item in its financial statements for fiscal year ended December 31, 2019. The components of the income from operations before provision for income taxes for the Company’s domestic and foreign operations for the years ended December 31 are provided below:
|  | For the year ended December 31, |  |  |  |
In millions |  | 2019 |  | 2018 |  | 2017
Domestic |  | $ | 117.9 |  |  | $ | 145.1 |  |  | $ | 140.3 |
Foreign |  | 328.9 |  |  | 222.5 |  |  | 211.8 |
Income from operations before income taxes |  | $ | 446.8 |  |  | $ | 367.6 |  |  | $ | 352.1 |
The consolidated provision for income taxes included in the Statement of Income consisted of the following:
|  | For the year ended December 31, |  |  |  |
In thousands |  | 2019 |  | 2018 |  | 2017
Current taxes |  |  |  |  |  |
Federal |  | $ | 5.7 |  |  | $ | 6.9 |  |  | $ | 86.2 |
State |  | 0.5 |  |  | 5.8 |  |  | 3.6 |
Foreign |  | 141.4 |  |  | 68.5 |  |  | 67.4 |
|  | 147.6 |  |  | 81.2 |  |  | 157.2 |
Deferred taxes |  |  |  |  |  |  |  |  |
Federal |  | 19.8 |  |  | 4.7 |  |  | (22.9) |
State |  | 2.9 |  |  | 1.3 |  |  | (1.0) |
Foreign |  | (50.0) |  |  | (11.3) |  |  | (43.5) |
|  | (27.3) |  |  | (5.3) |  |  | (67.4) |
Total provision |  | $ | 120.3 |  |  | $ | 75.9 |  |  | $ | 89.8 |
A reconciliation of the United States federal statutory income tax rate to the effective income tax rate on operations for the years ended December 31 is provided below:
|  | For the year ended December 31, |  |  |  |
In millions |  | 2019 |  | 2018 |  | 2017
U.S. federal statutory rate |  | 21.0 | % |  | 21.0 | % |  | 35.0 | %
State taxes |  | 0.7 |  |  | 1.6 |  |  | 0.4 |
Foreign |  | 3.2 |  |  | 0.7 |  |  | (8.3) |
Research and development credit |  | (1.7) |  |  | (1.1) |  |  | (0.8) |
Manufacturing deduction |  | — |  |  | — |  |  | (1.1) |
France tax rate change |  | — |  |  | — |  |  | (6.5) |
U.S. tax rate change |  | — |  |  | (0.6) |  |  | (7.9) |
U.S. tax reform (benefit) provision |  | 2.0 |  |  | (1.4) |  |  | 15.6 |
Transaction costs related to acquisitions |  | 1.0 |  |  | — |  |  | — |
Other, net |  | 0.7 |  |  | 0.4 |  |  | (0.9) |
Effective rate |  | 26.9 | % |  | 20.6 | % |  | 25.5 | %
The increase in the effective tax rate in 2019 is primarily the result of non-deductible transaction related expenses incurred as a result of the acquisition of GE Transportation, a higher earnings mix in higher tax jurisdictions, increased estimated liabilities resulting from provisions of the 2017 Tax Cuts and Jobs Act as well as a benefit from the completion of the accounting for the income tax effects of the Tax Act that was recorded in the tax year ending December 31, 2018. Components of deferred tax assets and liabilities were as follows:
|  | December 31, |  |
In millions |  | 2019 |  | 2018
Deferred income tax assets: |  |  |  |
Accrued expenses and reserves |  | $ | 35.8 |  |  | $ | 13.8 |
Warranty reserve |  | 46.6 |  |  | 25.9 |
Deferred compensation/employee benefits |  | 32.3 |  |  | 9.8 |
Right-of-use asset |  | 63.1 |  |  |  | — |
Pension and postretirement obligations |  | 28.1 |  |  | 19.5 |
Inventory |  | 25.8 |  |  | 16.8 |
Net operating loss carry forwards |  | 95.6 |  |  | 85.1 |
Other |  | 18.8 |  |  | 19.2 |
Gross deferred income tax assets |  | 346.1 |  |  | 190.1 |
Valuation allowance |  | 58.0 |  |  | 41.7 |
Total deferred income tax assets |  | 288.1 |  |  | 148.4 |
Deferred income tax liabilities: |  |  |  |  |  |
Property, plant & equipment |  | 42.7 |  |  | 35.5 |
Right-of-use liability |  | 63.1 |  |  |  | — |
Intangibles |  | 235.6 |  |  | 287.4 |
Total deferred income tax liabilities |  | 341.4 |  |  | 322.9 |
Net deferred income tax liability |  | $ | (53.3) |  |  | $ | (174.5) |
A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2019, the valuation allowance for certain foreign deferred tax asset carryforwards was $58.0 million primarily in China, France, the Netherlands, United Kingdom, and South Africa. Net operating loss carry-forwards in the amount of $390.5 million expire in various periods from December 31, 2019 to December 31, 2039. As of December 31, 2019, the liability for income taxes associated with unrecognized tax benefits was $17.2 million, of which $17.2 million, if recognized, would favorably affect the Company’s effective income tax rate. As of December 31, 2018, the liability for income taxes associated with unrecognized tax benefits was $9.5 million, of which $8.4 million, if recognized, would favorably affect the Company’s effective tax rate. A reconciliation of the beginning and ending amount of the liability for income taxes associated with unrecognized tax benefits follows:
In millions |  | 2019 |  | 2018 |  | 2017
Gross liability for unrecognized tax benefits at beginning of year |  | $ | 9.5 |  |  | $ | 6.9 |  |  | $ | 8.4 |
Gross increases - unrecognized tax benefits in prior periods |  | 9.7 |  |  | 5.4 |  |  | 2.5 |
Gross decreases - audit settlement during year |  | — |  |  | — |  |  | (4.0) |
Gross decreases - expiration of audit statute of limitations |  | (2.0) |  |  | (2.8) |  |  | — |
Gross liability for unrecognized tax benefits at end of year |  | $ | 17.2 |  |  | $ | 9.5 |  |  | $ | 6.9 |
The Company includes interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2019, the total interest and penalties accrued was approximately $4.0 million. As of December 31, 2018, the total interest and penalties accrued was approximately $0.9 million. With limited exception, the Company is no longer subject to examination by various U.S. and foreign taxing authorities for years before 2014. At this time, the Company believes that it is reasonably possible that unrecognized tax benefits of approximately $7.6 million may change within the next 12 months due to the expiration of statutory review periods and current examinations.

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- 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 Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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