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INCOME TAXES | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
INCOME TAXES | 13. INCOME TAXES 2017 Tax Cuts and Jobs Act In conjunction with the enactment of the 2017 Tax Cuts and Jobs Act (the Tax Act), the Corporation recorded provisional income tax expense of $18.2 million for the year ended December 31, 2017 related to the one-time transition tax on certain foreign earnings. The finalized transition tax of $23.6 million was to be paid over 8 years pursuant to the Tax Act. The transition tax liability, which is expected to be paid in 2024 and 2025, was $7.4 million as of December 31, 2022 and December 31, 2021, respectively. As of December 31, 2022, the Corporation reassessed its assertion around whether foreign undistributed earnings should continue to no longer be considered permanently reinvested. Consistent with the prior year findings, the Corporation continues to not record a liability for withholding taxes of a foreign subsidiary, which resulted in the reversal in 2021 of $2.8 million of tax liabilities previously recorded. The Corporation maintains its previous assertion for all other foreign subsidiaries, and has recorded a liability for withholding taxes that would arise upon distribution of the Corporation’s foreign undistributed earnings. During the fourth quarter of 2020, the Corporation committed to a plan to sell its industrial valve business in Germany. As a result, the tax consequences from those temporary differences resulting from the held for sale designation were no longer considered to be permanently reinvested. However, the Corporation did not record any provision, as it expected under tax law to recover the outside basis difference in a tax-free manner as occurred upon sale of the business in the first quarter of 2022. The global intangible low-taxed income (GILTI)-related impact associated with the sale is immaterial. Except as noted above, the Corporation remains permanently reinvested to the extent of any outside basis differences in its foreign subsidiaries in excess of the amount of undistributed earnings as it is not practicable to determine the provision impact, if any, due to the complexities associated with this calculation. Earnings before income taxes for the years ended December 31 consist of:
(In thousands) |  | 2022 |  | 2021 |  | 2020
Domestic |  | $ | 239,356 |  |  | $ | 271,694 |  |  | $ | 212,613 |
Foreign(1) |  | 149,839 |  |  | 82,816 |  |  | 50,438 |
|  | $ | 389,195 |  |  | $ | 354,510 |  |  | $ | 263,051 |
(1) The Corporation recognized a pre-tax loss of $5 million during the first quarter of 2022 pertaining to the sale of its industrial valve business in Germany, as well as pre-tax impairment losses of $19 million and $33 million in 2021 and 2020, respectively. The provision for income taxes for the years ended December 31 consists of:
(In thousands) |  | 2022 |  | 2021 |  | 2020
Current: |  |  |  |  |  |
Federal |  | $ | 65,047 |  |  | $ | 57,910 |  |  | $ | 36,793 |
State |  | 12,717 |  |  | 15,477 |  |  | 11,882 |
Foreign |  | 34,520 |  |  | 22,034 |  |  | 21,841 |
Total current |  | 112,284 |  |  | 95,421 |  |  | 70,516 |
Deferred: |  |  |  |  |  |
Federal |  | (11,413) |  |  | (7,167) |  |  | 1,043 |
State |  | (4,442) |  |  | (477) |  |  | (527) |
Foreign |  | (1,582) |  |  | (426) |  |  | (9,373) |
Total deferred |  | (17,437) |  |  | (8,070) |  |  | (8,857) |
Provision for income taxes |  | $ | 94,847 |  |  | $ | 87,351 |  |  | $ | 61,659 |
The effective tax rate varies from the U.S. federal statutory tax rate for the years ended December 31, principally:
|  | 2022 |  | 2021 |  | 2020
U.S. federal statutory tax rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Add (deduct): |  |  |  |  |  |
State and local taxes, net of federal benefit |  | 1.7 |  |  | 3.6 |  |  | 3.7 |
Foreign earnings(1) |  | 0.7 |  |  | 0.2 |  |  | (0.9) |
Foreign loss on sale |  | 0.2 |  |  | — |  |  | — |
Foreign asset impairment (held for sale) |  | — |  |  | 1.6 |  |  | 1.2 |
Valuation allowance for foreign assets held for sale |  | — |  |  | 0.2 |  |  | 1.3 |
R&D tax credits |  | (1.1) |  |  | (1.3) |  |  | (0.9) |
Foreign-derived intangible income |  | (1.2) |  |  | (1.4) |  |  | (2.8) |
All other, net |  | 3.1 |  |  | 0.7 |  |  | 0.8 |
Effective tax rate |  | 24.4 | % |  | 24.6 | % |  | 23.4 | %
(1) Foreign earnings primarily include the net impact of differences between local statutory rates and the U.S. Federal statutory rate, the cost of repatriating foreign earnings, and the impact of changes to foreign valuation allowances, excluding items related to foreign assets classified as held for sale. The components of the Corporation’s deferred tax assets and liabilities as of December 31 are as follows:
(In thousands) |  | 2022 |  | 2021
Deferred tax assets: |  |  |  |
Operating lease liabilities |  | $ | 34,977 |  |  | $ | 32,868 |
Capitalized R&D expenses |  | 23,785 |  |  | — |
Inventories, net |  | 21,992 |  |  | 17,237 |
Net operating loss |  | 9,096 |  |  | 5,384 |
Environmental reserves |  | 8,677 |  |  | 9,262 |
Incentive compensation |  | 8,531 |  |  | 6,936 |
Legal reserves |  | 2,864 |  |  | 6,991 |
Other |  | 40,965 |  |  | 32,665 |
Total deferred tax assets |  | 150,887 |  |  | 111,343 |
Deferred tax liabilities: |  |  |  |
Goodwill amortization |  | 103,174 |  |  | 98,947 |
Operating lease right-of-use assets, net |  | 32,651 |  |  | 30,911 |
Other intangible amortization |  | 59,966 |  |  | 59,056 |
Depreciation |  | 15,433 |  |  | 13,694 |
Withholding taxes |  | 13,200 |  |  | 12,776 |
Pension and other postretirement assets |  | 29,053 |  |  | 29,385 |
Other |  | 7,256 |  |  | 7,149 |
Total deferred tax liabilities |  | 260,733 |  |  | 251,918 |
Valuation allowance |  | 5,664 |  |  | 2,625 |
Net deferred tax liabilities |  | $ | 115,510 |  |  | $ | 143,200 |
Deferred tax assets and liabilities are reflected on the Corporation’s consolidated balance sheet as of December 31 as follows:
(In thousands) |  | 2022 |  | 2021
Net noncurrent deferred tax assets |  | $ | 7,491 |  |  | $ | 4,149 |
Net noncurrent deferred tax liabilities |  | 123,001 |  |  | 147,349 |
Net deferred tax liabilities |  | $ | 115,510 |  |  | $ | 143,200 |
The Corporation has income tax net operating loss carryforwards related to international operations of $21.0 million, of which $19.3 million have an indefinite life and $1.7 million which expire through 2026. The Corporation has federal and state income tax net loss carryforwards of $55.6 million, all of which are net operating losses that expire through 2041. The Corporation has recorded a deferred tax asset of $9.1 million, reflecting the benefit of the loss carryforwards related to international and domestic operations. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. As of December 31, 2022 the Corporation increased its valuation allowance by $2.9 million to $5.7 million, in order to measure only the portion of deferred tax assets that more likely than not will be realized. As of December 31, 2022, $3.4 million of the total valuation allowance relates to foreign tax credits arising from branch operations that the Corporation believes it will be unable to utilize. The Corporation recorded a tax provision of $2.7 million in the current year and $0.7 million in prior year related to the valuation allowance on branch foreign tax credits. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as projections for growth. As of December 31, 2021, the Corporation recorded a deferred tax asset of $4.4 million on net operating losses of $14.7 million related to the held for sale industrial valve business in Germany. This resulted in a full valuation allowance against the deferred tax asset, as it is more likely than not that the losses will be forfeited as a result of the divestiture. Upon the closure of the sale of the industrial valve business in the first quarter of 2022, the Corporation removed both the deferred tax asset and associated valuation allowance, with no resulting tax impact. Income tax payments, net of refunds, of $61.1 million, $107.1 million, and $54.0 million were made in 2022, 2021, and 2020, respectively. The Corporation has recorded a liability in Other liabilities for interest of $3.9 million and penalties of $2.6 million as of December 31, 2022. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(In thousands) |  | 2022 |  | 2021 |  | 2020
Balance as of January 1, |  | $ | 17,018 |  |  | $ | 15,585 |  |  | $ | 12,676 |
Additions for tax positions of prior periods |  | 3,004 |  |  | 2,877 |  |  | 1,497 |
Reductions for tax positions of prior periods |  | (1,732) |  |  | (1,861) |  |  | (615) |
Additions for tax positions related to the current year |  | 1,068 |  |  | 655 |  |  | 2,041 |
Settlements |  | (1,987) |  |  | (238) |  |  | (14) |
Balance as of December 31, |  | $ | 17,371 |  |  | $ | 17,018 |  |  | $ | 15,585 |
In many cases, the Corporation’s uncertain tax positions are related to tax years that remain subject to examination by tax authorities. The following describes the open tax years, by major tax jurisdiction, as of December 31, 2022:
United States (Federal) | 2017 | - | present
United States (Various states) | 2011 | - | present
United Kingdom | 2021 | - | present
Canada | 2019 | - | present
The Corporation does not expect any significant changes to the estimated amount of liability associated with its uncertain tax positions through the next twelve months. Included in total unrecognized tax benefits as of December 31, 2022, 2021, and 2020 is $15.1 million, $14.1 million, and $13.0 million, respectively, which if recognized, would favorably impact the effective income tax rate.

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