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INCOME TAXES

12 Months Ended

Dec. 31, 2020

NOTE 14 – INCOME TAXES

The components of income before income taxes were as follows:


	Year Ended December 31,
	2020		2019		2018
U.S.	$	179,650	$	237,296	$	255,088
Non-U.S.		84,390		131,197		113,572
Total	$	264,040	$	368,493	$	368,660

The components of income tax expense (benefit) were as follows:


	Year Ended December 31,
	2020		2019		2018
Current:
Federal	$	30,091	$	25,063	$	45,521
Non-U.S.		18,020		26,540		28,894
State and local		8,770		9,064		10,515
		56,881		60,667		84,930
Deferred:
Federal		(1,898)		6,971		(691)
Non-U.S.		3,196		6,513		(3,121)
State and local		(283)		1,259		549
		1,015		14,743		(3,263)
Total	$	57,896	$	75,410	$	81,667

The differences between total income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes for the three years ended December 31, 2020 were as follows:


	Year Ended December 31,
	2020			2019			2018
Statutory rate applied to pre-tax income	$	55,448		$	77,384		$	77,419
State and local income taxes, net of federal tax benefit		6,149			8,830			8,844
Net impact of the U.S. Tax Act		—			—			4,823
Foreign withholding taxes		—			—			(4,424)
Resolution and settlements to uncertain tax positions		(4,146)			(9,432)			(457)
Foreign Derived Intangible Income Deduction		(1,267)			(4,315)			(2,647)
Foreign rate variance		85			7,023			(4,560)
Valuation allowances		4,753			3,198			5,596
Research and development credit		(4,400)			(4,786)			(3,859)
Other		1,274			(2,492)			932
Total	$	57,896		$	75,410		$	81,667
Effective tax rate		21.9	%		20.5	%		22.2	%

The 2020 effective tax rate was higher than 2019 primarily due to the impact of lower income tax benefits for the settlement of tax items.

Total income tax payments, net of refunds, were $59,360 in 2020, $42,880 in 2019 and $85,805 in 2018.

Deferred Taxes

Significant components of deferred tax assets and liabilities at December 31, 2020 and 2019, were as follows:


	December 31,
	2020		2019
Deferred tax assets:
Tax loss and credit carry-forwards	$	56,076	$	64,712
Inventory		2,525		3,442
Other accruals		14,084		13,048
Employee benefits		27,673		24,532
Pension obligations		13,021		11,561
Other		4,306		3,401
Deferred tax assets, gross		117,685		120,696
Valuation allowance		(65,413)		(71,546)
Deferred tax assets, net		52,272		49,150
Deferred tax liabilities:
Property, plant and equipment		36,795		39,583
Intangible assets		13,595		16,695
Inventory		5,586		6,427
Pension obligations		16,070		25,171
Other		10,009		11,285
Deferred tax liabilities		82,055		99,161
Total deferred taxes	$	(29,783)	$	(50,011)

At December 31, 2020, certain subsidiaries had net operating loss carry-forwards of approximately $42,824 that expire in various years from 2021 through 2034, plus $174,993 for which there is no expiration date.

In assessing the realizability of deferred tax assets, the Company assesses whether it is more-likely-than-not that a portion or all of the deferred tax assets will not be realized. The Company considers the scheduled reversal of deferred tax liabilities, tax planning strategies and projected future taxable income in making this assessment. At December 31, 2020, a valuation allowance of $65,413 was recorded against certain deferred tax assets based on this assessment. The Company believes it is more-likely-than-not that the tax benefit of the remaining net deferred tax assets will be realized. The amount of net deferred tax assets considered realizable could be increased or reduced in the future if the Company’s assessment of future taxable income or tax planning strategies changes.

The Company determined it will repatriate earnings for certain non-U.S. subsidiaries, which are subject to foreign withholding taxes. The Company has estimated the associated tax to be $1,786. The Company considers remaining earnings and outside basis in all other non-U.S. subsidiaries to be indefinitely reinvested and has not recorded any deferred taxes as such estimate is not practicable.

Unrecognized Tax Benefits

Liabilities for unrecognized tax benefits related to uncertain tax positions are classified as Other liabilities unless expected to be paid in one year. Additionally, to the extent a position would not result in a cash tax liability, those amounts are generally recorded to Deferred income taxes to offset tax attributes. The Company recognizes interest and penalties related to unrecognized tax benefits in Income taxes. Current income tax expense included benefits of $244 for the year ended December 31, 2020 and benefits of $1,957 for the year ended December 31, 2019 for interest and penalties. For those same years, the Company’s accrual for interest and penalties related to unrecognized tax benefits totaled $4,120 and $4,512, respectively.

The following table summarizes the activity related to unrecognized tax benefits:


	2020		2019
Balance at beginning of year	$	20,585	$	28,804
Increase related to current year tax provisions		1,661		1,204
Increase/(decrease) related to prior years' tax positions		683		(101)
Decrease related to settlements with taxing authorities		(1,476)		(3,567)
Resolution of and other decreases in prior years' tax liabilities		(4,537)		(5,692)
Other		680		(63)
Balance at end of year	$	17,596	$	20,585

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $14,202 at December 31, 2020 and $17,552 at December 31, 2019.

The Company files income tax returns in the U.S. and various state, local and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2016. The Company is currently subject to various state audits and non-U.S. income tax audits. The Company is generally not able to precisely estimate the ultimate settlement amounts or timing until after the close of an audit. The Company evaluates its tax positions and establishes liabilities for unrecognized tax benefits related to uncertain tax positions that may be challenged by local authorities and may not be fully sustained.

Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including management’s judgment in the interpretation of applicable tax law, regulation or tax ruling, the progress of tax audits and closing of statutes of limitations. Based on information currently available, management believes that additional audit activity could be completed and/or statutes of limitations may close relating to existing unrecognized tax benefits. It is reasonably possible there could be a further reduction of $1,765 in prior years’ unrecognized tax benefits in 2021.

- 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.

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