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Income Taxes | 12 Months Ended
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Dec. 31, 2021
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Following is a summary of earnings before income taxes for United States and foreign operations:
| 2021 |  | 2020 |  | 2019
United States | $ | 380,632 |  |  | 94,829 |  |  | 163,764 |
Foreign | 909,361 |  |  | 489,545 |  |  | 585,781 |
Earnings before income taxes | $ | 1,289,993 |  |  | 584,374 |  |  | 749,545 |
Income tax expense (benefit) for the years ended December 31, 2021, 2020 and 2019 consists of the following:
| 2021 |  | 2020 |  | 2019
Current income taxes: |  |  |  |  |
U.S. federal | $ | 93,085 |  |  | (33,821) |  |  | 19,936 |
State and local | 24,904 |  |  | 7,794 |  |  | 12,659 |
Foreign | 143,385 |  |  | 72,350 |  |  | 80,221 |
Total current | 261,374 |  |  | 46,323 |  |  | 112,816 |
Deferred income taxes: |  |  |  |  |
U.S. federal | (2,655) |  |  | 14,533 |  |  | 11,993 |
State and local | 13,306 |  |  | 112 |  |  | 15,371 |
Foreign | (15,580) |  |  | 7,679 |  |  | (135,206) |
Total deferred | (4,929) |  |  | 22,324 |  |  | (107,842) |
Total income tax expense | $ | 256,445 |  |  | 68,647 |  |  | 4,974 |
The geographic dispersion of earnings and losses contributes to the annual changes in the Company’s effective tax rates. Approximately 30% of the Company’s current year earnings before income taxes was generated in the United States. The Company is also subject to taxation in other jurisdictions where it has operations, including Australia, Belgium, Brazil, Bulgaria, France, Ireland, Italy, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Poland, Russia, Spain and the United Kingdom. The effective tax rates that the Company accrues in these jurisdictions vary widely, but they are generally lower than the Company’s overall effective tax rate. The Company’s domestic effective tax rates for the years ended December 31, 2021, 2020 and 2019 were 33.8%, (12.0)%, and 36.6%, respectively, and its non-U.S. effective tax rates for the years ended December 31, 2021, 2020 and 2019 were 14.1%, 16.3%, and (9.4)%, respectively. The difference in rates applicable in foreign jurisdictions results from a number of factors, including lower statutory rates, historical loss carry-forwards, financing arrangements, and other factors. The Company’s effective tax rate has been and will continue to be impacted by the geographical dispersion of the Company’s earnings and losses. To the extent that domestic earnings increase while the foreign earnings remain flat or decrease, or increase at a lower rate, the Company’s effective tax rate will increase. Income tax expense (benefit) attributable to earnings before income taxes differs from the amounts computed by applying the U.S. statutory federal income tax rate to earnings before income taxes as follows:
| 2021 |  | 2020 |  | 2019
Income taxes at statutory rate | $ | 270,898 |  |  | 122,719 |  |  | 157,404 |
State and local income taxes, net of federal income tax benefit | 25,658 |  |  | 8,081 |  |  | 22,185 |
Foreign income taxes(a) | (34,981) |  |  | (57,898) |  |  | (17,276) |
Change in valuation allowance | 5,947 |  |  | 35,381 |  |  | (21,975) |
European Restructuring(b) | — |  |  | — |  |  | (136,194) |
Loss on previously taxed earnings | — |  |  | (10,346) |  |  | — |
Carryback rate differential(c) | (15,743) |  |  | (33,739) |  |  | — |
Global intangible low-taxed income | 34,400 |  |  | 2,500 |  |  | 6,000 |
Italy Step-up Adjustment(d) | (22,163) |  |  | — |  |  | — |
Tax contingencies and audit settlements, net | 12,505 |  |  | 6,779 |  |  | 6,686 |
Other, net | (20,076) |  |  | (4,830) |  |  | (11,856) |
| $ | 256,445 |  |  | 68,647 |  |  | 4,974 |
(a) Foreign income taxes include statutory rate differences, financing arrangements, withholding taxes, local income taxes, notional deductions, and other miscellaneous items. (b) The Company implemented select operational, administrative and financial restructurings that centralized certain business processes and intangible assets in various European jurisdictions into a new entity. (c) The CARES Act permits the Company to carry back its 2020 U.S. taxable loss to a tax year before the corporate income tax rate was lowered by the Tax Cuts and Jobs Act. (d) The company realized a one-time Italian step-up benefit allowing for the realignment of tax asset values. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2021 and 2020 are presented below:
| 2021 |  | 2020
Deferred tax assets: |  |  |
Accounts receivable | $ | 16,550 |  |  | 14,384 |
Inventories | 38,388 |  |  | 44,597 |
Employee benefits | 54,865 |  |  | 39,526 |
Accrued expenses and other | 73,983 |  |  | 103,892 |
Deductible state tax and interest benefit | 7,206 |  |  | 4,042 |
Intangibles | 135,777 |  |  | 152,499 |
Lease liabilities | 106,753 |  |  | 91,359 |
Federal, foreign and state net operating losses and credits | 408,434 |  |  | 433,822 |
Gross deferred tax assets | 841,956 |  |  | 884,121 |
Valuation allowance | (236,357) |  |  | (267,838) |
Net deferred tax assets | 605,599 |  |  | 616,283 |
Deferred tax liabilities: |  |  |
Inventories | (23,484) |  |  | (17,403) |
Plant and equipment | (467,451) |  |  | (489,240) |
Intangibles | (188,417) |  |  | (197,009) |
Right of use assets | (101,935) |  |  | (87,351) |
Prepaids | (45,077) |  |  | (56,140) |
Other liabilities | (67,914) |  |  | (46,121) |
Gross deferred tax liabilities | (894,278) |  |  | (893,264) |
Net deferred tax liability | $ | (288,679) |  |  | (276,981) |
The Company evaluates its ability to realize the tax benefits associated with deferred tax assets by analyzing its forecasted taxable income using both historic and projected future operating results, the reversal of existing temporary differences, taxable income in prior carry-back years (if permitted) and the availability of tax planning strategies. The valuation allowance as of December 31, 2021, and 2020 is $236,357 and $267,838, respectively. The valuation allowance as of December 31, 2021 relates to the net deferred tax assets of certain of the Company’s foreign subsidiaries as well as certain state net operating losses and tax credits. The total change in the 2021 valuation allowance was a decrease of $31,481 related to tax rate changes, foreign currency translation, and other activities. The total change in the 2020 valuation allowance was an increase of $35,642 related to tax rate changes, foreign currency translation, and other activities. Management believes it is more likely than not that the Company will realize the benefits of its deferred tax assets, net of valuation allowances, based upon the expected reversal of deferred tax liabilities and the level of historic and forecasted taxable income over periods in which the deferred tax assets are deductible. As of December 31, 2021, the Company has state net operating loss carry forwards and state tax credits with potential tax benefits of $44,186, net of federal income tax benefit; these carry forwards expire over various periods based on taxing jurisdiction. A valuation allowance totaling $22,851 has been recorded against these state deferred tax assets as of December 31, 2021. In addition, as of December 31, 2021, the Company has credits and net operating loss carry forwards in the U.S. with potential tax benefits of $6,173 and in various foreign jurisdictions with potential tax benefits of $1,596,351. A valuation allowance of $5,882 and $207,624, respectively, has been recorded against these deferred tax assets as of December 31, 2021. As a result of the redemption of hybrid instruments in response to changes in global tax regimes, the Company has an ASC 740-10 liability of $1,238,277 for the full tax effected loss on the hybrid instrument in the Tax Uncertainties section below. This ASC 740-10-45 liability is recorded as a reduction to the related deferred tax asset in the financial statements as a result of management’s determination that it is not more likely than not that the benefit will be realized. The Company has no intentions or plans to repatriate foreign earnings and continues to assert that historical earnings of its foreign subsidiaries as of December 31, 2021 are permanently reinvested. Should the remaining earnings be distributed in the form of dividends in the future, the Company might be subject to withholding taxes (possibly offset by U.S. foreign tax credits) in various foreign jurisdictions, but the Company would not expect incremental U.S. federal or state taxes to be accrued on these previously taxed earnings. Tax Uncertainties In the normal course of business, the Company’s tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing jurisdictions. Accordingly, the Company accrues liabilities when it believes that it is not more likely than not that it will realize the benefits of tax positions that it has taken in its tax returns or for the amount of any tax benefit that exceeds the cumulative probability threshold in accordance with ASC 740-10. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits in income tax expense (benefit). Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on the Company’s consolidated financial position but could possibly be material to the Company’s consolidated results of operations or cash flow in any given quarter or annual period. As of December 31, 2021, the Company’s gross amount of unrecognized tax benefits is $1,296,523, excluding interest and penalties. If the Company were to prevail on all uncertain tax positions, $45,147 of the unrecognized tax benefits would affect the Company’s effective tax rate, exclusive of any benefits related to interest and penalties. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| 2021 |  | 2020
Balance as of January 1 | $ | 1,388,391 |  |  | 1,260,970 |
Additions based on tax positions related to the current year | 458 |  |  | 1,694 |
Additions for tax positions of acquired companies | — |  |  | — |
Additions for tax positions of prior years | 18,001 |  |  | 7,663 |
Transition tax planning initiatives | — |  |  | — |
Reductions resulting from the lapse of the statute of limitations | (3,336) |  |  | (1,239) |
Reductions due to Luxembourg tax rate change | — |  |  | — |
Settlements with taxing authorities | — |  |  | (497) |
Effects of foreign currency translation | (106,991) |  |  | 119,800 |
Balance as of December 31 | $ | 1,296,523 |  |  | 1,388,391 |
As a result of the redemption of hybrid instruments in response to changes in global tax regimes, the Company has an ASC 740-10 liability for the full tax effected loss on hybrid instruments. This ASC 740-10-45 liability is recorded as a reduction to the related deferred tax asset in the financial statements as a result of management’s determination that it is not more likely than not that the benefit will be realized. The tax effected loss was adjusted for foreign currency translation changes in 2021, resulting in an updated balance of $1,238,277 as of December 31, 2021. As of December 31, 2021 and 2020, the Company has $14,494 and $11,485, respectively, accrued for the payment of interest and penalties, excluding the federal tax benefit of interest deductions where applicable. During the years ended December 31, 2021, 2020 and 2019, the Company accrued interest and penalties through income tax expense of $3,236, $(695) and $5,368, respectively. The Company believes that its unrecognized tax benefits could decrease by $19,510 within the next twelve months. The Internal Revenue Service has initiated its audit of the Company’s 2019 and 2020 tax years. As permitted by the CARES Act, the company carried back its 2020 taxable losses to tax years before the corporate income tax rate was lowered by the Tax Cut and Jobs Act. Federal income tax matters related to years prior to 2014 have been effectively settled. Various other state and foreign income tax returns are open to examination for various years. Belgian Tax Matter The Company has been in a dispute with the Belgian Tax Authority (the “BTA”) regarding the proper tax treatment of the royalty income arising from intellectual property (“IP”) owned by a Luxembourg subsidiary, Flooring Industries Limited Sarl (“FIL”). The BTA had assessed Unilin BV for the calendar years ending December 2005 through 2010 in an amount totaling €223,321 (including penalties but excluding interest), alleging that Unilin BV inappropriately transferred valuable IP to FIL and income associated with that IP should be taxed in Belgium. Unilin BV challenged all of these assessments and prevailed both in the Court of First Appeal in Bruges and in the Ghent Court of Appeal. In 2021, the BTA indicated it will not appeal these cases to the Supreme Court and has withdrawn all of the assessments for 2005 through 2010. Consequently, all of those tax years are now closed. Having lost under its original theory, the BTA is in the process of initiating new assessments for later years against FIL rather than Unilin BV. The BTA now alleges that FIL had a taxable presence in Belgium and should be taxed on royalties received in respect of its IP. The BTA issued initial assessments in December 2020 and June 2021 that totaled €371,696 (including penalties but excluding interest) for calendar years ending December 2013 through 2018. However, in November and December of 2021, the BTA cancelled these assessments and issued a new notice of change that totals €182,594 (including penalties but excluding interest) for those years using different calculations. The Company expects an additional assessment for 2019. Under the statute of limitations, the BTA may not assess FIL for any years prior to 2013, and the Company believes that FIL’s statute of limitations is closed for 2013 through 2016, although this will be a point of contention with the BTA. These assessments would involve the same underlying facts at issue in the above referenced cases where Unilin BV prevailed at two different levels. Consequently, the Company believes that its tax position in Belgium was correct and will persist with its vigorous defense. When the BTA issues tax assessments, Belgian tax law requires assurances that the taxes can be paid even while they are being disputed. Consequently, the BTA has placed liens on various properties of Unilin BV to support the original assessments discussed above. Since those assessments have been nullified by the courts, the accompanying liens will be withdrawn. Since FIL does not have property in Belgium, the BTA may require assurances from FIL to support the new assessments for 2013 through 2019. These assurances may take the form of a bond or bank guarantees.

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