|12 Months Ended|
Dec. 31, 2021
|Income Tax Disclosure [Abstract]|
|Income Taxes||Income Taxes
The sources of Earnings before income taxes were as follows:
The Income tax provision consisted of the following:
Temporary differences and carryforwards giving rise to deferred tax assets and liabilities as of December 31, 2021 and 2020 are summarized in the table below:
The Company's total net deferred tax asset as of December 31, 2021 and 2020 reflects the impact of the U.S. federal corporate tax rate at 21 percent that was part of the Tax Cuts and Jobs Act (TCJA). The Company was required to value its net deferred tax balance at the lower tax rate.
As of December 31, 2021, the Company had a total valuation allowance against its deferred tax assets of $97.9 million. The remaining realizable value of deferred tax assets as of December 31, 2021 was determined by evaluating the potential to recover the value of these assets through the utilization of tax loss and credit carrybacks, the reversal of existing taxable temporary differences and carryforwards, certain tax planning strategies and future taxable income exclusive of reversing temporary differences and carryforwards. As of December 31, 2021, the Company retained valuation allowance reserves of $35.7 million against deferred tax assets in the U.S. primarily related to non-amortizable intangibles and various state operating loss carryforwards and state tax credits that are subject to restrictive rules for future utilization, and valuation allowances of $62.2 million for deferred tax assets related to foreign jurisdictions, primarily Brazil, Italy, Luxembourg, and Norway.
As of December 31, 2021, the tax benefit of loss carryforwards totaling $92.7 million was available to reduce future tax liabilities. This deferred tax asset was comprised of $1.5 million for the tax benefit of federal net operating loss (NOL) carryforwards, $30.6 million for the tax benefit of state NOL carryforwards and $60.6 million for the tax benefit of foreign NOL carryforwards. NOL carryforwards of $49.9 million expire at various intervals between the years 2022 and 2039, while $42.8 million have an unlimited life.
As of December 31, 2021, tax credit carryforwards totaling $57.6 million were available to reduce future tax liabilities. This deferred tax asset was comprised of $12.9 million related to federal tax credits, and $44.7 million of
various state tax credits related to research and development, capital investment and job incentives. These tax credit carryforwards expire at various intervals between the years 2022 and 2036.
No deferred income taxes have been provided as of December 31, 2021 or 2020 on the applicable undistributed earnings of the non-U.S. subsidiaries where the indefinite reinvestment assertion has been applied. If at some future date these earnings cease to be indefinitely reinvested and are repatriated, the Company may be subject to additional U.S. income taxes and foreign withholding and other taxes on such amounts. Pursuant to changes made by the TCJA, remittances from foreign subsidiaries are generally not subject to U.S. income taxation. These remittances are either excluded from U.S. taxable income as earnings that have already been subjected to taxation, or in the alternative are subject to a 100 percent foreign dividends received deduction. The Company continues to provide deferred taxes, primarily related to foreign withholding taxes, on the undistributed net earnings of foreign subsidiaries and unconsolidated affiliates that are not deemed to be indefinitely reinvested in operations outside the United States, although such amounts were immaterial as of December 31, 2021 and 2020.
As of December 31, 2021, 2020 and 2019 the Company had $10.1 million, $4.1 million and $3.9 million of gross unrecognized tax benefits, including interest, respectively. Except for $5.5 million that was included in purchase accounting, and potentially could be modified further through purchase accounting, substantially all of the remaining balances, if recognized, would impact the Company's tax provision and the effective tax rate.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2021, 2020 and 2019, the amounts accrued for interest and penalties were not material.
The following is a reconciliation of the total amounts of unrecognized tax benefits excluding interest and penalties for the 2021, 2020 and 2019 annual reporting periods:
The Company believes it is reasonably possible that the total amount of gross unrecognized tax benefits as of December 31, 2021 could decrease by approximately $0.5 million in 2022 due to settlements with taxing authorities or lapses in applicable statutes of limitation. Due to the various jurisdictions in which the Company files tax returns and the uncertainty regarding the timing of the settlement of tax audits, it is possible that there could be significant changes in the amount of unrecognized tax benefits in 2022, but the amount cannot be estimated at this time.
The Company is regularly audited by federal, state and foreign tax authorities. The Internal Revenue Service (IRS) has completed its field examination and has issued its Revenue Agents Report through the 2014 tax year and all open issues have been resolved. The Company is currently open to tax examinations by the IRS for the 2018 through 2020 tax years. Primarily as a result of filing amended returns, which were generated by the closing of federal income tax audits, the Company is still open to state and local tax audits in major tax jurisdictions dating back to the 2014 taxable year. The Company is no longer subject to income tax examinations by any major foreign tax jurisdiction for years prior to 2013.
The difference between the actual income tax provision and the tax provision computed by applying the statutory Federal income tax rate to Earnings before income taxes is attributable to the following:
During 2021, the Company recorded a $21.0 million income tax benefit related to the release of a portion of the Company’s valuation allowance. This was due to a reassessment of the realizability of certain federal tax credits, state tax credits and state NOL’s. The conclusion to release the valuation allowance was based upon sustained positive operating performance of its U.S. operations and the availability of expected future taxable income, leading the Company to believe that it is more likely than not that the benefit of these U.S. deferred tax assets will be realized.
During 2019, the Company fully exited its remaining defined benefit pension plans and recorded a pretax pension settlement charge of $292.8 million. The tax impact of this action consisted of a tax benefit of $73.9 million from the pension settlement charge, which was netted against a tax charge of $91.4 million resulting from the release of disproportionate tax effects in Accumulated Other Comprehensive Income. See Note 17 – Postretirement Benefits for more information.
The Company's effective tax rate for 2019 also reflects the benefit of having earnings from foreign entities that are in jurisdictions that have lower statutory tax rates than the U.S. with the most significant impact related to China and Poland, which have applicable statutory tax rates of 15 percent and 19 percent, respectively. In 2020 and 2021, the Company has fewer foreign entities in jurisdictions that have a lower statutory tax rates than the U.S., with the most significant impact related to Poland, which has a 19 percent applicable statutory tax rate.
Income tax provision allocated to continuing operations and discontinued operations for the years ended December 31 was as follows:
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.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef