Income Taxes

12 Months Ended

Dec. 31, 2023

4.Income Taxes

Income (loss) from continuing operations before income taxes as shown in the Consolidated Statements of Operations consists of the following:


	Years Ended December 31,
	2023		2022		2021
	(in millions)
Domestic	$	(63.9)	$	(77.2)	$	(1.8)
Foreign	101.6		105.5		67.8
Total	$	37.7	$	28.3	$	66.0

A summary of income tax expense (benefit) from continuing operations in the Consolidated Statements of Operations is as follows:


	Years Ended December 31,
	2023		2022		2021
	(in millions)
Current:
Federal	$	12.1	$	15.0	$	(3.7)
Foreign	24.8		23.2		17.8
State	1.6		0.2		0.1
	38.5		38.4		14.2
Deferred:
Federal	(11.0)		(8.9)		2.4
Foreign	1.8		(6.4)		(6.8)
State	1.5		1.3		(1.1)
	(7.7)		(14.0)		(5.5)
Total	$	30.8	$	24.4	$	8.7

Significant components of deferred income tax assets and liabilities are as follows:


	As of December 31,
	2023		2022
	(in millions)
Deferred income tax assets:
Net operating losses and tax credits	$	4.5	$	18.5
Environmental reserves	9.5		10.2
Accruals and reserves	2.8		2.4
Operating leases	11.7		10.8


Interest	4.5		7.1
Compensation and benefits	9.3		8.6
Inventories	5.1		2.9
Capitalization of research and development expense	9.9		2.4
Retained liabilities of previously owned businesses	0.6		0.5
Postretirement benefits other than pensions	0.4		0.3
Other	—		0.1
Gross deferred income tax assets	58.3		63.8
Valuation allowance	(2.7)		(10.7)
Total deferred income tax assets	55.6		53.1
Deferred income tax liabilities:
Depreciation and amortization	(153.3)		(160.6)
Operating leases	(11.7)		(10.8)
Cross currency swap	(0.8)		(2.1)

Pension obligations	(2.4)		(1.6)
Other	(0.3)		—

Total deferred income tax liabilities	(168.5)		(175.1)
Net deferred income tax liabilities	$	(112.9)	$	(122.0)

The net deferred income tax liabilities are reflected on a jurisdictional basis as a component of the December 31, 2023 and 2022 Consolidated Balance Sheet line items noted below:


	As of December 31,
	2023		2022
	(in millions)

Other assets (non-current)	$	7.8	$	12.8

Deferred taxes and non-current income taxes payable	(120.7)		(134.8)
Net deferred income tax liabilities	$	(112.9)	$	(122.0)

At December 31, 2023, we had $0.9 million of foreign net operating loss carryforwards, of which $0.4 million expire at various dates from 2038 through 2040 if unused, and $0.5 million have an indefinite carryforward period. We also have federal and state tax credit carryforwards of $3.4 million which expire at varying dates between 2027 and 2039 as well as state net operating loss carryforwards with a tax effect of $1.5 million which expire at various dates from 2024 through 2042. These net operating loss and tax credit carryforwards may be used to offset a portion of future tax liability and thereby reduce or eliminate our federal, state or foreign income taxes otherwise payable.

Because of the transition tax, GILTI, and Subpart F provisions, undistributed earnings of our foreign subsidiaries totaling $251.0 million at December 31, 2022 have been subjected to U.S. income tax or are eligible for the 100 percent dividends-received deduction under Section 245A of the Internal Revenue Code ("IRC") provided in the Tax Cuts and Jobs Act. Additionally, undistributed earnings are estimated to be $179.5 million as of December 31, 2023. Whether through the application of the 100-percent dividends received deduction, or distribution of these previously-taxed earnings, we do not intend to distribute foreign earnings that will be subject to any significant incremental U.S. or foreign tax. During 2023, we repatriated $72.6 million of earnings from our foreign subsidiaries, resulting in only $0.4 million of withholding taxes net of

refunds to be received. We have determined that estimating any tax liability on our investment in foreign subsidiaries is not practicable. Therefore, we have not recorded any deferred tax liability on undistributed earnings of foreign subsidiaries.

We determined, based on the available evidence, that it is uncertain whether certain entities in various jurisdictions will generate sufficient future taxable income to recognize certain of these deferred tax assets. As a result, valuation allowances of $2.7 million and $10.7 million have been recorded as of December 31, 2023 and 2022, respectively. Valuation allowances recorded relate to certain state and foreign net operating losses and other net deferred tax assets in jurisdictions where future taxable income is uncertain. In addition, $1.8 million and $2.0 million of the valuation allowance recorded as of December 31, 2023 and 2022, respectively, relate to general foreign tax credit carryforwards, due to uncertainty around the ability to generate the requisite foreign source income to utilize that portion of the foreign tax credits. Valuation allowances may arise associated with deferred tax assets recorded in acquisition accounting. In accordance with applicable accounting guidelines, any reversal of a valuation allowance that was recorded in acquisition accounting reduces income tax expense.

The effective income tax rate from continuing operations varied from the statutory federal income tax rate as follows:


	Percent of Pretax Income Years Ended December 31,
	2023		2022		2021
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%
U.S. taxation of foreign profits, net of foreign tax credits	—		—		(5.6)
Research and employment tax credits	(3.6)		(2.2)		(1.1)
State and local taxes	3.0		1.5		(1.2)


Foreign tax rate differences	24.9		8.4		10.1

Statutory changes in tax rates	(1.1)		(1.1)		0.2
Valuation allowance	(1.5)		8.1		(5.1)
Changes in uncertain tax positions	1.8		(3.4)		(9.4)
Goodwill impairment	33.8		48.4		—
Nondeductible expenses	2.3		2.3		4.1

GILTI and FDII	0.2		4.0		(0.4)

Other items, net	0.8		(0.8)		0.8
Effective income tax rate	81.6	%	86.2	%	13.4	%

The effective tax rate for 2023 was primarily driven impairment of non-deductible goodwill, the foreign rate differential related to certain foreign earnings that were subject to higher tax rates, and releasing valuation allowances on certain tax attributes. The effect of these items resulted in a net $21.6 million increase in income tax expense.

The GILTI provisions require us to include in our U.S. income tax returns certain current foreign subsidiary earnings net of foreign tax credits, subject to limitation. We elected to account for the GILTI tax in the period in which it is incurred. As a result of these provisions, our effective tax rate was increased by 4.4% due to GILTI.

As of December 31, 2023 and 2022, we had $5.0 million and $4.5 million, respectively, of gross unrecognized tax benefits. Of the gross unrecognized tax benefit balances as of December 31, 2023 and 2022, $4.1 million and $4.1 million, respectively, would have an impact on our effective tax rate if ultimately recognized.

We record interest and penalties related to unrecognized tax benefits in income tax expense. In addition to the gross unrecognized tax benefits above, we had $1.4 million and $1.2 million accrued for interest and penalties at December 31, 2023 and 2022, respectively. Income tax expense includes $0.2 million, $(0.2) million and $(1.7) million for the years ended December 31, 2023, 2022, and 2021, respectively, for interest and penalties related to unrecognized tax benefits.

A reconciliation of the beginning and ending amount of the gross unrecognized tax benefits (excluding interest) is as follows:


(in millions)	2023		2022		2021
Balance at beginning of year	$	4.5	$	5.5	$	12.2
Additions based on tax positions related to the current year	0.5		0.2		0.9
Additions for tax positions of prior years	0.2		(0.2)		(0.2)

Reductions as a result of a lapse in the statute of limitations	(0.2)		(1.0)		(2.9)
Reductions as a result of audit/other settlements	—		—		(4.5)

Balance at end of year	$	5.0	$	4.5	$	5.5

U.S. federal income tax returns for tax years 2020 and forward remain open to examination. We and our subsidiaries are also subject to income tax in multiple state, local and foreign jurisdictions. Substantially all significant state, local and foreign income tax returns for the years 2019 and forward are open to examination. Various state and foreign tax returns are currently under examination. We expect that some of these examinations may conclude within the next twelve months, however, the final outcomes are not yet determinable. In addition, gross unrecognized tax benefits may be reduced by $2.8 million within the next twelve months as the applicable statute of limitation expire.

- 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

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+ Details

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