Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Income before income taxes consists of the following:

	Year Ended December 31
(in thousands)	2022		2021		2020
U.S.	$	69,499	$	421,420	$	403,295
Non-U.S.	52,235		28,207		3,973
	$	121,734	$	449,627	$	407,268

The provision for income taxes consists of the following:

(in thousands)	Current		Deferred		Total
Year Ended December 31, 2022
U.S. Federal	$	37,525	$	(6,180)	$	31,345
State and Local	5,676		2,513		8,189
Non-U.S.	11,943		(177)		11,766
	$	55,144	$	(3,844)	$	51,300
Year Ended December 31, 2021
U.S. Federal	$	20,806	$	64,356	$	85,162
State and Local	4,354		(435)		3,919
Non-U.S.	6,094		1,125		7,219
	$	31,254	$	65,046	$	96,300
Year Ended December 31, 2020
U.S. Federal	$	77,882	$	6,669	$	84,551
State and Local	8,083		4,954		13,037
Non-U.S.	6,958		2,754		9,712
	$	92,923	$	14,377	$	107,300

The provision for income taxes differs from the amount of income tax determined by applying the U.S. Federal statutory rate of 21% to the income before taxes as a result of the following:

	Year Ended December 31
(in thousands)	2022		2021		2020
U.S. Federal taxes at statutory rate (see above)	$	25,564	$	94,422	$	85,526
State and local taxes, net of U.S. Federal tax	(331)		2,238		15,366
Valuation allowances against state tax benefits, net of U.S. Federal tax	6,800		859		(5,067)
Stock-based compensation	2		(24)		2,048
Valuation allowances against other non-U.S. income tax benefits	263		4,042		2,445
Goodwill impairments	15,628		1,612		—
Other, net	3,374		(6,849)		6,982
Provision for Income Taxes	$	51,300	$	96,300	$	107,300

The Company’s effective tax rate for 2021 was favorably impacted by a $17.2 million deferred tax adjustment arising from a change in the estimated deferred state income tax rate attributable to the apportionment formula used in the calculation of deferred taxes related to the Company’s pension and other postretirement plans. This benefit is included in the overall state tax provision for 2021 of $2.2 million reflected above.

Deferred income taxes consist of the following:

	As of December 31
(in thousands)	2022		2021
Employee benefit obligations	$	53,307	$	64,258
Accounts receivable	3,770		3,554
State income tax loss carryforwards	61,826		63,050
State capital loss carryforwards	36		107
State income tax credit carryforwards	421		511
U.S. Federal income tax loss carryforwards	64,310		69,509
U.S. Federal foreign income tax credit carryforwards	1,271		970
Non-U.S. income tax loss carryforwards	19,937		18,877
Non-U.S. capital loss carryforwards	3,458		3,707
Leases	59,072		63,715
Other	2,350		6,396
Deferred Tax Assets	269,758		294,654
Valuation allowances	(62,816)		(57,603)
Deferred Tax Assets, Net	206,942		237,051
Prepaid pension cost	426,348		594,372
Unrealized gain on marketable equity securities	87,204		138,868
Goodwill and other intangible assets	81,593		103,497
Property, plant and equipment	19,703		15,451
Leases	49,473		51,668
Non-U.S. withholding tax	2,084		2,001
Deferred Tax Liabilities	666,405		905,857
Deferred Income Tax Liabilities, Net	$	459,463	$	668,806

The Company has $1,049.7 million of state income tax net operating loss carryforwards available to offset future state taxable income. During 2021, the Company recorded $115.4 million of state income tax loss carryforwards as a result of the Leaf acquisition. State income tax loss carryforwards, if unutilized, will start to expire approximately as follows:

(in millions)
2023	$	5.4
2024	7.2
2025	18.1
2026	13.7
2027	17.6
2028 and after	987.7
Total	$	1,049.7

The Company has recorded at December 31, 2022, $61.8 million in deferred state income tax assets, net of U.S. Federal income tax, with respect to these state income tax loss carryforwards. The Company has established $41.6 million in valuation allowances against these deferred state income tax assets, since the Company has determined that it is more likely than not that some of these state tax losses may not be fully utilized in the future to reduce state taxable income.

The Company has $306.2 million of U.S. Federal income tax loss carryforwards obtained as a result of prior stock acquisitions. During 2021, the Company recorded $262.5 million of U.S. Federal income tax loss carryforwards as a result of the Leaf acquisition. U.S. Federal income tax loss carryforwards are expected to be fully utilized as follows:

(in millions)
2023	$	27.8
2024	27.8
2025	24.8
2026	14.0
2027	6.6
2028 and after	205.2
Total	$	306.2

The Company has established at December 31, 2022, $64.3 million in U.S. Federal deferred tax assets with respect to these U.S. Federal income tax loss carryforwards.

For U.S. Federal income tax purposes, the Company has established U.S. Federal deferred tax assets with respect to $1.3 million of foreign tax credits available to be credited against future U.S. Federal income tax liabilities that will start to expire in 2023 if unutilized. The Company has recorded $1.3 million in valuation allowances against these deferred tax assets since the Company determined that it is more likely than not these foreign tax credit carryforwards may not be utilized in the future to reduce U.S. Federal income taxes.

The Company has $91.1 million of non-U.S. income tax loss carryforwards as a result of operating losses and carryforwards that were obtained in part through prior stock acquisitions that are available to offset future non-U.S. taxable income and has recorded, with respect to these losses, $19.9 million in non-U.S. deferred income tax assets. The Company has established $14.4 million in valuation allowances against the deferred tax assets for the portion of non-U.S. tax losses that may not be utilized to reduce future non-U.S. taxable income. The $91.1 million of non-U.S. income tax loss carryforwards consist of $50.7 million in losses that may be carried forward indefinitely; $26.0 million of losses that, if unutilized, will expire in varying amounts through 2027; and $14.4 million of losses that, if unutilized, will start to expire after 2027.

The Company has $11.5 million of non-U.S. capital loss carryforwards that may be carried forward indefinitely and are available to offset future non-U.S. capital gains. The Company recorded a $3.5 million non-U.S. deferred income tax asset for these non-U.S. capital loss carryforwards and has established a full valuation allowance against this non-U.S. deferred tax asset since the Company has determined that it is more likely than not that the capital loss carryforwards may not be utilized to reduce taxable income in the future.

Deferred tax valuation allowances and changes in deferred tax valuation allowances were as follows:

(in thousands)	Balance at Beginning of Period		Tax Expense and Revaluation		Deductions		Balance at End of Period
Year Ended
December 31, 2022	$	57,603	$	7,460	$	(2,247)	$	62,816
December 31, 2021	47,217		13,915		(3,529)		57,603
December 31, 2020	46,243		7,303		(6,329)		47,217

The Company has established $43.2 million in valuation allowances against deferred state tax assets recognized, net of U.S. Federal tax. As stated above, approximately $41.6 million of the valuation allowances, net of U.S. Federal income tax, relate to state income tax loss carryforwards. In most instances, the Company has established valuation allowances against deferred state income tax assets without considering potentially offsetting deferred tax liabilities established with respect to prepaid pension cost and goodwill. Prepaid pension cost and goodwill have not been considered a source of future taxable income for realizing those deferred state tax assets recognized since these temporary differences are not likely to reverse in the foreseeable future. However, certain deferred state tax assets have an indefinite life. As a result, the Company has considered deferred tax liabilities for prepaid pension cost and goodwill as a source of future taxable income for realizing those deferred state tax assets with indefinite lives. The valuation allowances established against deferred state income tax assets may increase or decrease within the next 12 months, based on operating results or the market value of investment holdings. The Company will

monitor future results on a quarterly basis to determine whether the valuation allowances provided against deferred state tax assets should be increased or decreased as future circumstances warrant.

The Company has established $18.2 million in valuation allowances against non-U.S. deferred tax assets, and, as stated above, $14.4 million of the non-U.S. valuation allowances relate to non-U.S. income tax loss carryforwards and $3.5 million relate to non-U.S. capital loss carryforwards. Valuation allowances established against non-U.S. deferred tax assets are recorded at the education division and other businesses. These non-U.S. valuation allowances may increase or decrease within the next 12 months, based on operating results. As a result, the Company is unable to estimate the potential tax impact, given the uncertain operating environment. The Company will monitor future education division and other businesses’ operating results and projected future operating results on a quarterly basis to determine whether the valuation allowances provided against non-U.S. deferred tax assets should be increased or decreased as future circumstances warrant.

The Company estimates that unremitted non-U.S. subsidiary earnings, when distributed, will not be subject to tax except to the extent non-U.S. withholding taxes are imposed. Approximately $2.1 million of deferred tax liabilities remain recorded on the books at December 31, 2022 with respect to future non-U.S. withholding taxes the Company estimated may be imposed on future cash distributions.

U.S. Federal and state tax liabilities may be recorded if the investment in non-U.S. subsidiaries become held for sale instead of being held indefinitely, but calculation of the tax due is not practicable.

The 2019 U.S. Federal tax return and subsequent years remain open to IRS examination. The Company files income tax returns with the U.S. Federal government and in various state, local and non-U.S. governmental jurisdictions, with the consolidated U.S. Federal tax return filing considered the only major tax jurisdiction.

The Company endeavors to comply with tax laws and regulations where it does business, but cannot guarantee that, if challenged, the Company’s interpretation of all relevant tax laws and regulations will prevail and that all tax benefits recorded in the financial statements will ultimately be recognized in full.

The following summarizes the Company’s unrecognized tax benefits, excluding interest and penalties, for the respective periods:

	Year Ended December 31
(in thousands)	2022		2021		2020
Beginning unrecognized tax benefits	$	3,004	$	1,898	$	1,572
Increases related to current year tax positions	300		1,061		742
Increases related to prior year tax positions	778		45		656
Decreases related to prior year tax positions	(185)		—		—
Decreases related to settlement with tax authorities	—		—		(1,072)
Decreases due to lapse of applicable statutes of limitations	—		—		—
Ending unrecognized tax benefits	$	3,897	$	3,004	$	1,898

The unrecognized tax benefits relate to federal and state research and development tax credits applicable to the 2019 to 2022 tax periods, as well as state income tax filing positions applicable to the 2012 to 2018 and 2020 tax periods. In making these determinations, the Company presumes that taxing authorities pursuing examinations of the Company’s compliance with tax law filing requirements will have full knowledge of all relevant information, and, if necessary, the Company will pursue resolution of disputed tax positions by appeals or litigation. Although the Company cannot predict the timing of resolution with tax authorities, the Company estimates that some of the unrecognized tax benefits may change in the next 12 months due to settlement with the tax authorities. The Company expects that a $1.9 million federal tax benefit and a $2.0 million state tax benefit, net of $0.4 million federal tax expense, will reduce the effective tax rate in the future if the unrecognized tax benefits are recognized.

The Company classifies interest and penalties related to uncertain tax positions as a component of interest and other expenses, respectively. As of December 31, 2022, the Company has accrued $0.3 million of interest related to the unrecognized tax benefits. The Company has not accrued any penalties related to the unrecognized tax benefits.