Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

13. Income Taxes

The components of (loss) earnings before income taxes and discontinued operations were:

	Years Ended December 31,
(in millions)	2022		2021		2020
Domestic	$	(410.1)	$	15.5	$	(26.2)
Foreign	(8.1)		89.1		37.5
Total (loss) earnings before income taxes and discontinued operations	$	(418.2)	$	104.6	$	11.3

Income tax expense (benefit) for the years ended December 31, 2022, 2021, and 2020 is comprised of the following:

	Years Ended December 31,
(in millions)	2022		2021		2020
Current:
U.S. Federal	$	1.2	$	0.4	$	0.7
State and local	0.6		0.3		0.2
Foreign	5.5		14.8		10.3
Total current tax expense	$	7.3	$	15.5	$	11.2
Deferred:
U.S. Federal	$	3.0	$	(57.1)	$	(0.4)
State and local	(0.3)		(2.6)		0.2
Foreign	1.9		(1.4)		(2.6)
Total deferred tax expense (benefit)	4.6		(61.1)		(2.8)
Total income tax expense (benefit)	$	11.9	$	(45.6)	$	8.4

The reconciliation of income tax expense (benefit) at the U.S. Federal income tax rate to the Company’s actual income tax expense (benefit) was as follows:

	Years Ended December 31,
	2022		2021		2020
Income tax expense (benefit) at U.S. federal statutory income tax rate	$	(87.8)	$	22.0	$	2.4
State and local taxes, net of Federal income tax benefit	0.6		0.3		0.5
Foreign operations tax effect	6.4		3.5		2.0
Research and experimentation tax credits	(3.4)		(4.0)		(3.3)
Valuation allowance	0.8		(59.7)		9.6
Tax contingencies	(1.1)		0.6		—
Tax holiday	(0.4)		(10.6)		(4.3)
Foreign taxes	1.1		1.0		0.3
Non-deductible and non-taxable interest	0.2		(0.2)		0.1
Stock-based compensation	1.8		5.1		1.3
Other, principally non-tax deductible items	1.2		0.1		0.1
Goodwill impairment	90.6		—		—
Global low tax and foreign derived intangible income	0.1		(2.5)		1.4
Foreign currency adjustments	—		(0.7)		(0.7)
Prior period items	1.8		(0.5)		(1.0)
Total income tax expense (benefit)	$	11.9	$	(45.6)	$	8.4

The Company’s effective tax rate was favorably impacted by three tax holidays - two holidays granted to us by Malaysia, one which would have been effective through December 31, 2026 and the other which expired on July 31, 2021, and a tax holiday granted by China (the "Hi-Tech Rate"). Each of our tax holidays is subject to the Company's satisfaction of certain conditions. As a result of the rapid decline in current demand for global consumer electronics during 2022, we will not satisfy all the conditions of our tax holiday in Malaysia that was in effect January 1, 2022. As such, we are not including this tax holiday benefit in our 2022 effective tax rate. For additional information, refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The Hi-Tech Rate is a preferential tax rate for high technology enterprises for Chinese tax purposes that is effective for the Company's annual tax filings 2021 through 2023. This benefit is being reflected as a tax holiday in the effective tax rate. We expect to continue to satisfy the conditions for the Hi-Tech Rate. If the Company fails to satisfy such conditions, the Company’s effective tax rate may be adversely impacted.

The continuing operations benefit of incentives for the years ending December 31, 2022, 2021, and 2020 is estimated to be $0.8 million, $10.7 million, and $3.8 million, respectively. The continuing operations benefit of tax holidays on a basic per share basis for the years ending December 31, 2022, 2021, and 2020 was, $0.01, $0.12, and $0.04, respectively.

The components of the Company’s deferred tax assets and liabilities included the following:

(in millions)	December 31, 2022		December 31, 2021
Deferred tax assets:
Accrued compensation, principally post-retirement, and other employee benefits	$	11.0	$	10.4
Accrued expenses, principally for state income taxes and warranty	4.4		6.1
Accrued interest	1.5		5.9
Net operating loss and other carryforwards	68.0		70.9
Inventories, principally due to reserves for financial reporting purposes and capitalization for tax purposes	8.2		7.7
Unremitted earnings of non-U.S. subsidiaries	2.0		0.7
Intangible assets, principally due to different tax and financial reporting bases	6.9		0.6
Plant and equipment, principally due to differences in depreciation	13.8		17.0
Total gross deferred tax assets	115.8		119.3
Valuation allowance	(39.7)		(39.1)
Total deferred tax assets	$	76.1	$	80.2
Deferred tax liabilities:
Other liabilities	$	(2.2)	$	(2.1)
Total gross deferred tax liabilities	(2.2)		(2.1)
Net deferred tax asset	$	73.9	$	78.1
Classified as follows in the Consolidated Balance Sheets:
Other assets and deferred charges (non-current deferred tax assets)	$	74.8	$	78.7
Deferred income taxes (non-current deferred tax liabilities)	(0.9)		(0.6)
Net deferred tax asset	$	73.9	$	78.1

The Company recorded valuation allowances of $39.7 million and $39.1 million at December 31, 2022 and 2021, respectively, against deferred tax assets from continuing operations as the Company believes it is more likely than not that these assets will not be realized. At December 31, 2021, we recognized an income tax benefit of $59.1 million related to the reversal of our U.S. deferred tax asset valuation allowance. The Company routinely reviews the future realization of deferred tax assets based on projected future reversal of taxable temporary differences, available tax planning strategies, and projected future taxable income. Management believes that it is more likely than not that the Company will realize the benefits of the remaining deferred tax assets.

At December 31, 2022, the Company had $4.5 million of U.S. federal net operating losses that are available, of which $2.4 million will expire in the next 5 to 10 years, and of which $2.1 million will expire in the next 11 to 20 years. There are $3.1 million of domestic State net operating losses that are available between 2027 and 2040. There are $5.2 million of non-U.S. net operating loss carryforwards, of which $0.3 million will expire in the next 5 years; $4.2 million will expire in the next 10 to 20 years; $0.6 million can be carried forward indefinitely; and $0.1 million is capital loss carried forward indefinitely.

The Company has $25.2 million of U.S. federal research and development credits that begin to expire in 2023 and $14.1 million of foreign tax credits that begin to expire in 2027. In addition, the Company has $15.8 million of state credits, of which $2.1 million will expire between 2023 and 2037 if unused, and $13.7 million can be carried forward indefinitely.

The Company has not provided for U.S. federal income taxes on the historical undistributed earnings of its international subsidiaries because such earnings are currently reinvested in foreign jurisdictions and will continue to be reinvested indefinitely, with the exception of its Malaysian and Luxembourg subsidiaries. Our Malaysian principal subsidiary is our primary source of foreign earnings and cash. Any future decision to distribute cash from this subsidiary to the U.S. should not result in a material amount of U.S. or foreign taxes as the majority of the Company's $1.1 billion historical undistributed earnings have been previously taxed in the U.S. under the Tax Cuts and Jobs Act of 2017.

Unrecognized Tax Benefits

The Company records interest and penalties associated with unrecognized tax benefits as a component of income tax expense. During the years ended December 31, 2022, 2021, and 2020, the Company recorded interest expense resulting in insignificant balances. The Company recorded penalty expense during the years ended December 31, 2022, 2021, and 2020 resulting in accrued penalties of $0.1 million, $0.3 million, and $0.3 million, respectively, which were included in Other liabilities on the Consolidated Balance Sheets.

The Company's tax returns are routinely audited by the tax authorities in the relevant jurisdictions. For tax years before 2017, the Company is no longer subject to U.S. federal income tax examination. For tax years before 2015, the Company’s Malaysian principal subsidiary is no longer subject to examination. Included in the balance of total unrecognized tax benefits at December 31, 2022 are potential benefits of $2.5 million, which if recognized, would affect the effective rate on earnings from continuing operations. Given the Company's current valuation allowance position, no benefit is expected to result from the reversal of any uncertain tax position associated with the acquired attributes.

Unrecognized tax benefits at January 1, 2020	$	12.7
Settlements	(2.6)
Foreign exchange fluctuations	0.1
Unrecognized tax benefits at December 31, 2020	$	10.2
Reductions for tax positions of prior years	(0.3)
Settlements	(0.4)
Unrecognized tax benefits at December 31, 2021	$	9.5
Reductions as a result of a lapse in statute of limitations	(1.3)
Foreign exchange fluctuations	(0.1)
Unrecognized tax benefits at December 31, 2022	$	8.1