XML 33 R18.htm IDEA: XBRL DOCUMENT v3.24.0.1
INCOME TAXES
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The effective tax rate for continuing operations was 13.8%, 54.1%, and 28.0%, for the years ended December 31, 2023, 2022, and 2021, respectively. The effective rate in 2023 was primarily influenced by the net valuation allowance release offset by the non-tax deductibility of the change in fair value of warrant liabilities. The prior two periods were primarily influenced by the mix of income between the Company’s U.S. and non-U.S. operations, favorable tax rates and incentives in non-U.S. jurisdictions, taxes accrued on unremitted earnings, withholding taxes on cross-border payments, changes in valuation allowance for U.S. federal and state and non-US purposes, the global intangible low-taxed income (“GILTI”) provisions of the Tax Cuts and Jobs Act (“the Act”), the change in fair value of warrant liabilities, and changes in reserves for uncertain tax positions.
The GILTI provisions of the Act require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company has made the policy election to record any liability associated with GILTI in the period in which it is incurred.
Earnings (loss) before income taxes from continuing operations consists of the following:
Year Ended December 31,
202320222021
United States$49.1 $(83.0)$(72.7)
Non-U.S. (1)
484.6 250.0 238.9 
Total earnings (loss) before income taxes$533.7 $167.0 $166.2 
(1)Certain of the Company’s Non-U.S. entities generate significant losses for which a valuation allowance is provided for and accordingly do not create a tax benefit.
The principal components of income tax expense (benefit) from continuing operations consists of the following:
Year Ended December 31,
202320222021
Current:
Federal$45.5 $1.2 $2.3 
State and local16.9 3.4 9.7 
Non-U.S.142.5 94.4 104.4 
Deferred:
Federal(94.0)4.3 (25)
State and local(23.5)(1.5)(4.7)
Non-U.S.(13.9)(11.4)(40.1)
Income tax expense (benefit)$73.5 $90.4 $46.6 
Reconciliation of U.S. federal statutory taxes to the Company’s total income tax expense (benefit) from continuing operations consists of the following:
Year Ended December 31,
202320222021
Taxes at U.S. statutory rate (21%)
$112.1 $35.1 $34.9 
State and local taxes, net of federal tax benefit13.5 (0.5)4.5 
Non-U.S. rate differential6.1 14.2 29.5 
Non-U.S. tax holidays and incentives(13.1)(0.7)(12.1)
Uncertain tax positions5.7 7.5 33.7 
U.S. tax impact of non-U.S. operations10.0 6.5 (21.1)
Change in valuation allowances(100.5)33.6 (24.0)
Taxes on undistributed foreign earnings and withholding/ dividend taxes13.2 17.1 14.2 
Foreign derived intangible income(3.0)(1.1)(15.9)
R&D deduction/ credit(15.0)(11.9)(11.8)
Impact of non-tax litigation and other settlements5.5 — (8.5)
Change in fair value of warrant liabilities33.2 (19.1)13.0 
Other permanent differences1.0 (1.3)7.2 
Impact of rate changes in non-U.S. jurisdictions1.4 8.9 (9.2)
Impact of transaction costs— (0.4)6.0 
Non-deductible compensation1.0 2.1 0.9 
Other (1)
2.4 0.4 5.3 
Total income tax expense (benefit)$73.5 $90.4 $46.6 
(1)Represents several adjustments, none of which are significant for separate disclosure.
The Company has tax holiday agreements in place in China, which expire in between 2023 and 2024. It is the Company’s intention to reapply for these holidays as they expire. We anticipate that we will continue to qualify for these holidays, but we will assess based on business conditions at the time of renewal.
As of December 31, 2023 and 2022 the Company has recognized $39.0 and $41.3, respectively, of net deferred income tax liabilities for U.S. income taxes, non-U.S. income taxes and foreign withholding taxes on outside basis differences for certain foreign subsidiaries with earnings that are not indefinitely reinvested.
The principal items that gave rise to deferred income tax assets and liabilities follow:
December 31, 2023December 31, 2022
Deferred tax assets
Net operating losses and capital losses$60.8 $95.3 
Capitalized research expenditures105.7 84.7 
Accrued liabilities44.8 38.8 
Employee compensation and benefits23.3 13.7 
Pensions14.8 12.8 
Business interest deduction limitation88.7 78.4 
Inventory29.8 23.9 
R&D credit carryforward4.4 7.6 
Lease liability22.5 24.6 
Bad debts9.2 6.8 
Foreign tax credit carryforward26.8 21.1 
Other6.3 3.7 
Total deferred tax assets, before valuation allowances$437.1 $411.4 
Valuation allowances$(146.8)$(250.4)
Deferred tax assets, net of valuation allowances$290.3 $161.0 
Deferred tax liabilities
Intangibles & Goodwill(175.9)(176.9)
Undistributed foreign earnings(39.0)(41.3)
Property, plant & equipment(27.0)(21.1)
Debt issuance costs(24.6)(27.8)
Lease Right of Use Asset(20.2)(22.5)
Other(3.3)(1.5)
Total deferred tax liabilities$(290.0)$(291.1)
Net deferred income tax liabilities$0.3 $(130.1)
At December 31, 2023, the Company has utilized all available federal net operating losses. At December 31, 2023, the gross amount of the Company’s state net operating losses was $464.3, expiring at various times between 2024 and 2042. At December 31, 2023, the Company had $31.2 other federal tax credit carryforwards expiring between 2027 and 2043. At December 31, 2023, the Company had other immaterial state tax credit carryforwards expiring between 2029 and 2038.
The use of certain US tax attributes as of December 31, 2023 is subject to an annual limitation due to the change in ownership of our stock in February 2020 as described in “Note 1 - Summary of Significant Accounting Policies”. There can be no assurance that trading in our shares will not affect another change in ownership under the Internal Revenue Code which could impose an additional limit on the use of our tax attributes.
At December 31, 2023, the Company’s foreign net operating losses that are available to offset future taxable income were $172.6. These foreign loss carryforwards will expire at various times beginning in 2024 with some losses having an unlimited carryforward period.
At December 31, 2023, the Company’s foreign capital loss carryforwards were $66.0. The majority of foreign capital loss carryforwards will expire in 2024 with the remaining having an unlimited carryforward period.
Pursuant to the terms of the separation, Emerson agreed to indemnify the Company for all U.S. federal, state or local income taxes, as well as non-U.S. income taxes, that are attributable to any period prior to the separation. An indemnification receivable of $6.9 has been recorded in noncurrent other assets for the uncertain tax positions related to periods prior to the separation. The impact on the Company’s tax expense for changes in uncertain tax positions for periods prior to the separation (discussed below) will be offset by the Emerson indemnification, resulting in no net effect on the Company’s net income.
Pursuant to the terms of the E&I Acquisition, E&I agreed to indemnify the Company for certain non-U.S. income taxes, that are attributable to any period prior to the acquisition. An indemnification receivable of $2.8 has been recorded in noncurrent other assets for the uncertain tax positions related to periods prior to the acquisition. The impact on the Company’s tax expense for changes in uncertain tax positions for periods prior to the acquisition (discussed below) will be offset by the E&I indemnification, resulting in no net effect on the Company’s net income.
Following are changes in unrecognized tax benefits before considering recoverability of cross-jurisdictional tax credits (federal, state, and non-U.S.) and temporary differences. The amount of unrecognized tax benefits is not expected to significantly increase or decrease within the next 12 months.
December 31, 2023December 31, 2022December 31, 2021
Beginning balance$97.0 $98.6 $70.0 
Additions for the current year tax positions20.6 11.9 25.1 
Additions for prior year tax positions5.8 — 22.8 
Reductions for prior year tax positions(0.5)(11.9)(10.2)
Reductions for settlements with tax authorities(4.1)— (8.5)
Reductions for expirations of statute of limitations(16.3)(1.6)(0.6)
Ending balance$102.5 $97.0 $98.6 
The total amount of net unrecognized tax benefits that would affect income tax expense, if recognized in the Consolidated Financial Statements, is $97.0. In addition, an adjustment of $9.7 would result to other expense for reversal of the indemnification receivable. The Company accrues interest and penalties related to income taxes in income tax expense. As of December 31, 2023, 2022, and 2021, total accrued interest and penalties were $19.0, $18.0, and $15.2, respectively.
Eligible domestic subsidiaries file a consolidated U.S. Federal income tax return. Examinations by the U.S. Internal Revenue Service are complete through the December 1, 2016 date of separation with Emerson, with the limited exception of 2014. The status of state and non-U.S. tax examinations varies due to the numerous legal entities and jurisdictions in which the Company operates. As noted above, pursuant to the terms of the transactions, Emerson and E&I will indemnify the Company for certain tax assessments for periods prior to closing.
The change in the income tax valuation allowance is as follows:
December 31, 2023December 31, 2022December 31, 2021
Beginning balance$250.4 $241.6 $282.6 
Additions (reductions) charged to expense(100.4)33.6 (24.0)
Reductions charged to other accounts(3.2)(24.8)(17.0)
Ending balance$146.8 $250.4 $241.6 
For the year ended December 31, 2023, the Company recorded a net valuation allowance release of $103.4 primarily related to U.S. federal and state jurisdictions. At each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of December 31, 2023, management determined that there is sufficient positive evidence to conclude that it is more likely than not that the U.S. federal and state deferred tax assets, excluding primarily foreign tax credits, are realizable. The Company therefore reduced the valuation allowance accordingly.