Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Income (loss) before income taxes for the years ended December 31 were as follows ($ in millions):

	2022		2021		2020
United States	$	21.9	$	35.0	$	(64.3)
International	262.0		219.5		44.3
Total	$	283.9	$	254.5	$	(20.0)

The provision (benefit) for income taxes for the years ended December 31 were as follows ($ in millions):

	2022		2021		2020
Current:
Federal U.S.	$	42.5	$	17.7	$	13.1
Non-U.S.	22.4		26.9		13.5
State and local	8.6		4.4		0.9
Deferred:
Federal U.S.	(31.3)		(2.2)		(13.1)
Non-U.S.	11.3		(57.5)		(72.7)
State and local	(7.6)		1.7		(4.2)
Income tax provision (benefit)	$	45.9	$	(9.0)	$	(62.5)

Deferred tax assets and deferred tax liabilities are classified as long-term and are included in other long-term assets and other long-term liabilities, respectively, in the accompanying Consolidated Balance Sheets. Significant components of deferred tax assets and liabilities as of December 31 were as follows ($ in millions):

	2022		2021
Deferred tax assets:
Inventories	$	15.4	$	17.4
Pension benefits	6.2		11.5
Other accruals and prepayments	45.3		54.3
Lease liabilities	35.5		34.2
Stock-based compensation expense	7.5		6.8
Interest expense	36.0		8.7
Capitalized research expenses	15.1		3.8
Tax credit and loss carryforwards	38.2		117.3
Valuation allowances	(38.7)		(90.0)
Total deferred tax asset	160.5		164.0
Deferred tax liabilities:
Property, plant and equipment	(5.7)		(9.6)
Unrealized gains and losses	(6.2)		(6.5)
Right-of-use assets	(31.5)		(30.3)
Goodwill and other intangible assets	(92.2)		(192.3)
Total deferred tax liability	(135.6)		(238.7)
Net deferred tax asset (liability)	$	24.9	$	(74.7)

Deferred taxes associated with U.S. entities consist of net deferred tax liabilities of $15.1 million and $133.0 million as of December 31, 2022 and 2021, respectively. Deferred taxes associated with non-U.S. entities consist of net deferred tax assets of $40.0 million and $58.5 million as of December 31, 2022 and 2021, respectively. During 2022, the Company’s valuation allowance decreased by $51.3 million primarily due to a corresponding expiration of certain foreign net operating losses.

The Company’s intent is to permanently reinvest substantially all funds outside of the United States and current plans do not demonstrate a need to repatriate the cash to fund U.S. operations. However, if these funds were repatriated, they would likely not be subject to United States federal income tax under the previously taxed income or the dividend exemption rules. The Company would likely be required to accrue and pay United States state and local taxes and withholding taxes payable to various countries. It is not practicable to estimate the tax impact of the reversal of the outside basis difference, or the repatriation of cash due to the complexity of its hypothetical calculation.

The 2022 decrease in the deferred tax liability for goodwill and other intangible assets included an income tax benefit of approximately $100.2 million related primarily to the acquisition of amortizable deferred tax assets associated with the Intraoral Scanner Business acquisition partially offset with deferred tax liabilities established in connection with the Osteogenics acquisition.

Current tax law in the United States imposes tax on U.S. stockholders for global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The Company is required to make an accounting policy election of either: (1) treating taxes due on future amounts included in the U.S. taxable income related to GILTI as a current period tax expense when incurred (“the period cost method”); or (2) factoring such amounts into the Company’s measurement of its deferred tax its deferred tax expense (the “deferred method”). In 2018, the Company elected the period cost method for its accounting for GILTI.

The effective income tax rate for the years ended December 31 varies from the U.S. statutory federal income tax rate as follows:

	Percentage of Pretax Income
	2022		2021		2020
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%
Increase (decrease) in tax rate resulting from:
State income taxes (net of federal income tax benefit)	0.3		1.2		17.0
Impact of foreign operations	(5.0)		(6.4)		80.4
Foreign-Derived Intangible Income (“FDII”)	(0.7)		—		—
Subpart F and GILTI, net of foreign tax credits	6.7		6.4		(72.4)
Change in uncertain tax positions	(0.5)		—		3.4
Research and experimentation credits and other	(1.6)		(1.6)		13.2
Permanent differences and other	(0.9)		2.7		(20.3)
Excess tax benefit from stock-based compensation	(1.6)		(1.9)		11.6
Valuation allowance release on certain Swiss NOLs	—		(8.1)		—
Impact of step-up of Swiss assets	(1.5)		(16.8)		258.6
Effective income tax rate	16.2	%	(3.5)	%	312.5	%

The Company realized tax benefits of $7.2 million, $6.7 million, and $4.2 million in 2022, 2021 and 2020 respectively, for tax deductions attributable to stock-based compensation, of which, the excess tax benefit over the amount recorded for financial reporting purposes was $4.6 million, $4.8 million and $2.3 million in 2022, 2021 and 2020, respectively. As required by ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), the excess tax benefits for the years ended December 31, 2022, 2021 and 2020 have been included in the provision for income taxes.

The Company evaluates the future realizability of tax credits and loss carryforwards considering the anticipated future earnings of the Company’s subsidiaries as well as tax planning strategies in the associated jurisdictions. Included in deferred income taxes as of December 31, 2022 are tax benefits for U.S. and non-U.S. net operating loss carryforwards totaling $35.5 million ($29.1 million of which the Company does not expect to realize and has corresponding valuation allowances). Certain of the losses can be carried forward indefinitely and others can be carried forward to various dates from 2023 through 2042.

As of December 31, 2022, gross unrecognized tax benefits totaled $6.6 million ($9.2 million, including $2.6 million associated with potential interest and penalties). As of December 31, 2021, gross unrecognized tax benefits totaled $5.7 million ($7.6 million, including $1.9 million associated with potential interest and penalties). The Company recognized $0.6 million, $(0.1) million and $0.0 million in potential interest and penalties associated with uncertain tax positions during 2022, 2021 and 2020, respectively. To the extent unrecognized tax benefits (including interest and penalties) are recognized with respect to uncertain tax positions, the tax expense in future periods would be reduced by $9.2 million based upon the tax positions as of December 31, 2022. The Company recognized interest and penalties related to unrecognized tax benefits within income taxes in the accompanying Consolidated Statements of Operations. Unrecognized tax benefits and associated accrued interest and penalties are included in taxes, income and other accrued expenses as detailed in Note 10.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding amounts accrued for potential interest and penalties, is as follows ($ in millions):

	2022		2021		2020
Unrecognized tax benefits, beginning of year	$	5.7	$	7.1	$	9.1
Additions based on tax positions related to the current year	0.3		0.3		0.3
Additions for tax positions of prior years	4.2		—		0.3
Reductions for tax positions of prior years	—		(0.3)		(1.7)
Lapse of statute of limitations	(2.3)		(1.0)		(1.0)
Settlements	(1.1)		(0.4)		—
Effect of foreign currency translation	(0.2)		—		0.1
Unrecognized tax benefits, end of year	$	6.6	$	5.7	$	7.1

The Company is routinely examined by various domestic and international taxing authorities and operations in certain U.S. states and foreign jurisdictions remain subject to routine examination for tax years beginning with 2009.

The Company estimates that it is reasonably possible that the amount of unrecognized tax benefits may be reduced by approximately $2.7 million within twelve months through resolution of worldwide tax matters, payments of tax audit settlements and/or statute of limitations expirations.

The Company operates in various non-U.S. tax jurisdictions where “tax holiday” income tax incentives have been granted for a specific period. These tax benefits are not material to the Company’s financial statements.