Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The following table sets forth selected data with respect to the Company’s income tax provisions of continuing operations for the years ended December 31, (in millions): 

	2022		2021		2020
Income before income taxes:
United States	$	528.9	$	347.5	$	340.7
International	128.1		111.8		83.8
TOTAL INCOME BEFORE INCOME TAXES	$	657.0	$	459.3	$	424.5
Provision for income taxes — current:
Federal	$	120.3	$	43.3	$	56.3
State	24.2		13.0		15.1
International	23.5		22.7		17.0
Total provision — current	168.0		79.0		88.4
Provision for income taxes — deferred:
Federal	(26.2)		8.8		1.5
State	(3.9)		1.9		0.2
International	2.3		(1.5)		(0.3)
Total provision — deferred	(27.8)		9.2		1.4
TOTAL PROVISION FOR INCOME TAXES	$	140.2	$	88.2	$	89.8

Deferred tax assets and liabilities result from differences in the basis of assets and liabilities for tax and financial statement purposes. The components of the deferred tax assets/(liabilities) of continuing operations at December 31, were as follows (in millions):

	2022		2021
Deferred tax assets:
Inventories	$	9.6	$	10.2
Lease liabilities	27.4		20.5
Income tax credits	22.8		22.8
Accrued liabilities	40.8		38.5
Pension	38.9		43.1
Basis difference in subsidiary	—		25.1
Post retirement and post employment benefits	4.5		4.9
Stock-based compensation	6.9		6.7
Loss carryforwards	14.2		17.3
Capitalized research expenditures	18.4		—
Miscellaneous other	16.4		17.0
Gross deferred tax assets	199.9		206.1
Valuation allowance	(32.2)		(32.6)
Total deferred tax assets, net of valuation allowance	167.7		173.5
Deferred tax liabilities:
Liability on undistributed foreign earnings	(7.0)		(7.9)
Goodwill and intangibles	(185.0)		(205.2)
Right-of-use assets	(26.1)		(19.5)
Property, plant, and equipment	(57.9)		(50.4)
Total deferred tax liabilities	(276.0)		(283.0)
TOTAL NET DEFERRED TAX LIABILITY	$	(108.3)	$	(109.5)
Deferred taxes are reflected in the Consolidated Balance Sheet as follows:
Non-current tax assets (included in Other long-term assets)	$	5.5	$	5.2
Non-current tax liabilities (included in Other Non-Current Liabilities)	(113.8)		(114.7)
TOTAL NET DEFERRED TAX LIABILITY	$	(108.3)	$	(109.5)

As of December 31, 2022, the Company had a total of $22.8 million of U.S. federal, state (net of federal benefit) and foreign tax credit carryforwards, available to offset future income taxes. As of December 31, 2022, $1.9 million of the tax credits may be carried forward indefinitely while the remaining $20.9 million will begin to expire at various times in 2023 through 2051. As of December 31, 2022, the Company had recorded tax benefits totaling $14.0 million for U.S. federal, state and foreign net operating loss carryforwards (“NOLs”). As of December 31, 2022, $5.5 million of NOLs may be carried forward indefinitely while the remaining $8.5 million will begin to expire at various times in 2023 through 2052. The tax benefit related to a portion of these NOLs has been adjusted to reflect an “ownership change” pursuant to Internal Revenue Code Section 382, which imposes an annual limitation on the utilization of pre-acquisition operating losses. The Company has recorded a net valuation allowance of $32.2 million on certain deferred tax assets including a portion of foreign and state tax credit carryforwards, capital loss carryforwards and NOLs that the Company anticipates will expire prior to utilization.

During 2022, the Company repatriated certain of its foreign earnings. As of December 31, 2022, the Company also anticipates repatriating certain of its foreign earnings in the future. The accompanying financial statements reflect the income tax expense associated with actual and anticipated remittances related to certain of our outside basis differences. The Company has not provided for the income tax effects of distributing the remaining approximately $400 million of undistributed foreign earnings as those amounts are either permanently reinvested or intended to be reinvested in our international operations. It is not practicable to estimate the tax cost associated with a remittance of such earnings.

Cash payments of income taxes were $168.0 million, $84.0 million and $96.2 million in 2022, 2021, and 2020, respectively.

The Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. The IRS and other tax authorities routinely audit the Company’s tax returns. These audits can involve complex issues which may require an extended period of time to resolve. In January 2023 the Company completed its 2018 U.S. federal tax examination with no material adjustments. With few exceptions, the Company is no longer subject to state, local, or income tax examinations by tax authorities for years prior to 2018.

The following tax years, by major jurisdiction, are still subject to examination by taxing authorities: 

Jurisdiction	Open Years
United States	2019-2022
UK	2021-2022
Puerto Rico	2018-2022
Canada	2018-2022

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions): 

	2022		2021		2020
Unrecognized tax benefits at beginning of year	$	41.2	$	47.6	$	41.9
Additions based on tax positions relating to the current year	12.1		6.1		7.4
Reductions based on expiration of statute of limitations	(4.8)		(10.3)		(6.2)
Additions/(Subtractions) to tax positions relating to previous years	(6.2)		(2.2)		4.5
Settlements	(0.2)		—		—
TOTAL UNRECOGNIZED TAX BENEFITS	$	42.1	$	41.2	$	47.6

Included in the balance at December 31, 2022 are approximately $33.9 million of tax positions which, if in the future are determined to be recognizable, would affect the annual effective income tax rate. Additionally, there are $4.3 million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty as to the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the applicable taxing authority to an earlier period. It is reasonably possible that in the next twelve months, because of changes in facts and circumstances, the unrecognized tax benefits may increase or decrease.

The Company estimates a possible decrease of approximately $5 million to $11 million within the next twelve months due to the expiration of the statute of limitations and audit resolutions.

The Company’s policy is to record interest and penalties associated with the underpayment of income taxes within Provision for income taxes in the Consolidated Statement of Income. The Company recognized (benefit) expense, before federal tax impact, related to interest and penalties of $(1.0) million in 2022, $0.3 million in 2021 and $0.2 million in 2020. The Company had $6.7 million and $7.6 million accrued for the payment of interest and penalties as of December 31, 2022 and December 31, 2021, respectively.

The consolidated effective income tax rate varied from the United States federal statutory income tax rate of continuing operations for the years ended December 31, as follows:

	2022		2021		2020
Federal statutory income tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	2.4		2.5		2.9
Foreign income taxes	(0.2)		(0.5)		(0.2)
Federal R&D Credit	(0.8)		(1.4)		(1.3)
Other, net	(1.1)		(2.4)		(1.2)
CONSOLIDATED EFFECTIVE INCOME TAX RATE	21.3	%	19.2	%	21.2	%

The foreign income tax benefit shown is primarily due to lower statutory rates in foreign jurisdictions compared to the United States federal statutory income tax rate.