Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Sources of Pre-Tax Income and Related Tax Provision by Region

Geographic sources of income before income taxes consists of the following:

(in millions)	2022		2021		2020
Continuing operations:
U.S. domestic	$	1,102.0	$	417.3	$	353.3
Foreign	93.6		65.2		50.9
Income from continuing operations before income taxes	1,195.6		482.5		404.2
Discontinued operations:
U.S. domestic	(11.8)		(117.2)		(21.8)
Foreign	6.4		127.1		13.5
(Loss) income from discontinued operations before income taxes	(5.4)		9.9		(8.3)
Total income before income taxes	$	1,190.2	$	492.4	$	395.9

The provision for income taxes from continuing operations consists of the following:

(in millions)	2022		2021		2020
Current provision:
Federal and state	$	283.4	$	74.7	$	86.0
Foreign	18.8		22.8		18.6
Total current provision	302.2		97.5		104.6
Deferred provision (benefit):
Federal and state	(27.3)		7.2		(14.8)
Foreign	(4.5)		(9.2)		(11.3)
Total deferred benefit	(31.8)		(2.0)		(26.1)
Total provision for income taxes	$	270.4	$	95.5	$	78.5

Rate Reconciliation

A reconciliation of the tax provision from continuing operations computed at the U.S. federal statutory rate to the actual tax provision follows:

(in millions, except percentages)	2022			2021			2020
Taxes at U.S. statutory rate	$	251.1		$	101.3		$	84.9
State and local taxes, net of federal income tax benefit	39.7			14.8			11.5
Equity compensation windfall	(6.0)			(13.7)			(2.1)
Change in unrecognized tax benefit	(2.7)			(10.0)			(11.5)
Tax credits	(6.7)			(4.7)			(4.3)
Other, net	(5.0)			7.8			—
Provision for income taxes	$	270.4		$	95.5		$	78.5
Effective income tax rate on continuing operations	22.6		%	19.8		%	19.4		%

Cash payments for income taxes, net of refunds, were $295.8 million, $132.8 million and $116.6 million, in 2022, 2021 and 2020, respectively.

Deferred Tax Assets (Liabilities), net

(in millions)	December 31, 2022		December 31, 2021
Employee benefits	$	32.4	$	35.3
U.S. federal tax attributes	20.9		34.5
Deferred revenue	29.5		27.2
Capitalized research and development costs	26.6		—
Lease liabilities	15.9		19.1
U.S. state tax attributes	13.4		17.6
Inventory reserves	7.2		6.9
Warranty reserves	5.3		4.9
Non-U.S. tax attributes	6.7		6.7
Allowance for credit losses	4.4		4.4
Other, net	12.2		9.9
Gross deferred assets	174.5		166.5
Valuation allowances	(33.1)		(29.7)
Deferred tax assets after valuation allowances	141.4		136.8
Intangibles	(432.5)		(458.1)
Property, plant and equipment	(61.1)		(60.7)
Right of use assets	(14.5)		(17.5)
Undistributed foreign earnings	(6.9)		(10.4)
Gross deferred liabilities	(515.0)		(546.7)
Net deferred tax liabilities	$	(373.6)	$	(409.9)

Deferred tax assets and liabilities are classified as long-term. Foreign deferred tax assets and liabilities are grouped separately from U.S. domestic assets and liabilities and are analyzed on a jurisdictional basis.

Deferred tax assets and liabilities included in the Consolidated Balance Sheet follows:

(in millions)	December 31, 2022		December 31, 2021
Other long-term assets	$	0.2	$	0.4
Other long-term liabilities	(373.8)		(410.3)
Net deferred tax liabilities	$	(373.6)	$	(409.9)

Valuation Allowances

As of December 31, 2022, the Company had foreign tax credit carryforwards for U.S. federal tax purposes of $20.9 million, which begin to expire in 2025. The Company believes it is likely the credits will expire unused and therefore has established a full valuation allowance. As of December 31, 2022, the Company also had a deferred tax asset for state tax attributes of approximately $13.4 million, which begin to expire in 2023, comprised of net operating loss ("NOL"), credits, and capital loss carryforwards. The Company believes that it is likely that the capital losses and certain of the state NOLs will expire unused and therefore has established a valuation allowance of approximately $7.9 million against the deferred tax assets associated with these attributes. The Company also has deferred tax assets related to carryforwards in foreign jurisdictions of approximately $6.7 million, comprised of NOL and interest expense carryforwards, which begin to expire in 2023. The Company believes that it is likely that certain foreign NOL carryforwards will expire unused and therefore has established a valuation allowance of approximately $4.3 million.

Undistributed Foreign Earnings

The Company has determined that an amount attributable to certain foreign cash balances and other certain assets is not permanently reinvested for withholding tax purposes, which results in an accrual of $6.9 million. It is not practicable to calculate deferred tax balances on other basis differences.

Unrecognized Tax Benefits

Unrecognized tax benefits reflect the difference between the tax benefits of positions taken or expected to be taken on income tax returns and the tax benefits that meet the criteria for current recognition in the financial statements. The Company periodically assesses its unrecognized tax benefits. 

A summary of the movement in gross unrecognized tax benefits (before estimated interest and penalties) follows:

(in millions)	2022		2021		2020
Balance as of January 1	$	16.2	$	24.3	$	35.7
Additions based on tax positions related to current year	0.9		1.4		0.4
Reductions due to statute of limitations	(3.0)		(9.1)		(10.8)
Adjustments related to acquired uncertain tax positions	—		—		(0.8)
Adjustments for tax positions of prior years	0.2		(0.2)		—
Reductions due to settlements	(0.2)		—		—
Adjustments due to foreign exchange rates	0.2		(0.2)		(0.2)
Balance as of December 31	$	14.3	$	16.2	$	24.3

If the unrecognized tax benefits as of December 31, 2022, were to be recognized, approximately $15.8 million would impact the Company’s effective tax rate. The amount impacting the Company’s effective rate is calculated by adding accrued interest and penalties to the gross unrecognized tax benefit excluding positions related to discontinued operations and subtracting the tax benefit associated with state taxes and interest.

The Company classifies and reports interest and penalties associated with unrecognized tax benefits as a component of the income tax provision on the Consolidated Statements of Income and as a long-term liability on the Consolidated Balance Sheets. The total amount of such interest and penalties accrued, but excluded from the table above, at the years ending December 31, 2022, 2021 and 2020 were $7.3 million, $7.3 million and $7.9 million, respectively.

The Company is subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. The Company participates in the IRS compliance assurance program and is currently up to date.

Generally, state income tax returns are subject to examination for a period of three years to five years after filing. Substantially all material state tax matters have been concluded for tax years through 2016. Various state income tax returns for subsequent years are in the process of examination. At this stage the outcome is uncertain; however, the Company believes that contingencies have been adequately provided for. Statutes of limitation vary among the foreign jurisdictions in which the Company operates. Substantially all foreign tax matters have been concluded for tax years through 2011. The Company believes that foreign tax contingencies associated with income tax examinations underway or open tax years have been provided for adequately.

Based on the outcome of certain examinations or as a result of the expiration of statutes of limitations for certain jurisdictions, the Company believes that within the next 12 months it is reasonably possible that previously unrecognized tax benefits could decrease by approximately $2.0 million to $4.0 million. These previously unrecognized tax benefits relate to a variety of tax issues including tax matters relating to prior acquisitions and various state matters.

Tax Legislation

The Inflation Reduction Act (“IRA”) was signed into law on August 16, 2022. Among other provisions, the IRA includes a 15% corporate minimum tax applied to large corporations, a 1% excise tax on certain corporate stock repurchases made after December 31, 2022 and various energy tax credit incentives. There are no material impacts from the IRA within the Consolidated Financial Statements for 2022. The Company is currently evaluating the impact of the IRA on future years.