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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Pre-tax Income by Jurisdiction The following sets forth the amount of income before income taxes attributable to each of the Company's geographies for the years ended December 31, 2023, 2022 and 2021:
| Year Ended December 31,
(in millions) | 2023 |  | 2022 |  | 2021
Income before income taxes: |  |  |  |  |
United States | $ | 288.5 |  |  | $ | 382.5 |  |  | $ | 602.5 |
Rest of the world | 185.6 |  |  | 194.7 |  |  | 221.5 |
| $ | 474.1 |  |  | $ | 577.2 |  |  | $ | 824.0 |
Reconciliation of Statutory Tax Rate to Effective Tax Rate The Company's effective income tax provision differs from the amount calculated using the statutory U.S. federal income tax rate, principally due to the following:
| Year Ended December 31,
| 2023 |  | 2022 |  | 2021
(dollars in millions) | Amount |  | Percentage of Income Before Income Taxes |  | Amount |  | Percentage of Income Before Income Taxes |  | Amount |  | Percentage of Income Before Income Taxes
Statutory U.S. federal income tax | $ | 99.6 |  |  | 21.0 | % |  | $ | 121.2 |  |  | 21.0 | % |  | $ | 172.9 |  |  | 21.0 | %
State income taxes, net of federal benefit | 9.1 |  |  | 1.9 | % |  | 12.5 |  |  | 2.2 | % |  | 21.0 |  |  | 2.6 | %
Foreign tax differential | 5.8 |  |  | 1.2 | % |  | 2.9 |  |  | 0.5 | % |  | 4.6 |  |  | 0.6 | %
Change in valuation allowances | 6.4 |  |  | 1.4 | % |  | 1.3 |  |  | 0.2 | % |  | 4.9 |  |  | 0.6 | %
Uncertain tax positions and interest | (0.8) |  |  | (0.2) | % |  | (19.2) |  |  | (3.3) | % |  | 6.5 |  |  | 0.8 | %
Global Intangible Low-Taxed Income ("GILTI") | 2.7 |  |  | 0.6 | % |  | 3.2 |  |  | 0.5 | % |  | 1.5 |  |  | 0.2 | %
Expiration of foreign tax credits | 10.6 |  |  | 2.2 | % |  | 1.6 |  |  | 0.3 | % |  | — |  |  | — | %
Stock compensation | (7.8) |  |  | (1.6) | % |  | (13.8) |  |  | (2.4) | % |  | (8.1) |  |  | (1.0) | %
Nondeductible compensation | 12.7 |  |  | 2.7 | % |  | 14.6 |  |  | 2.5 | % |  | 5.1 |  |  | 0.6 | %
Danish Tax Matter | (13.7) |  |  | (2.9) | % |  | — |  |  | — | % |  | — |  |  | — | %
Notional interest deduction | (14.0) |  |  | (3.0) | % |  | — |  |  | — | % |  | — |  |  | — | %
Permanent and other | (7.2) |  |  | (1.5) | % |  | (5.3) |  |  | (0.9) | % |  | (10.1) |  |  | (1.3) | %
Effective income tax provision | $ | 103.4 |  |  | 21.8 | % |  | $ | 119.0 |  |  | 20.6 | % |  | $ | 198.3 |  |  | 24.1 | %
Income Tax Provision The income tax provision consisted of the following:
| Year Ended December 31,
(in millions) | 2023 |  | 2022 |  | 2021
Current provision |  |  |  |  |
Federal | $ | 47.2 |  |  | $ | 85.0 |  |  | $ | 109.9 |
State | 15.9 |  |  | 18.3 |  |  | 24.5 |
Foreign | 32.0 |  |  | 26.2 |  |  | 52.8 |
Total current | $ | 95.1 |  |  | $ | 129.5 |  |  | $ | 187.2 |
Deferred provision |  |  |  |  |
Federal | $ | 6.3 |  |  | $ | (7.7) |  |  | $ | 11.6 |
State | 2.0 |  |  | (2.3) |  |  | 0.4 |
Foreign | — |  |  | (0.5) |  |  | (0.9) |
Total deferred | 8.3 |  |  | (10.5) |  |  | 11.1 |
Total income tax provision | $ | 103.4 |  |  | $ | 119.0 |  |  | $ | 198.3 |
The income tax provision includes federal, state and foreign income taxes currently payable and those deferred or prepaid because of temporary differences between financial statement and tax bases of assets and liabilities. Deferred Income Tax Assets and Liabilities The net deferred tax assets and liabilities recognized in the accompanying Consolidated Balance Sheets, determined using the income tax rate applicable to each period in which those items will reverse, consist of the following:
| December 31,
(in millions) | 2023 |  | 2022
Deferred tax assets: |  |  |
Stock-based compensation | $ | 28.8 |  |  | $ | 31.8 |
Operating lease obligations | 180.6 |  |  | 147.5 |
Accrued expenses and other | 64.0 |  |  | 64.1 |
Net operating losses, foreign tax credits and other tax attribute carryforwards | 42.1 |  |  | 58.0 |
Inventories | 10.6 |  |  | 10.3 |
Transaction costs | 16.5 |  |  | 4.3 |
Property, plant and equipment | 9.9 |  |  | 9.7 |
Total deferred tax assets | 352.5 |  |  | 325.7 |
Valuation allowances | (49.5) |  |  | (42.3) |
Total net deferred tax assets | $ | 303.0 |  |  | $ | 283.4 |
Deferred tax liabilities: |  |  |
Intangible assets | $ | (174.3) |  |  | $ | (174.0) |
Operating lease right-of-use assets | (164.5) |  |  | (132.0) |
Property, plant and equipment | (56.6) |  |  | (60.0) |
Accrued expenses and other | (19.9) |  |  | (20.1) |
Total deferred tax liabilities | (415.3) |  |  | (386.1) |
Net deferred tax liabilities | $ | (112.3) |  |  | $ | (102.7) |
Tax Attributes Included in Deferred Tax Assets Included in the calculation of the Company's deferred tax assets are the following gross income tax attributes available at December 31, 2023 and 2022, respectively:
(in millions) | 2023 |  | 2022
State net operating losses ("SNOLs") | $ | 134.0 |  |  | $ | 103.8 |
U.S. federal foreign tax credits ("FTCs") | — |  |  | 10.6 |
U.S. state income tax credits ("SITCs") | 3.2 |  |  | 3.7 |
Foreign net operating losses ("FNOLs") | 49.8 |  |  | 63.6 |
Notional interest deduction ("NID") | 40.0 |  |  | — |
State charitable contribution carryover ("SCCCs") | 0.7 |  |  | 0.9 |
The SNOLs, SITCs, FNOLs and SCCCs generally begin to expire in 2024, 2031, 2024 and 2024, respectively. Management believes that, based on a number of factors, the available objective evidence creates sufficient uncertainty regarding the realizability of certain of the SNOLs, SITCs, FNOLs, NID, the SCCCs and certain other deferred tax assets related to certain foreign operations (together, the "Tax Attributes"). The Company has established a valuation allowance for certain deferred tax assets (including the Tax Attributes) where it is more likely than not such deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible or creditable. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making its assessment regarding the recoverability of its deferred tax assets. The Company has recorded valuation allowances against $56.3 million of the SNOLs, $29.5 million of FNOLs, $40.0 million of the NID and $0.7 million of the SCCCs as of December 31, 2023. With respect to all other Tax Attributes above, based upon the level of historical taxable income and projections for future taxable income, management believes it is more likely than not the Company will realize the benefits of the underlying deferred tax assets. However, there can be no assurance that such assets will be realized if circumstances change. Deferred Tax Liability for Undistributed Foreign Earnings As it relates to stock of the Company's top tier foreign subsidiaries in the hands of each such subsidiary's U.S. shareholder, at December 31, 2023, the book basis of each such subsidiary exceeds the tax basis in each such subsidiary. No income taxes have been provided for the book to tax basis differences (including undistributed foreign earnings) inherent in these entities except to the extent of certain earnings that have been previously subject to U.S. income tax ("PTEP"). During the three month period ended December 31, 2023, the Company revalued the deferred income tax liability associated with the PTEP resulting in a tax benefit of approximately $2.0 million. The revaluation is primarily attributable to a reduction in PTEP during 2023. As it relates to the book to tax basis difference with respect to the stock of each of the Company's second and lower tier foreign subsidiaries, as a general matter, the book basis exceeds the tax basis in the hands of such foreign subsidiaries' shareholders. By operation of the tax laws of the various countries in which these subsidiaries are domiciled, earnings of lower tier foreign subsidiaries are not subject to tax, in all material respects, when distributed to a foreign shareholder. It is the Company's intent that the earnings of each lower tier foreign subsidiary, with the exception of its Danish subsidiary, its two Canadian subsidiaries and its Mexican subsidiary, will be permanently reinvested in each such foreign subsidiaries' own operations. As it relates to the Danish subsidiary, its earnings may be distributed without any income tax impact. With respect to the Canadian and Mexican subsidiaries, Canadian and Mexican income tax withholding applies, respectively, to any distribution each such subsidiary makes to its foreign parent company. The Company concluded that at December 31, 2023 it is likely that the Canadian subsidiaries and the Mexican subsidiary will each make dividend distributions in the next twelve months. In each case, local country income tax withholding, i.e., Canada and Mexico, applies. Consequently at December 31, 2023 the Company has accrued approximately $1.6 million for such withholding tax. Uncertain Income Tax Positions GAAP prescribes a recognition threshold and measurement attribute for the accounting and financial statement disclosure of tax positions taken or expected to be taken in a tax return. The evaluation of a tax position is a two-step process. The first step requires the Company to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. The second step requires the Company to recognize in the financial statements each tax position that meets the more likely than not criteria, measured at the largest amount of benefit that has a greater than 50.0% likelihood of being realized. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense. Uncertain income tax liabilities reflect the Company's best judgement of the facts, circumstances and information available through December 31, 2023. Uncertain income tax liabilities are derived using the cumulative probability approach and applying the tax technical requirements applicable to U.S. and other international tax and transfer pricing requirements. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(in millions) |
Balance as of December 31, 2021 | $ | 45.3 |
Additions based on tax positions related to 2022 | 0.3 |
Additions for tax positions of prior years | 0.2 |
Expiration of statutes of limitations | (1.9) |
Reduction for tax positions of prior years | (4.9) |
Settlements of uncertain tax positions with tax authorities | — |
Balance as of December 31, 2022 | $ | 39.0 |
Additions based on tax positions related to 2023 | — |
Additions for tax positions of prior years | — |
Expiration of statutes of limitations | (0.2) |
Reduction for tax positions of prior years | (0.3) |
Settlements of uncertain tax positions with tax authorities | (34.0) |
Balance as of December 31, 2023 | $ | 4.5 |
The amount of unrecognized tax benefits that would impact the effective tax rate if recognized at December 31, 2023 and 2022 would be $4.5 million and $17.6 million, respectively. During the years ended December 31, 2023 and 2022, the Company recognized $4.0 million and $6.9 million in interest and penalties as a benefit in the income tax provision, respectively. The Company had $1.0 million and $5.0 million of accrued interest and penalties at December 31, 2023 and 2022, respectively. As discussed below, in the three months ended December 31, 2023, the Company settled the Danish Tax Matter related to 2012 to 2022. Such settlement resulted in a reduction of the Company’s liability for uncertain tax positions of approximately $34.0 million, which is reflected in “Settlements of uncertain tax positions with tax authorities” in the table above. The Company anticipates it is reasonably possible an increase or decrease in the amount of unrecognized tax benefits could be made in the next twelve months as a result of the statute of limitations expiring and/or the examinations being concluded on these returns. However, the Company does not presently anticipate that any increase or decrease in unrecognized tax benefits will be material to the Consolidated Financial Statements. With few exceptions, the Company is no longer subject to tax examinations by the U.S., state and local municipalities or non-U.S. jurisdictions for periods prior to 2015. The Company is currently under examination by various tax authorities around the world. The Danish Tax Matter The Company has been involved in a dispute with the SKAT regarding the royalty paid by a U.S. subsidiary to a Danish subsidiary for tax years 2012 through 2022. The royalty is paid by the U.S. subsidiary for the right to utilize certain intangible assets owned by the Danish subsidiary in the U.S. production process. In October 2018, the Company initiated an Advanced Pricing Agreement (“APA”) process for SKAT and the U.S. Internal Revenue Service (“IRS”) to negotiate a resolution of this dispute. The Company had previously estimated an uncertain tax position with respect to additional Danish income tax (and interest) related to an increase in Danish taxable income resulting from the dispute. Conversely, the Company also previously recorded a deferred tax asset for the correlative benefit for the U.S. reduction in taxable income that would result from the dispute. In December 2022, SKAT and the IRS reached a preliminary framework agreement (the “Framework”) to resolve the dispute. In the year ended December 31, 2022, the Company remeasured the uncertain tax position and associated deferred tax asset to reflect the terms of the Framework, which resulted in a net income tax benefit for the year ended December 31, 2022 of $14.7 million. The Framework was not a binding agreement, but its terms provided definitive data for the Company to determine both the Danish and U.S. tax impacts at December 31, 2022. As it relates to the year ended December 31, 2023, in January 2023 the Company implemented the terms of the Framework. Consequently, there is neither Danish income tax exposure nor a correlative U.S. benefit for the year December 31, 2023. On October 12, 2023, the IRS Advanced Pricing and Mutual Agreement (“APMA”) Team and SKAT formally agreed on final terms of a bilateral advance pricing agreement (“BAPA”) with respect to the ongoing royalty matter for the periods 2012 through 2024 (the “Settlement”). The terms of the BAPA are substantially identical with those preliminarily agreed upon in the Preliminary Framework in December 2022. With respect to impact of the Settlement on the Company’s Danish tax position, pursuant to the BAPA, in December 2023 SKAT issued revised or initial assessments for each of the years 2012 through 2022. The final tax and interest assessed was materially consistent with the income tax reserves the Company previously recorded, which was $37.8 million as of December 31, 2022. The Company offset the income tax reserves in the fourth quarter of 2023 against the previous amounts on deposit with SKAT and recorded a net income tax benefit in the Company’s consolidated financial statements of approximately $4.8 million (largely interest to be paid by SKAT on the overpayment of tax). The assessments reflect a net refund of deposits previously paid to SKAT of approximately $24.8 million, which the Company has recorded as an income tax receivable included in prepaid expenses and other current assets in the accompanying Consolidated Balance Sheets. In addition, the Company has approximately $7.6 million remaining on deposit with SKAT for an unrelated matter recorded in other non-current assets. With respect to the impact of the Settlement on the Company’s U.S. tax position, on November 9, 2023, the Company formally agreed on a Mutual Agreement Procedure (“MAP”) and Advance Pricing Agreement (“APA”) with APMA related to the implementation of the terms of the BAPA for U.S. income tax purposes, which included reporting the U.S. result of the Settlement for all years 2012 through 2022 in an amended 2022 income tax return. As a result, the Company released the deferred tax asset associated with its U.S. position of $21.6 million in the year ended December 31, 2023 and recorded a net income tax benefit and incremental receivable in the Company’s consolidated financial statements at December 31, 2023. The net income tax benefit is approximately $8.9 million (consisting of a gross benefit of $10.5 million, offset by U.S. tax of approximately $1.6 million related to subpart F income resulting from the interest paid by SKAT on the Danish overpayment of tax). The incremental U.S. income tax receivable at December 31, 2023 is approximately $30.1 million and is included in other non-current assets in the accompanying Consolidated Balance Sheets.

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