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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

16. Income Taxes

The components of income from continuing operations before income taxes and noncontrolling interests were as follows:

 

(In millions)

 

 

2022

 

 

 

2021

 

 

2020

 

Domestic operations

 

 

$

563.1

 

 

 

$

591.0

 

 

$

396.1

 

Foreign operations

 

 

 

104.0

 

 

 

 

135.4

 

 

 

103.1

 

Income before income taxes and noncontrolling interests

 

 

$

667.1

 

 

 

$

726.4

 

 

$

499.2

 

 

Income tax expense in the consolidated statement of income consisted of the following:

 

(In millions)

 

 

2022

 

 

 

2021

 

 

2020

 

Current

 

 

 

 

 

 

 

 

 

 

 

Federal

 

 

$

62.4

 

 

 

$

102.4

 

 

$

50.5

 

Foreign

 

 

 

34.3

 

 

 

 

40.2

 

 

 

49.0

 

State and other

 

 

 

16.0

 

 

 

 

16.9

 

 

 

15.9

 

Deferred

 

 

 

 

 

 

 

 

 

 

 

Federal

 

 

 

15.3

 

 

 

 

11.5

 

 

 

7.6

 

Foreign

 

 

 

1.5

 

 

 

 

(4.9

)

 

 

(12.6

)

State and Local

 

 

 

(2.3

)

 

 

 

0.6

 

 

 

0.4

 

Total income tax expense

 

 

$

127.2

 

 

 

$

166.7

 

 

$

110.8

 

 

A reconciliation between the federal statutory tax rate and the effective tax rate is as follows:

 

(In millions)

 

 

2022

 

 

 

2021

 

 

2020

 

Income tax expense computed at federal statutory income tax rate

 

 

$

140.1

 

 

 

$

152.5

 

 

$

104.9

 

State and local income taxes, net of federal tax benefit

 

 

 

18.5

 

 

 

 

23.8

 

 

 

15.3

 

Foreign taxes at a different rate than U.S. federal statutory income tax rate

 

 

 

9.1

 

 

 

 

9.2

 

 

 

6.7

 

Provision for foreign earnings repatriation, net

 

 

 

1.2

 

 

 

 

—

 

 

 

2.1

 

Net adjustments for uncertain tax positions

 

 

 

(26.2

)

 

 

 

(11.3

)

 

 

(4.2

)

Share-based compensation

 

 

 

(5.4

)

 

 

 

(9.0

)

 

 

(9.8

)

Deferred tax impact of state tax rate changes

 

 

 

(1.9

)

 

 

 

(0.7

)

 

 

(0.8

)

Valuation allowance (decrease) increase

 

 

 

(5.8

)

 

 

 

4.7

 

 

 

(7.1

)

Non-deductible executive compensation

 

 

 

7.5

 

 

 

 

5.0

 

 

 

1.6

 

Expiration of loss carryforwards

 

 

 

—

 

 

 

 

—

 

 

 

6.6

 

Miscellaneous other, net

 

 

 

(9.9

)

 

 

 

(7.5

)

 

 

(4.5

)

Income tax expense as reported

 

 

$

127.2

 

 

 

$

166.7

 

 

$

110.8

 

Effective income tax rate

 

 

 

19.1

%

 

 

 

22.9

%

 

 

22.2

%

 

The 2022 effective income tax rate was unfavorably impacted by state and local income taxes, foreign income taxed at higher rates, as well as non-deductible executive compensation. This expense was offset by favorable benefits for the release of uncertain tax positions, primarily related to audit closures and statute of limitations lapses, share-based compensation, and a valuation allowance decrease.

 

The 2021 and 2020 effective income tax rates were unfavorably impacted by state and local income taxes, foreign income taxed at higher rates, as well as non-deductible executive compensation. Both 2021 and 2020 expenses were offset by favorable benefits for the release of uncertain tax positions, primarily related to statute of limitations lapses, and share-based compensation.

A reconciliation of the beginning and ending amount of unrecognized tax benefits (“UTBs”) is as follows:

 

(In millions)

 

 

2022

 

 

 

2021

 

 

2020

 

Unrecognized tax benefits—beginning of year

 

 

$

83.1

 

 

 

$

96.1

 

 

$

88.0

 

Gross additions—current year tax positions

 

 

 

2.1

 

 

 

 

2.6

 

 

 

7.2

 

Gross additions—prior year tax positions

 

 

 

—

 

 

 

 

2.0

 

 

 

3.7

 

Gross additions (reductions)—purchase accounting adjustments

 

 

 

—

 

 

 

 

—

 

 

 

12.1

 

Gross reductions—prior year tax positions

 

 

 

(50.5

)

 

 

 

(16.6

)

 

 

(11.7

)

Gross reductions—settlements with taxing authorities

 

 

 

(1.3

)

 

 

 

(1.0

)

 

 

(3.2

)

Unrecognized tax benefits—end of year

 

 

$

33.4

 

 

 

$

83.1

 

 

$

96.1

 

 

The amount of UTBs that, if recognized as of December 31, 2022, would affect the Company’s effective tax rate is $33.4 million. It is reasonably possible that, within the next twelve months, total UTBs may decrease by $9.8 million primarily as a result of the lapse of statutes of U.S. federal, state and foreign income taxes.

 

The Company classifies interest and penalty accruals related to UTBs as income tax expense. In 2022 and 2021, the Company recognized an interest and penalty benefit of approximately $6.4 million and $1.9 million, respectively. In 2020, the Company recognized interest and penalty expense of approximately $0.7 million. As of December 31, 2022, and 2021, the Company had accruals for the payment of interest and penalties of $8.8 million and $15.5 million, respectively.

 

The Company files income tax returns in the U.S., various state, and foreign jurisdictions. The Company has recently concluded its examination by the U.S. Internal Revenue Service for the periods related to 2017 and 2018 and is generally subject to examination by the IRS for years 2019 and later. In addition to the U.S., the Company has tax years that remain open and subject to examination by tax authorities in the following major taxing jurisdictions: Canada for years after 2017, Mexico for years after 2016 and China for years after 2018.

 

The components of net deferred tax assets (liabilities) as of December 31, 2022 and 2021 were as follows:

 

(In millions)

 

 

2022

 

 

 

2021

 

Deferred tax assets:

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

$

21.0

 

 

 

$

30.8

 

Defined benefit plans

 

 

 

15.4

 

 

 

 

16.5

 

Capitalized inventories

 

 

 

17.8

 

 

 

 

21.0

 

Accounts receivable

 

 

 

4.2

 

 

 

 

5.0

 

Operating lease liabilities

 

 

 

31.0

 

 

 

 

34.5

 

Other accrued expenses

 

 

 

51.2

 

 

 

 

50.8

 

Net operating loss and other tax carryforwards

 

 

 

23.5

 

 

 

 

24.1

 

Valuation allowance

 

 

 

(13.8

)

 

 

 

(20.7

)

Miscellaneous

 

 

 

6.7

 

 

 

 

24.0

 

Total deferred tax assets

 

 

 

157.0

 

 

 

 

186.0

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Fixed assets

 

 

 

(60.3

)

 

 

 

(73.0

)

Intangible assets

 

 

 

(152.5

)

 

 

 

(125.8

)

Operating lease assets

 

 

 

(29.3

)

 

 

 

(32.6

)

Other investments

 

 

 

(28.2

)

 

 

 

(0.9

)

Miscellaneous

 

 

 

(6.5

)

 

 

 

(8.1

)

Total deferred tax liabilities

 

 

 

(276.8

)

 

 

 

(240.4

)

Net deferred tax liability

 

 

$

(119.8

)

 

 

$

(54.4

)

 

In accordance with ASC requirements for Income Taxes, deferred taxes were classified in the consolidated balance sheets as of December 31, 2022 and 2021 as follows:

 

(In millions)

 

 

2022

 

 

 

2021

 

Other assets

 

 

 

17.1

 

 

 

 

27.3

 

Deferred income taxes

 

 

 

(136.9

)

 

 

 

(81.7

)

Net deferred tax liability

 

 

$

(119.8

)

 

 

$

(54.4

)

 

As of December 31, 2022, and 2021, the Company had deferred tax assets related to net operating losses and other tax carryforwards of $23.5 million and $24.1 million, respectively. Approximately $2.6 million expires between 2023 and 2027, and the remainder will expire in 2028 and thereafter.

 

The Company has provided a valuation allowance to reduce the carrying value of certain deferred tax assets. Management has concluded that, based on the available evidence, it is more likely than not that the deferred tax assets will not be fully realized.

 

Accumulated foreign earnings and profits of the Company’s foreign subsidiaries as of December 31, 2017, were subject to a deemed repatriation tax and should not be subject to additional U.S. federal income tax upon an actual repatriation of these earnings. As of December 31, 2022, the Company has recorded an estimated deferred tax liability of $0.5 million for taxes that will be payable upon distribution of these earnings.

 

Subsequent to December 31, 2017, we consider the unremitted earnings of certain foreign subsidiaries that impose local country taxes on dividends to be indefinitely reinvested. We have not provided deferred taxes on the remaining book over tax outside basis difference of $191.8 million related to these subsidiaries. The amount of unrecognized deferred tax liabilities for local country withholding taxes that would be owed related to these earnings is $12.2 million.