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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Income before income taxes for the three years ended December 31 was as follows:
202320222021
U.S. operations$94.2 $58.9 $47.5 
Foreign operations29.6 20.6 26.6 
Total$123.8 $79.5 $74.1 
Income tax expense (benefit) for the three years ended December 31 was as follows:
202320222021
Current:
Federal$28.7 $17.1 $11.1 
Foreign8.5 7.9 11.2 
State4.0 3.8 1.9 
Total current$41.2 $28.8 $24.2 
Deferred:
Federal$(8.7)$(6.3)$0.6 
Foreign(17.3)(8.5)(15.5)
State(0.9)(0.8)(0.1)
Total deferred$(26.9)$(15.6)$(15.0)
Total:
Federal$20.0 $10.8 $11.7 
Foreign(8.8)(0.6)(4.3)
State3.1 3.0 1.8 
Total income tax expense$14.3 $13.2 $9.2 
In general, it is our practice and intention to permanently reinvest the earnings of our foreign subsidiaries and repatriate earnings only when the tax impact is zero or immaterial. Accordingly, no deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of our approximately $102.5 million of undistributed earnings from foreign subsidiaries to the United States as those earnings continue to be permanently reinvested.
In December 2021, the Organization for Economic Cooperation and Development (OECD), which is an international public policy setting organization comprised of member countries including the U.S., published a proposal for the establishment of a global minimum tax rate of 15% (the "Pillar Two rule"). The OECD has recommended that the Pillar Two rule become effective for fiscal years beginning on or after January 1, 2024. To date member states are in various stages of implementing the rules through local legislation and the OECD continues to refine technical guidance. We are closely monitoring developments of the Pillar Two rule and are currently evaluating the potential effect in each of the countries we operate in. We do not expect this rule to have a material impact on our consolidated financial statements.
Our effective income tax rate varied from the U.S. federal statutory tax rate for the three years ended December 31 as follows:
202320222021
Tax at statutory rate21.0 %21.0 %21.0 %
Increases (decreases) in the tax rate from:
State and local taxes, net of federal benefit2.4 2.4 2.2 
Effect of foreign operations(10.9)(4.9)(6.3)
Effect of changes in valuation allowances(0.2)(1.2)(4.5)
Excess tax benefits on share-based compensation1.0 1.1 1.8 
Share-based payments0.1 (0.4)(0.9)
Research and development credit(1.3)(1.5)(1.4)
Other, net(0.5)0.1 0.6 
Effective income tax rate11.6 %16.6 %12.5 %
The effect of foreign operations line item includes (12.0%) and (7.2%) benefits for 2023 and 2022, respectively, associated with reductions to deferred tax liabilities on undistributed foreign earnings as those cumulative earnings were reduced by current year statutory book losses.
Deferred tax assets and liabilities were comprised of the following as of December 31:
20232022
Deferred tax assets:
Inventory$3.8 $4.1 
Compensation and employee benefits13.2 11.4 
Warranty reserves2.4 2.3 
Allowance for doubtful accounts and deferred revenue2.7 2.3 
Operating lease liabilities9.0 5.9 
Tax loss carryforwards6.9 8.0 
Tax credit carryforwards3.7 3.6 
Capitalized research and development costs12.3 6.6 
Goodwill and intangible assets4.5 — 
Other1.2 (0.9)
Gross deferred tax assets$59.7 $43.3 
Less: valuation allowance(3.2)(3.3)
Total net deferred tax assets$56.5 $40.0 
Deferred tax liabilities:
Operating lease assets$9.5 $6.1 
Fixed assets9.5 11.2 
Goodwill and intangible assets— 13.8 
Total deferred tax liabilities$19.0 $31.1 
Net deferred tax assets$37.5 $8.9 
Tax credit carryforwards consist of $3.0 million of U.S. federal and state tax credits and $1.3 million of Netherlands tax credits. We have non-U.S. cumulative tax losses of $26.0 million in various countries ($6.9 million tax effected). Cumulative losses can be used to offset the income tax liabilities on future income in these countries. Of these losses, $26.0 million have unlimited carryforward periods. Less than $0.1 million of these losses have a limited carryforward period.
The valuation allowance as of December 31, 2023 principally applies to tax credit carryforwards in the Netherlands and certain U.S. states which, in the opinion of management, are more likely than not to expire unutilized. However, to the extent that tax benefits related to these carryforwards are realized in the future, the reduction in the valuation allowance will reduce income tax expense. As of December 31, 2023, we believe it is more likely than not that the remainder of our deferred tax assets are realizable. We recorded a net valuation allowance release in 2023 of $0.1 million on the basis of management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized. The net decrease in the valuation allowance was primarily driven by a change in judgment regarding the expected utilization of tax credit carryovers in the U.S. and the Netherlands.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
20232022
Beginning balance$4.2 $4.7 
(Decreases) as a result of tax positions taken during a prior period— (0.1)
Increases as a result of tax positions taken during the current year1.2 0.8 
Decreases relating to settlement with tax authorities(0.2)— 
Decreases as a result of a lapse of the applicable statute of limitations(1.1)(1.0)
Decreases as a result of foreign currency fluctuations— (0.2)
Ending balance$4.1 $4.2 
Included in the balance of unrecognized tax benefits as of December 31, 2023 and 2022 are potential benefits of $3.7 million and $3.9 million, respectively, that if recognized, would affect the effective tax rate.
We recognize potential accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. In addition to the liability of $4.1 million and $4.2 million for unrecognized tax benefits as of December 31, 2023 and 2022, there was approximately $0.5 million and $0.6 million, respectively, for accrued interest and penalties. To the extent interest and penalties are not assessed with respect to uncertain tax positions, the amounts accrued will be revised and reflected as an adjustment to income tax expense.
We and our subsidiaries are subject to U.S. federal income tax as well as income tax of numerous state and foreign jurisdictions. We are generally no longer subject to U.S. federal tax examinations for taxable years before 2018. The number of years which remain open for audit for U.S. state or foreign tax purposes varies by jurisdiction but generally ranges from 3-5 years. We are currently undergoing income tax examinations in various foreign jurisdictions. Although the final outcome of these examinations cannot be currently determined, we believe that we have adequate reserves with respect to these examinations.