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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The “Income before income tax expense” line item in the consolidated statements of operations consisted of:
(Dollars in millions) | 2023 |  | 2022 |  | 2021
Domestic | $ | 9.1 |  |  | $ | 58.4 |  |  | $ | 34.4 |
Foreign | 67.2 |  |  | 82.0 |  |  | 91.9 |
Total | $ | 76.3 |  |  | $ | 140.4 |  |  | $ | 126.3 |
The “Income tax expense” line item in the consolidated statements of operations consisted of:
(Dollars in millions) | Current |  | Deferred |  | Total
2023 |  |  |  |  |
Domestic | $ | 0.4 |  |  | $ | (0.6) |  |  | $ | (0.2) |
Foreign | 22.9 |  |  | (3.0) |  |  | 19.9 |
Total | $ | 23.3 |  |  | $ | (3.6) |  |  | $ | 19.7 |
2022 |  |  |  |  |
Domestic | $ | 26.8 |  |  | $ | (18.8) |  |  | $ | 8.0 |
Foreign | 17.6 |  |  | (1.8) |  |  | 15.8 |
Total | $ | 44.4 |  |  | $ | (20.6) |  |  | $ | 23.8 |
2021 |  |  |  |  |
Domestic | $ | 5.2 |  |  | $ | (2.9) |  |  | $ | 2.3 |
Foreign | 16.2 |  |  | (0.3) |  |  | 15.9 |
Total | $ | 21.4 |  |  | $ | (3.2) |  |  | $ | 18.2 |
Deferred tax assets and liabilities as of December 31, 2023 and 2022, were comprised of the following:
(Dollars in millions) | 2023 |  | 2022
Deferred tax assets |  |  |
Accrued employee benefits and compensation | $ | 7.7 |  |  | $ | 8.7 |
Net operating loss carryforwards | 11.8 |  |  | 4.4 |
Tax credit carryforwards | 6.7 |  |  | 2.8 |
Reserves and accruals | 5.7 |  |  | 4.7 |
Operating leases | 3.6 |  |  | 4.2 |
Capitalized research and development | 25.6 |  |  | 21.3 |
Other | 6.9 |  |  | 10.2 |
Total deferred tax assets | 68.0 |  |  | 56.3 |
Less deferred tax asset valuation allowance | (11.4) |  |  | (2.8) |
Total deferred tax assets, net of valuation allowance | 56.6 |  |  | 53.5 |
Deferred tax liabilities |  |  |
Depreciation and amortization | 17.7 |  |  | 14.4 |
Postretirement benefit obligations | 0.7 |  |  | 0.7 |
Unremitted earnings | 1.5 |  |  | 2.6 |
Operating leases | 4.1 |  |  | 4.6 |
Other | 5.8 |  |  | 4.2 |
Total deferred tax liabilities | 29.8 |  |  | 26.5 |
Net deferred tax asset (liability) | $ | 26.8 |  |  | $ | 27.0 |
As of December 31, 2023, we had state net operating loss carryforwards totaling $8.1 million in various state taxing jurisdictions, which expire between 2024 and 2043, and approximately $3.6 million of state research credit carryforwards, which will expire between 2024 and 2040. We also had a $0.8 million federal research and development (R&D) credit carryforward that will expire in 2043. We believe that it is more likely than not that the benefit from certain of the state net operating loss and state R&D credits carryforwards will not be realized. In recognition of this risk, we have provided a valuation allowance of $1.5 million relating to these carryforwards. We currently have approximately $3.1 million of foreign tax credits that begin to expire in 2028. As of December 31, 2023, we had foreign net operating loss carryforwards totaling $52.7 million. Luxembourg losses totaled $31.4 million, of which $3.9 million will expire between 2034 and 2039, and the rest will be carried forward indefinitely. We believe it is more likely than not that these losses will expire unused, and have provided a valuation allowance for all Luxembourg net operating loss carryforwards. China losses totaled $14.7 million, which expire between 2024 and 2028. We believe it is more likely than not that these losses will expire unused, and have provided a valuation allowance for all China net operating loss carryforwards. Korea losses totaled $6.6 million, which expire between 2036 and 2038. We had a valuation allowance of $11.4 million as of December 31, 2023 and $2.8 million as of December 31, 2022, against certain of our deferred tax assets, primarily carryforwards expected to expire unused and deferred tax assets that are capital in nature. No valuation allowance has been provided on our other deferred tax assets, as we believe it is more likely than not that all such assets will be realized in the applicable jurisdictions. Differences between forecasted and actual future operating results or changes in carryforward periods could adversely impact the amount of deferred tax asset considered realizable. Income tax expense differs from the amount computed by applying the U.S. federal statutory income tax rate to income before income taxes. The reasons for this difference were as follows:
(Dollars in millions) | 2023 |  | 2022 |  | 2021
Tax expense at Federal statutory income tax rate | $ | 16.0 |  |  | $ | 29.5 |  |  | $ | 26.5 |
Impact of foreign operations | 4.0 |  |  | 1.5 |  |  | 2.0 |
Foreign source income, net of tax credits | (2.3) |  |  | (6.5) |  |  | (4.9) |
State tax, net of federal | (0.5) |  |  | 6.9 |  |  | 0.2 |
Deferred tax adjustment | 1.2 |  |  | — |  |  | — |
Unrecognized tax benefits | (0.2) |  |  | 1.9 |  |  | (8.8) |
Equity compensation excess tax deductions | 0.3 |  |  | (3.0) |  |  | 0.3 |
General business credits | (2.4) |  |  | (0.8) |  |  | (0.9) |
Distribution related foreign taxes | 1.1 |  |  | 1.5 |  |  | 2.5 |
Executive compensation limitation | 0.9 |  |  | 2.9 |  |  | 1.6 |
Valuation allowance change | 0.7 |  |  | (6.9) |  |  | 0.5 |
Other | 0.9 |  |  | (3.2) |  |  | (0.8) |
Income tax expense | $ | 19.7 |  |  | $ | 23.8 |  |  | $ | 18.2 |
Our effective income tax rate for 2023 was 25.8% compared to 16.9% for 2022. The 2023 rate increase was primarily due to the impact of the 2022 valuation allowance releases not recurring in 2023. We did not make any changes in 2023 to our position on the permanent reinvestment of our historical earnings from foreign operations. With the exception of certain Chinese subsidiaries, we continue to assert that historical foreign earnings are indefinitely reinvested. As of December 31, 2023 and 2022, we had recorded a deferred tax liability of $1.5 million and $2.5 million, respectively, for Chinese withholding tax on undistributed earnings that are not indefinitely reinvested. The other remaining foreign subsidiaries have both the intent and ability to indefinitely reinvest their undistributed earnings and we estimate that, if these undistributed earnings are distributed, they may give rise to an estimated $2.6 million of additional tax liabilities. If circumstances change and it becomes apparent that some, or all of the undistributed earnings as of December 31, 2023 will not be indefinitely reinvested, the provision for the tax consequences, if any, will be recorded in the period when circumstances change. Distributions out of current and future earnings are permissible to fund discretionary activities such as business acquisitions. However, when distributions are made, this could result in a higher effective tax rate. Unrecognized tax benefits, excluding potential interest and penalties, for the years ended December 31, 2023 and 2022, were as follows:
(Dollars in millions) | 2023 |  | 2022 |  | 2021
Beginning balance as of January 1 | $ | 8.9 |  |  | $ | 6.6 |  |  | $ | 15.7 |
Gross increases - current period tax positions | 1.1 |  |  | 3.4 |  |  | 1.0 |
Gross increases - tax positions in prior periods | — |  |  | 0.2 |  |  | 1.2 |
Gross decreases - tax positions in prior periods | (0.5) |  |  | (0.2) |  |  | (9.2) |
Foreign currency exchange | 0.1 |  |  | (0.1) |  |  | — |
Settlements | 0.1 |  |  | (1.0) |  |  | (2.1) |
Lapse of statue of limitations | $ | (1.2) |  |  | $ | — |  |  | $ | — |
Ending balance as of December 31 | $ | 8.5 |  |  | $ | 8.9 |  |  | $ | 6.6 |
Included in the balance of unrecognized tax benefits as of December 31, 2023 were $6.9 million of tax benefits that, if recognized, would impact the effective tax rate. We recognized interest accrued related to unrecognized tax benefit as income tax expense. Related to the unrecognized tax benefits noted above, as of December 31, 2023 and 2022, we had accrued potential interest and penalties of approximately $1.4 million and $1.1 million, respectively. We are subject to taxation in the U.S. and various state and foreign jurisdictions. Our tax years from 2019 through 2023 are subject to examination by the tax authorities. With few exceptions, we are no longer subject to U.S. federal, state, local and foreign examinations by tax authorities for the years before 2019.

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