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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The provision for income taxes consists of amounts for taxes currently payable, amounts for tax items deferred to future periods; as well as adjustments relating to the Company’s determination of uncertain tax positions, including interest and penalties. The Company recognizes deferred tax assets and liabilities based on the future tax consequences attributable to tax net operating loss (“NOL”) carryforwards, capital loss carryforwards, tax credit carryforwards and differences between the financial statement carrying amounts and the tax bases of applicable assets and liabilities. Deferred tax assets are regularly reviewed for recoverability and valuation allowances are established based on historical losses, projected future taxable income and the expected timing of the reversals of existing temporary differences. As a result of this review, the Company established a full valuation allowance against U.S. federal and state capital loss carryforwards, as well as certain foreign NOL carryforwards and related deferred tax assets, and continues to maintain a partial valuation allowance against certain U.S. state NOL and tax credit carryforwards.
In October 2021, more than 130 countries agreed to implement Pillar 2, a plan introduced by the Organization for Economic Co-operation and Development (“OECD”) providing for a global minimum tax rate of 15% (calculated on a country-by-country basis) for those companies having consolidated revenue of at least €750 million. The implementation of the Pillar 2 global minimum tax rules is intended to apply for tax years beginning in 2024. The main purpose of such rules is to minimize tax base erosion and profit shifting from higher tax jurisdictions to lower tax jurisdictions by multi-national companies. On February 1, 2023, the Financial Accounting Standards Board indicated that they view the minimum tax (“Top-Up Tax”) imposed under Pillar 2 as an alternative minimum tax, and as such, it should be recognized in the period incurred versus recognizing or adjusting deferred tax assets and liabilities. On February 2, 2023, the OECD issued various administrative guidance including transitional safe harbor rules available in conjunction with the implementation of the Pillar 2 global minimum tax. Based upon the current OECD rules and administrative guidance, the Company does not anticipate being subject to material Top-Up Taxes as various tax jurisdictions begin enacting such legislation. The Company is continuing to monitor
the potential impact of the Pillar 2 proposals and developments on our consolidated financial statements and related disclosures, including eligibility for any transitional safe harbor rules.
Income Tax Provision
The components of the provision for income taxes are as follows (in millions):
 Year Ended
 December 31, 2023December 31, 2022December 31, 2021
Current:
United States$36.4 $16.7 $7.2 
Non-United States4.6 1.8 1.0 
State and local7.6 5.4 2.7 
Total current48.6 23.9 10.9 
Deferred:
United States(7.5)3.4 (8.8)
Non-United States1.3 0.7 (0.1)
State and local0.2 (1.2)0.7 
Total deferred(6.0)2.9 (8.2)
Provision for income taxes$42.6 $26.8 $2.7 
    
The provision for income taxes differs from the United States statutory income tax rate due to the following items (in millions):
 Year Ended
 December 31, 2023December 31, 2022December 31, 2021
Provision for income taxes at U.S. federal statutory income tax rate$30.8 $17.6 $11.0 
State and local income taxes, net of federal benefit5.2 3.4 1.4 
Net effects of foreign rate differential0.9 0.5 (0.2)
Net effects of foreign operations0.1 — 0.8 
Nondeductible acquisition costs(1.3)4.2 — 
Unrecognized tax benefits, net of federal benefit0.5 0.2 1.0 
Excess tax benefits related to equity compensation(1.7)(1.2)(17.7)
§162(m) compensation limitation6.2 3.3 5.1 
Nondeductible loss on divestiture of asbestos liabilities and certain assets2.0 — — 
Net changes in valuation allowance0.5 (0.8)1.6 
Other(0.6)(0.4)(0.3)
Provision for income taxes $42.6 $26.8 $2.7 
The provision for income taxes was calculated based upon the following components of income from continuing operations before income taxes (in millions):
 Year Ended
 December 31, 2023December 31, 2022December 31, 2021
United States$127.6 $74.5 $49.5 
Non-United States19.2 9.3 2.9 
Income before income taxes$146.8 $83.8 $52.4 
Deferred Income Tax Assets and Liabilities
Deferred income taxes consist of the tax effects of the following temporary differences (in millions):
December 31, 2023December 31, 2022
Deferred tax assets:
Compensation and retirement benefits$24.5 $20.2 
General accruals and reserves11.3 17.2 
Lease liabilities17.2 10.7 
State tax net operating loss and credit carryforwards13.4 17.3 
Federal and state capital loss carryforwards0.5 17.7 
Foreign net operating loss carryforwards1.0 1.5 
Other2.8 3.9 
Total deferred tax assets before valuation allowance70.7 88.5 
Valuation allowance(12.0)(32.2)
Total deferred tax assets58.7 56.3 
Deferred tax liabilities:
Property, plant and equipment23.4 29.0 
Lease ROU assets16.6 10.6 
Inventories17.0 14.9 
Intangible assets and goodwill208.4 220.1 
Total deferred tax liabilities265.4 274.6 
Net deferred tax assets (liabilities)$(206.7)$(218.3)
Net amount on Consolidated Balance Sheets consists of:
Other assets$3.3 $3.1 
Deferred income taxes(210.0)(221.4)
Net long-term deferred tax assets (liabilities)$(206.7)$(218.3)
Management has reviewed the deferred tax assets and has analyzed the uncertainty with respect to ultimately realizing the related tax benefits associated with such assets. Based upon this analysis, management has determined that a valuation allowance should be established for the federal and state capital loss carryforwards, certain foreign NOL carryforwards and related deferred tax assets, as well as certain state NOL and tax credit carryforwards as of December 31, 2023. Significant factors considered by management in this determination included the historical operating results of the Company, as well as anticipated reversals of future taxable temporary differences. Capital losses may generally only be used to offset available capital gains. Federal capital losses are allowed to be carried back three years and carried forward for five. The Company does not have any capital gains in the carryback period with which to offset any portion of the capital loss. States generally follow federal law with respect to capital losses; however, for those that do have a modification, such modification (in most cases) is to deny any carryback period. The carryforward periods for the state NOLs range from five to twenty years. The state credit carryforwards expire over a period of 15 years. The foreign NOL carryforwards are subject to a twenty-year expiration period.
At December 31, 2023, the Company had approximately $244.7 million of state NOL carryforwards, expiring over various years ending through December 31, 2033. The Company has a tax effected valuation allowance of $8.8 million recorded against the related deferred tax asset. In addition, at December 31, 2023, the Company had approximately $3.7 million of foreign NOL carryforwards, of which there is a recorded tax effected valuation allowance of $1.0 million. The significant decrease in the deferred tax asset relating to federal and state capital loss carryforwards is the result of such credits expiring unutilized. These expiring credits were effectively written off against the full valuation allowance previously recorded by the Company. As such, the majority of the significant decrease in the valuation allowance was the result of this write-off.
No provision has been made for U.S. federal income taxes related to approximately $26.1 million of undistributed earnings of foreign subsidiaries considered to be permanently reinvested. No additional income tax liability would be expected to result if such earnings were repatriated to the U.S., other than potential out-of-pocket withholding taxes of approximately $1.3 million.
The Company’s total receivable for net accrued income taxes as of December 31, 2023 and 2022 was $13.5 million and $16.0 million, respectively. This net amount is presented in the consolidated balance sheets as income taxes payable (separately disclosed in other current liabilities) of $3.5 million and $2.3 million as of December 31, 2023 and 2022, respectively; and as income taxes receivable in the consolidated balance sheets of $17.0 million and $18.3 million as of December 31, 2023 and 2022, respectively. Net cash paid for income taxes to governmental tax authorities for the years ended December 31, 2023, 2022, and 2021 was $45.7 million, $3.1 million and $57.8 million, respectively.
Liability for Unrecognized Tax Benefits
The Company's total liability for net unrecognized tax benefits as of December 31, 2023 and 2022 was $5.6 million and $5.5 million, respectively.
The following table represents a reconciliation of the beginning and ending amount of the gross unrecognized tax benefits, excluding interest and penalties, for the years ended December 31, 2023 and 2022 (in millions):
Year Ended
December 31, 2023December 31, 2022
Balance at beginning of period$5.4 $5.9 
Additions based on tax positions related to the current year0.1 0.1 
Additions for tax positions of prior years0.1 0.4 
Reductions due to lapse of applicable statute of limitations(0.5)(1.0)
Balance at end of period$5.1 $5.4 
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2023 and 2022, the total amount of unrecognized tax benefits includes $1.1 million and $0.7 million of gross accrued interest and penalties, respectively. The amount of net interest and penalties recorded as income tax expense during the years ended December 31, 2023, 2022, and 2021 was $0.4 million, $0.2 million, and $0.2 million, respectively.
The Company conducts business in multiple locations within and outside the U.S. Consequently, the Company is subject to periodic income tax examinations by domestic and foreign income tax authorities. In accordance with the terms of the sale agreement relating to a group of certain previously owned legal entities (the parent of which was VAG Holding GbmH, “VAG”), the Company is required to indemnify the purchaser for any future income tax liabilities associated with all open tax years ending prior to, and including, the short period ended on the date of the Company's sale of VAG. VAG was notified by the German tax authorities of its intention to conduct an income tax examination of the VAG German entities’ corporate income and trade tax returns for the tax years ended March 31, 2014 through 2020. Similarly, in accordance with the Spin-Off Transaction, the Company is required to indemnify Regal Rexnord Corporation for any future income tax liabilities associated with PMC entities relating to all open tax years ending prior to, and including, the short period ended on the date of the Spin-Off. There are currently a number of ongoing tax examinations being conducted by the applicable tax authorities in Germany with respect to certain PMC entities. It appears reasonably possible that the amounts of unrecognized income tax benefits and indemnification liabilities could change in the next twelve months upon conclusion of the current ongoing examinations; however, any potential payments of income tax, interest and penalties are not expected to be significant to the Company's consolidated financial statements. With certain exceptions, the Company is no longer subject to U.S. federal income tax examinations for tax years ending prior to March 31, 2020, state and local income tax examinations for years ending prior to March 31, 2019 or significant foreign income tax examinations for years ending prior to March 31, 2018.