Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes [Abstract]

Income Taxes

11. Income Taxes

Earnings before income taxes were as follows:

(In thousands)	2023		2022		2021
United States	$	45,900	$	73,192	$	71,764
Foreign		83,951		109,012		85,720
Total	$	129,851	$	182,204	$	157,484

The provision for income taxes was as follows:

(In thousands)	2023			2022			2021
Current income tax expense:
Federal	$	11,153		$	21,640		$	16,807
State		2,814			5,138			5,128
Foreign		27,590			25,549			22,875
		41,557			52,327			44,810
Deferred benefit:
Federal		(4,656	)		(8,520	)		(4,159	)
State		(813	)		(1,353	)		(1,189	)
Foreign		369			(1,137	)		(723	)
		(5,100	)		(11,010	)		(6,071	)
Income taxes	$	36,457		$	41,317		$	38,739

The reconciliation between the U.S. Federal tax rate and the actual effective tax rate was as follows:

	2023			2022			2021
Taxes at statutory rate		21.0	%		21.0	%		21.0	%
State income taxes, net of federal income tax benefit		1.1			1.7			3.0
Tax credits		(1.9	)		(1.3	)		(1.4	)
Taxes on foreign earnings		4.8			2.9			4.7
Global Intangible Low-Taxed Income		0.6			0.4			0.7
Foreign Derived Intangible Income		(1.3	)		(1.0	)		(0.9	)
Loss on balance sheet hedge		-			-			0.7
Resolution of prior years’ tax matters		0.3			(0.1	)		(0.4	)
Valuation allowance adjustments		2.8			(2.7	)		(2.9	)
Nondeductible compensation		1.2			1.9			1.1
Other, net		(0.5	)		(0.1	)		(1.0	)
Effective tax rate		28.1	%		22.7	%		24.6	%

Taxes on foreign earnings include the difference between the tax rates applied to foreign earnings relative to the U.S. statutory tax rate, accruals for foreign unrecognized tax benefits, and the impact of the U.S. foreign tax credit, not including the impact from Global Intangible Low-Taxed Income (GILTI). The impact on the Company’s effective tax rate varies from year to year based on the finalization of prior year foreign and domestic tax items, audit settlements, and mix of foreign earnings. The effective tax rates in 2023, 2022, and 2021 were all impacted by the release of valuation allowances related to the foreign tax credit carryover and net operating losses. The effective tax rate in 2023 was impacted by the limited tax deductibility of costs related to the portfolio optimization plan, and the effective tax rates in 2022 and 2021 were impacted by tax costs related to the divestitures. See Note 14, Divestitures, and Note 16, Portfolio Optimization Plan.

The Company’s valuation allowance at December 31, 2023 and 2022 was $34.1 million and $28.1 million, respectively. In 2023, the valuation allowance related to foreign tax credits was reduced, and the valuation allowance related to state and foreign NOLs was increased. In 2022, the valuation allowance related to foreign tax credits and state and foreign NOLs was reduced. During 2021, the Company completed tax planning strategies and Federal tax regulations were finalized that resulted in the partial release of this valuation allowance.

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities consisted of the following:

(In thousands)	2023			2022
Deferred tax assets:
Benefit plans	$	8,976		$	8,601
Liabilities and reserves		20,960			18,623
Operating loss and credit carryovers		59,615			60,070
Capitalized research and development costs		13,148			7,882
Other		14,680			4,414
Gross deferred tax assets		117,379			99,590
Valuation allowance		(34,122	)		(28,073	)
Deferred tax assets		83,257			71,517
Deferred tax liabilities:
Property, plant, and equipment		(33,654	)		(34,174	)
Goodwill		(22,299	)		(20,603	)
Deferred tax liabilities		(55,953	)		(54,777	)
Net deferred tax assets	$	27,304		$	16,740

At December 31, 2023, foreign tax credit carryovers were $31.7 million, all of which expire before 2035. At December 31, 2023, foreign operating loss carryovers were $76.7 million. Included in the foreign operating loss carryovers are losses of $13.5 million that expire through 2036 and $63.2 million that expire after 2036 or do not have an expiration date. At December 31, 2023, state operating loss carryovers were $115.1 million, which expire prior to 2036.

The Company is electing to recognize GILTI as a period expense in the period the tax is incurred.

The Organisation for Economic Co-operation and Development has issued Pillar Two model rules imposing a global minimum corporate tax rate of 15%. Many countries have implemented laws based on these model rules, with expected effective dates beginning in fiscal year 2024. As currently designed, Pillar Two will ultimately apply to our worldwide operations. These rules are not expected to materially increase our global tax costs as we do not have material operations in jurisdictions with tax rates lower than the Pillar Two minimum. We will continue to monitor U.S. and global legislative action related to Pillar Two for potential impacts.

Federal and state income taxes are provided on international subsidiary income distributed to or taxable in the U.S. during the year. At December 31, 2023, no additional income or withholding taxes have been provided for the $720.8 million of undistributed earnings or any additional outside basis differences inherent in these entities, as these amounts are considered to be invested indefinitely. If the undistributed earnings were repatriated, the Company estimates it would have a withholding tax liability of $37.1 million. The determination of the tax liability for any outside basis differences is not practicable.

A reconciliation of the change in the liability for unrecognized tax benefits for 2023 and 2022 is as follows:

(In thousands)	2023			2022
Balance at beginning of year	$	3,939		$	3,761
Increases for tax positions taken in the current year		876			800
Decreases related to settlements with tax authorities		(175	)		(209	)
Decreases as a result of lapse of the applicable statutes of limitations		(610	)		(338	)
Foreign currency exchange rate changes		221			(75	)
Balance at the end of year	$	4,251		$	3,939

The amount of the unrecognized tax benefits that would affect the effective tax rate, if recognized, was approximately $4.3 million. The Company recognizes interest and penalties related to the unrecognized tax benefits in income tax expense. $0.4 million of accrued interest and penalties were reported as an income tax liability as of both December 31, 2023 and 2022. The liability for unrecognized tax benefits relates to multiple jurisdictions and is reported in Other Liabilities on the Company’s Consolidated Balance Sheet at December 31, 2023.

The Company believes that it is reasonably possible that the total amount of liability for unrecognized tax benefits as of December 31, 2023, will decrease by approximately $0.9 million during 2024, of which $0.8 million is estimated to impact the effective tax rate. The potential decrease relates to various tax matters for which the statute of limitations may expire or will be otherwise settled in 2024. The amount that is ultimately recognized in the financial statements will be dependent upon various factors including potential increases or decreases in unrecognized tax benefits as a result of examinations, settlements, and other unanticipated items that may occur during the year. With limited exceptions, the Company is no longer subject to federal, state, and local, or non-U.S. income tax examinations by tax authorities for years before 2019.