Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes

Income Taxes

(9) Income Taxes

The significant components of the Company’s deferred income tax liabilities and assets are as follows:

	December 31,
	2022		2021
	(in millions)
Deferred income tax liabilities:
Excess tax over book depreciation	$	21.3	$	21.5
Intangibles		26.3		29.0
Goodwill		26.6		25.1
Foreign earnings		0.6		2.2
Operating lease ROU assets		7.9		8.6
Other		5.7		3.2
Total deferred tax liabilities		88.4		89.6
Deferred income tax assets:
Accrued expenses		9.6		10.7
Product liability		5.8		5.9
Operating lease liabilities		8.3		8.9
Stock based compensation		6.1		6.2
Foreign tax credits		13.6		13.8
Net operating loss carry forward		6.6		6.6
Capital loss carry forward		1.7		1.7
Inventory reserves		10.3		9.4
Intangibles		14.0		-
Capitalized R&D		14.7		-
Other		9.6		9.6
Total deferred tax assets		100.3		72.8
Less: valuation allowance		(20.3)		(20.2)
Net deferred tax assets		80.0		52.6
Net deferred tax liabilities	$	(8.4)	$	(37.0)

The provision for income taxes is based on the following pre-tax income:

	Year Ended December 31,
	2022		2021		2020
	(in millions)
Domestic	$	204.3	$	139.6	$	96.8
Foreign		103.3		94.5		70.2
	$	307.6	$	234.1	$	167.0

The provision for income taxes consists of the following:

	Year Ended December 31,
	2022		2021		2020
	(in millions)
Current tax expense:
Federal	$	51.0	$	32.0	$	13.4
Foreign		23.2		30.3		25.3
State		11.5		14.4		6.9
		85.7		76.7		45.6
Deferred tax expense (benefit):
Federal		(12.1)		(4.8)		14.8
Foreign		(13.7)		(2.4)		(6.7)
State		(3.8)		(1.1)		(1.0)
		(29.6)		(8.3)		7.1
Provision for income taxes	$	56.1	$	68.4	$	52.7

Actual income taxes reported are different than what would have been computed by applying the federal statutory tax rate to income before income taxes. The reasons for these differences are as follows:

	Year Ended December 31,
	2022		2021		2020
	(in millions)
Computed expected federal income expense	$	64.6	$	49.2	$	35.0
State income taxes, net of federal tax benefit		6.8		6.6		4.6
Foreign tax rate differential		3.5		4.3		2.7
Restructuring of manufacturing supply chain operations		(16.1)		29.3		—
Valuation allowance		0.4		(22.1)		12.9
GILTI HTE		—		—		(2.1)
Unrecognized tax benefits, net		(1.0)		2.0		(0.3)
Other, net		(2.1)		(0.9)		(0.1)
	$	56.1	$	68.4	$	52.7

In 2020, final tax regulations were released with respect to the GILTI (Global Intangible Low-Taxed Income) tax regime. These regulations permit an exclusion from GILTI for items of foreign income subject to a high effective tax rate, referred to as the GILTI High Tax Exclusion (HTE). Under the new regulations, the Company was allowed to review its GILTI income for the 2018 and 2019 tax years. The Company elected the exclusion for both the 2018 and 2019 tax years resulting in a total tax benefit of $2.1 million which was recorded in 2020.

In 2021, the Company restructured its Mexican manufacturing supply chain operations, which resulted in $29.3 million in additional tax expense, and was offset by a $22.1 million release of the valuation allowance on foreign tax credits, for a net tax of $7.2 million. The additional tax expense was primarily related to the prepayment of future royalties from the new structure, which resulted in current foreign source income. The foreign tax credit benefit significantly offset the additional tax expense resulting from the new supply chain structure. In 2022, to further align the new supply chain structure with developments, the Company modified the restructuring of its Mexican manufacturing supply chain operations which resulted in the recognition of a $16.1 million deferred tax asset which will be amortized over 10 years.

At December 31, 2022, the Company had foreign and domestic net operating loss carry forwards of $27.6 million and $1.1 million, respectively, for income tax purposes before considering valuation allowances; $23.2 million of the foreign losses can be carried forward indefinitely, $4.4 million of the foreign losses expire in 2029, and $0.3 million of the domestic losses expire between 2035 and 2040 and $0.8 million of the domestic losses can be carried forward indefinitely. The net operating losses consist of $23.2 million related to Austrian operations, $4.4 million related to Switzerland operations and $1.1 million related to United States operations.

At December 31, 2022, the Company had a U.S. capital loss carry forward of $1.7 million before considering valuation allowances that will expire in 2025.

At December 31, 2022 and December 31, 2021, the Company had foreign tax credit carry forwards of $13.6 million and $13.8 million, respectively, for income tax purposes before considering valuation allowances. The foreign tax credit carryforwards expire between 2027 and 2031.

At December 31, 2022 and December 31, 2021, the Company had valuation allowances of $20.3 million and $20.2 million, respectively. At December 31, 2022, $12.8 million related to foreign tax credits, $5.8 million related to Austrian net operating losses, and $1.7 million related to the domestic capital loss carry forward. At December 31, 2021, $12.4 million related to foreign tax credits, $6.1 million related to Austrian net operating losses, and $1.7 million related to the domestic capital loss carry forward. Management believes that the ability of the Company to use such foreign tax credits and losses within the applicable carry forward period does not rise to the level of the more likely than not threshold. The Company does not have a valuation allowance on other deferred tax assets, as management believes that it is more likely than not that the Company will recover the net deferred tax assets. Management believes it is more likely than not that the future reversals of the deferred tax liabilities, together with forecasted income, will be sufficient to fully recover the deferred tax assets.

Subsequent to recording the Toll Tax as part of the Tax Cuts and Jobs Act of 2017, after December 2017, the Company considers all of its foreign earnings to be permanently reinvested outside of the U.S. and has no plans to repatriate these foreign earnings to the U.S.

Unrecognized Tax Benefits

As of December 31, 2022, the Company had gross unrecognized tax benefits of approximately $7.2 million, approximately $4.5 million of which, if recognized, would affect the effective tax rate. The difference between the amount of unrecognized tax benefits and the amount that would affect the effective tax rate consists of allowable correlative adjustments that are available for certain jurisdictions.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	(in millions)
Balance at January 1, 2022	$	8.5
Increases related to prior year tax positions		1.9
Increases related to current year tax positions		0.2
Decreases due to lapse in statutes		(3.1)
Currency movement		(0.3)
Balance at December 31, 2022	$	7.2

The Company estimates that it is reasonably possible that the balance of unrecognized tax benefits as of December 31, 2022 may decrease by $0.4 million to $0.8 million in the next twelve months, as a result of lapses in statutes of limitations and settlements and $0.2 million to $0.4 million of which, if recognized, would affect the effective tax rate.

The Company conducts business in a variety of locations throughout the world resulting in tax filings in numerous domestic and foreign jurisdictions. The Company is subject to tax examinations regularly as part of the normal course of business. The Company’s major jurisdictions are the U.S., France, Germany, Italy and Canada. The statute of limitations in the U.S. is subject to tax examination for 2019 and later; France, Germany, Italy and Canada are subject to tax examination for 2016 and later. All other jurisdictions, with few exceptions, are no longer subject to tax examinations in state, local or international jurisdictions for tax years before 2015.

The Company accounts for interest and penalties related to uncertain tax positions as a component of income tax expense.