| PROVISION FOR INCOME TAXES | PROVISION FOR INCOME TAXES Income (loss) before income taxes is as follows: (In thousands) Year Ended Three Months Ended Year Ended December 31, 2021 Year Ended December 31, 2020 Income (loss) before income taxes United States $ 27,650 $ (88,789) $ 191,201 $ (478,465) Foreign 260,115 36,628 199,676 (14,079) Total $ 287,765 $ (52,161) $ 390,877 $ (492,544) The components of the income tax expense (benefit) consisted of the following: (In thousands) Year Ended Three Months Ended Year Ended December 31, 2021 Year Ended December 31, 2020 Current Federal $ 18,483 $ 331 $ (2,454) $ (30,047) State 3,771 99 864 34 Foreign 29,103 10,251 36,304 16,720 51,357 10,681 34,714 (13,293) Deferred Federal (159,277) 159 5,148 50,620 State 215 (4) (3,645) 587 Foreign 6,659 (2,655) (4,145) 11,473 (152,403) (2,500) (2,642) 62,680 Income tax expense (benefit) $ (101,046) $ 8,181 $ 32,072 $ 49,387 A reconciliation from the U.S. statutory federal income tax rate to the effective income tax rate is as follows: Year Ended Three Months Ended Year Ended Year Ended U.S. federal statutory income tax rate $ 60,431 21.0 % $ (10,954) 21.0 % $ 82,086 21.0 % $ (103,434) 21.0 % State taxes, net of federal tax impact 8,800 3.0 % (5,314) 10.2 % 23,508 6.0 % (29,341) 6.0 % Effect of foreign earnings (2,019) (0.7) % (361) 0.7 % (10,697) (2.7) % (762) 0.2 % Permanent tax benefits/nondeductible expenses (9,330) (3.2) % (900) 1.7 % (12,343) (3.2) % 15,993 (3.2) % Permanent tax benefits/nondeductible losses - divestitures — — % (552) 1.1 % 7,317 1.9 % (118,321) 24.0 % Unrecognized tax benefits 11,560 4.0 % 750 (1.4) % 9,813 1.1 % 2,260 (0.5) % Impacts related to U.S. Tax Act — — % — — % — — % (13,987) 2.8 % Valuation allowance (170,414) (59.2) % 26,223 (50.3) % (63,418) (14.9) % 302,575 (61.4) % Other (74) — % (711) 1.3 % (4,194) (1.1) % (5,596) 1.1 % Effective income tax rate $ (101,046) (35.1) % $ 8,181 (15.7) % $ 32,072 8.2 % $ 49,387 (10.0) % For Fiscal 2023 the Company recorded an income tax benefit of $101.0 million compared to income tax expense of $8.2 million and $32.1 million in the periods ending March 31, 2022, and December 31, 2021, respectively. The change was primarily due to the recognition of an income tax benefit from the release of the U.S. federal valuation on beginning of year deferred tax assets in the period ending March 31, 2023. In the period ending March 31, 2022, additional valuation allowances were recorded for the U.S. and for the period ended December 31, 2021, the income tax benefits for the reduction in U.S. valuation allowances was limited to the current period earnings. On August 16, 2022, the Inflation Reduction Act (the "Act") was enacted and signed into law in the United States. The Act contains a number of revisions to the Internal Revenue Code, including a 15% corporate minimum tax and a 1% excise tax on corporate stock repurchases in tax years beginning after December 31, 2022. The Company does not expect these tax provisions to have a material impact to the consolidated financial statements. Deferred tax assets and liabilities consisted of the following: (In thousands) March 31, 2023 March 31, 2022 December 31, 2021 Deferred tax assets Operating lease liabilities $ 213,381 $ 191,342 $ 197,682 U.S. Federal and State Capital Loss 45,099 57,200 57,097 Reserves and accrued liabilities 44,401 61,846 41,943 Capitalized research expenditures 35,539 8,646 — Inventory 33,768 18,862 26,860 Foreign net operating loss carry-forwards 33,492 38,069 33,875 Intangible assets 22,923 25,935 26,281 U.S. state net operating loss 13,708 17,438 16,636 Allowance for doubtful accounts and sales return reserves 13,112 15,168 14,940 Foreign tax credits 9,522 9,423 8,606 Stock-based compensation 8,076 6,299 11,301 Deductions limited by income 5,957 6,083 3,288 U.S. tax credits 4,567 7,970 7,273 Convertible debt instruments 725 1,196 — Other 8,674 8,896 5,490 Total deferred tax assets 492,944 474,373 451,272 Less: valuation allowance (175,185) (350,610) (318,221) Total net deferred tax assets $ 317,759 $ 123,763 $ 133,051 Deferred tax liabilities Right-of-use asset $ (122,286) $ (93,541) $ (98,085) Convertible debt instruments — — (1,066) Prepaid expenses (4,875) (8,012) (8,356) Property, plant and equipment (3,862) (1,913) (7,018) Other (1,888) (2,042) (3,743) Total deferred tax liabilities (132,911) (105,508) (118,268) Total deferred tax assets, net $ 184,848 $ 18,255 $ 14,783 All deferred tax assets and liabilities are classified as non-current on the Consolidated Balance Sheets as of March 31, 2023, March 31, 2022 and December 31, 2021. In evaluating its ability to realize the net deferred tax assets, the Company considered all available positive and negative evidence, including its past operating results and the forecast of future market growth, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment and actual operating results in future years could differ from the Company's current assumptions, judgments and estimates. A significant portion of the Company’s deferred tax assets relate to U.S. federal and state taxing jurisdictions. Realization of these deferred tax assets is dependent on future U.S. pre-tax earnings. In evaluating the recoverability of these deferred tax assets as of March 31, 2023, the Company has considered all available evidence, both positive and negative, including but not limited to the following: Positive • Current year pre-tax earnings including positive financial taxable income in the U.S. federal jurisdiction. • Prior three-year cumulative positive financial taxable income in the U.S. federal jurisdiction. • Forecasted future positive financial taxable income in the U.S. • No material definite lived tax attributes (excluding capital loss) subject to expiration in the near short term. • No history of U.S. federal and material state tax attributes expiring unused. • Available prudent and feasible tax planning strategies. • Prior three-year cumulative financial taxable loss in the U.S. state jurisdiction. • Inherent challenges in forecasting sufficient future state pre-tax earnings to overcome existing cumulative losses in prior years. • Existing definite life state attributes related to credits and net operating losses. As of March 31, 2023, the Company believes that the weight of the positive evidence outweighs the negative evidence regarding the realization of the Company’s U.S. federal deferred tax assets, resulting in the release of the corresponding valuation allowance. The release of valuation allowance (excluding capital losses) resulted in a material benefit to income tax expense and net income in the period. As of March 31, 2023, for U.S states the Company believes the weight of the negative evidence continues to outweigh the positive evidence regarding the realization of the state deferred tax assets and the Company has maintained a valuation allowance against these assets. The Company's current forecast for the U.S. indicates that there is a possibility that within the next 12 months, sufficient positive evidence may become available to reach a conclusion that a portion of the U.S state valuation allowance will no longer be required. The actualization of these forecasted results may result in a reversal of a portion of previously recorded U.S state valuation allowances in the United States. The release of valuation allowances would result in a benefit to income tax expense in the period the release is recorded. The timing and amount are subject to change based on the actual profitability that the Company is able to actually achieve in the United States. The Company also continues to maintain a valuation allowance against its net deferred income tax assets in certain foreign tax jurisdictions and will evaluate its ability to realize its net deferred tax assets on a quarterly basis. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. The Company will continue to evaluate our ability to realize our net deferred tax assets on a quarterly basis. As of March 31, 2023, the Company had $13.7 million in deferred tax assets associated with $261.5 million in state net operating loss carryforwards and $4.6 million in deferred tax assets associated with state tax credits, the majority of which are definite lived. Certain definite lived state net operating losses and state tax credits will begin to expire within ten As of March 31, 2023, the Company had $38.4 million in deferred tax assets associated with approximately $177.6 million in foreign net operating loss carryforwards and $9.5 million in deferred tax assets associated with foreign tax credit carryforwards. While the majority of the foreign net operating loss carryforwards and foreign tax credit carryforwards have an indefinite carryforward period, certain are definite lived, expected to expire within three As of March 31, 2023, approximately $396.5 million of cash and cash equivalents was held by the Company's non-U.S. subsidiaries whose cumulative undistributed earnings total $1.3 billion. The Tax Cuts and Jobs Act of 2017 imposed U.S. federal tax on all post-1986 foreign unrepatriated earnings accumulated through December 31, 2017. The portion of these earnings not subject to U.S. federal income tax as part of the one-time transition tax should, in general, not be subject to U.S. federal income tax. The Company will continue to permanently reinvest these earnings, as well as future earnings from its foreign subsidiaries, to fund international growth and operations. If the Company was to repatriate indefinitely reinvested foreign funds, it would still be required to accrue and pay certain taxes upon repatriation, including foreign withholding taxes and certain U.S. state taxes and recognized foreign exchange rate impacts. Determination of the unrecorded deferred tax liability that would be incurred if such amounts were repatriated is not practicable. The following table represents a reconciliation of the Company's total unrecognized tax benefits balances, excluding interest and penalties. (In thousands) Year Ended Three Months Ended Year Ended December 31, 2021 Year Ended December 31, 2020 Beginning of period $ 49,842 $ 49,125 $ 40,314 $ 41,194 Increases as a result of tax positions taken in a prior period 4,987 159 6,713 1,738 Decreases as a result of tax positions taken in a prior period (598) (37) (332) (2,309) Increases as a result of tax positions taken during the current period 4,594 595 2,430 2,142 Decreases as a result of settlements during the current period — — — (1,500) Reductions as a result of divestiture — — — (951) End of period $ 58,825 $ 49,842 $ 49,125 $ 40,314 As of March 31, 2023, the total liability for unrecognized tax benefits was approximately $67.2 million (March 31, 2022: $55.6 million; December 31, 2021: $54.6 million) including $8.5 million for the accrual of interest and penalties (March 31, 2022: $5.7 million; December 31, 2021: $5.5 million). For Fiscal 2023, the Company recorded $2.7 million for the accrual of interest and penalties within the provision for income taxes on its Consolidated Statements of Operations (Fiscal 2021: $1.2 million; Fiscal 2020: $1.2 million; Transition Period: $0.2 million). As of March 31, 2023, $50.3 million of unrecognized tax benefits, excluding interest and penalties, would impact the Company's effective tax rate if recognized. Also included in the balance are unrecognized tax benefits of $6.6 million that, if recognized, would result in adjustments to other tax accounts, primarily valuation allowances on deferred tax assets. The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is currently under audit by the U.S. Internal Revenue Service for the years 2015 through 2020. The majority of the Company's other returns for years before 2017 are no longer subject to U.S. federal, state and local or foreign income tax examinations by tax authorities. The total amount of unrecognized tax benefits relating to the Company's tax positions is subject to change based on future events including, but not limited to, the settlements of ongoing tax audits and assessments and the expiration of applicable statutes of limitations. Although the outcomes and timing of such events are highly uncertain, the Company does not anticipate that the balance of gross unrecognized tax benefits, excluding interest and penalties, will change significantly during the next twelve months. However, changes in the occurrence, expected outcomes, and timing of such events could cause the Company's current estimate to change materially in the future. |
