| Income Taxes | Note 8—Income Taxes Income tax expense (benefit) consisted of the following:
Year Ended December 31,
(in thousands) 2023 2022 2021
Current:
U.S. Federal $ 2,989 $ 903 $ 6
State and local 587 107 1,702
Foreign 28,321 22,351 14,812
Total current taxes 31,897 23,361 16,520
Deferred:
U.S. Federal ( 6,206 ) ( 6,544 ) ( 6,179 )
State and local ( 1,612 ) ( 1,734 ) ( 1,380 )
Foreign ( 7,174 ) 1,030 676
Total deferred taxes ( 14,992 ) ( 7,248 ) ( 6,883 )
Total income tax expense $ 16,905 $ 16,113 $ 9,637 Income (loss) before income taxes consisted of the following:
Year Ended December 31,
(in thousands) 2023 2022 2021
United States $ ( 31,534 ) $ ( 45,390 ) $ ( 34,930 )
Foreign 112,754 129,732 80,337
Total income before income taxes $ 81,220 $ 84,342 $ 45,407 Income tax expense differed from the amounts computed by applying the U.S. Federal statutory income tax rate to income (loss) before income taxes as follows:
Year Ended December 31,
(in thousands) 2023 2022 2021
Tax at statutory rate $ 17,056 $ 17,713 $ 9,536
State taxes, net of federal tax effect ( 809 ) ( 1,285 ) ( 36 )
Effect of foreign operations and tax incentives ( 909 ) ( 3,907 ) ( 4,048 )
Change in valuation allowance ( 241 ) 41 ( 336 )
Stock-based compensation 623 447 ( 69 )
GILTI ( 450 ) 1,768 2,104
Foreign tax refund benefit — — ( 7,285 )
Losses in foreign jurisdictions for which no benefit has been provided 6 3 2,608
Change in uncertain tax benefit reserve 370 40 8,858
Other 1,259 1,293 ( 1,695 )
Total income tax expense $ 16,905 $ 16,113 $ 9,637 The U.S. Tax Cuts and Jobs Act (U.S. Tax Reform), which was signed into law on December 22, 2017, significantly changed U.S. tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system, adding a global intangible taxation regime and imposing a transition tax (Transition Tax) on deemed repatriated cumulative earnings of foreign subsidiaries. The U.S. Tax Reform reduced the U.S. corporate income tax rate from a maximum of 35 % to a flat 21 % rate which became effective on January 1, 2018. The Company recorded the effects of the changes in the corporate income tax rate in the Company’s deferred tax assets and liabilities as of December 31, 2017. To minimize tax base erosion with a territorial tax system, the U.S. Tax Reform enacted a new global intangible low-taxed income (GILTI) provision that requires the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiaries' tangible assets. The taxable earnings can be offset by a limited deemed paid foreign tax credit with no carrybacks or carryforwards available. The Company is subject to the GILTI provisions. The Company elected to account for the GILTI as a period cost and include the effect in the period in which it is incurred and not include it as a factor in the determination of deferred taxes. The Company incurred a total Transition Tax liability of $ 80.5 million after reduction for net operating loss carryforwards, U.S. tax credit carryforwards and foreign tax credit carryforwards that were allowed to be utilized against its total tax liability as of December 31, 2017. The Company made an election to pay the net tax liability in installments. The Company has a total Transition Tax liability as of December 31, 2023 of $ 36.2 million. The Company intends to pay this liability over the remaining two-year payment period as prescribed by the U.S. Tax Reform and regulatory guidance issued by the Internal Revenue Service (IRS). As of December 31, 2023, $ 20.1 million of the Transition Tax liability is included in other long-term liabilities on the consolidated balance sheet. The Company expects its p ayments for years subsequent to December 31, 2023 will be $ 16.1 million in 2024 and $ 20.1 million in 2025. During 2023, 2022 and 2021, the Company repatriated $ 70.0 mi llion, $ 20.0 million and $ 35.0 million, respectively, of foreign earnings to the United States. As of December 31, 2023, the Company has approximately $ 477.2 million in cumulative undistributed foreign earnings related to its foreign subsidiaries. These earnings would not be subject to U.S. federal income tax if distributed to the Company. The Company changed its assertion during 2018 on its foreign subsidiaries earnings that are permanently reinvested. A certain amount of earnings from specific foreign subsidiaries are permanently reinvested, and certain foreign earnings from other specific foreign subsidiaries are considered to be non-permanently reinvested and are available for immediate distribution to the Company. Income taxes have been accrued on the non-permanently reinvested foreign earning s, including the 2017 Transition Tax, the U.S. tax on GILTI and any applicable foreign or local withholding taxes. The Company estimates that it has approximately $ 9.1 million of unrecognized deferred tax liabilities related to any remaining undistributed permanently reinvested foreign earnings that have not already been subject to the 2017 Transition Tax, the U.S. tax o n GILTI, and any applicable foreign income tax or local withholding tax on cash distributions. During 2021, the Company recorded a deferred tax asset of $ 7.3 million with respect to a refund claim of foreign cash taxes of $ 16.5 million that was filed in 2021. Previously in 2018, the Company recorded $ 9.2 million of this total refund claim. The tax effects of temporary differences that give rise to significant portions of the Company's deferred tax assets and liabilities were as follows:
December 31,
(in thousands) 2023 2022
Deferred tax assets:
Carrying value of inventories $ 5,782 $ 4,809
Accrued liabilities and allowances deductible for tax purposes on a cash basis 10,213 7,811
Goodwill 554 937
Stock-based compensation 5,853 5,032
Operating lease liabilities 33,260 23,252
Net operating loss carryforwards 12,662 16,848
Tax credit carryforwards 7,372 5,805
Research and experimentation 15,861 10,691
Other 8,540 4,086
Total gross deferred tax assets 100,097 79,271
Less: valuation allowance ( 18,502 ) ( 18,743 )
Total net deferred tax assets 81,595 60,528
Deferred tax liabilities:
Plant and equipment, due to differences in depreciation ( 10,652 ) ( 7,957 )
Operating lease right-of-use assets ( 32,999 ) ( 22,991 )
Intangible assets, due to differences in amortization ( 8,946 ) ( 10,502 )
Foreign withholding tax ( 898 ) ( 4,902 )
Interest rate swap ( 52 ) ( 263 )
Other ( 1,105 ) ( 2,173 )
Total gross deferred tax liabilities ( 54,652 ) ( 48,788 )
Total net deferred tax assets $ 26,943 $ 11,740
The net deferred tax assets are classified as follows:
Long-term assets $ 26,943 $ 12,235
Long-term liabilities — ( 495 )
Total net deferred tax assets $ 26,943 $ 11,740 All of the Company's deferred tax assets and liabilities are classified as long-term on the consolidated balance sheets as of December 31, 2023 and 2022. Deferred tax assets and liabilities are offset for each tax jurisdiction and presented as a single net long-term amount on the consolidated balance sheet. During 2023 and 2022, the Company incurred and capitalized certain research and experimentation expenses that are required to be capitalized as an amortizable asset under Internal Revenue Code (IRC) Section 174 and to be amortized over a period of five years. This requirement is based on the implementation of the U.S. Tax Reform Act of 2017 and became effective on January 1, 2022. As of December 31, 2023, the Company's net deferred tax asset from capitalized research and experimentation expenses was $ 15.9 million. The net change in the Company's valuation allowance for 2023, 2022 and 2021 was a $ 0.2 million decrease, a less than $ 0.1 million increase and a $ 0.3 million decrease , respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. As of December 31, 2023, based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowances. As of December 31, 2023 , the Company had no remaining U.S. federal operating loss carryforwards as the final balance was utilized in 2022. The Company has U.S. state operating loss carryforwards of approximately $ 18.7 million which will expire from 2037 to 2043 ; foreign operating loss carryforwards of approximately $ 11.7 million with indefinite carryforward periods; and foreign operating loss carryforwards of approximately $ 33.0 million which will expire at varying dates through 2031 . The utilization of these net operating loss carryforwards is limited to the future operations of the Company in the tax jurisdictions in which such carryforwards arose. The Company has state tax credit carryforwards of $ 1.6 million which will expire at varying dates through 2026 . The Company also has U.S. research and development tax credit carryforwards of $ 5.7 million w hich will expire from 2038 through 2043 . The Company has been granted certain tax incentives, including tax holidays, for its subsidiaries in Thailand, China and Malaysia that expire at various dates, unless extended or otherwise renegotiated and are subject to certain conditions with which the Company expects to comply. The tax incentives in Thailand will expire on December 31, 2030 . The tax incentives in China expired on December 31, 2023 and the tax incentives in Malaysia expired on March 31, 2021 . The Company has applied for a continuation of the Malaysia tax holiday, which will extend the tax incentive period for five to ten years if approved. The Company will also apply for a China tax holiday in 2024 . There is no guarantee of being awarded these tax incentives in the future. The net impact of the current tax incentives was to lower income tax expense for 2023, 2022, and 2021 by approxima tely $ 6.3 million (approximately $ 0.17 per dil uted share), $ 9.0 million (approximately $ 0.25 per diluted share) and $ 7.7 million (approximately $ 0.21 per diluted share), respectively, as follows:
Year Ended December 31,
(in thousands) 2023 2022 2021
Thailand $ 4,923 $ 8,362 $ 5,360
China 1,338 643 443
Malaysia — — 1,946
Total tax incentives $ 6,261 $ 9,005 $ 7,749 The Company must determine whether it is “more-likely-than-not” that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets the more-likely-than-not recognition threshold, the position is measured to determine the amount of benefit to recognize in the consolidated financial statements. As of December 31, 2023, the total amount of the reserve for uncertain tax benefits, including interest and penalties, was $ 9.9 million. A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:
December 31,
(in thousands) 2023 2022 2021
Balances as of the beginning of the year $ 9,061 $ 9,121 $ 499
Additions related to current year tax positions — — 7,424
Additions related to prior year tax positions — — 1,575
Decreases related to prior year tax positions — — ( 138 )
Decreases related to lapse of statutes — ( 60 ) ( 239 )
Balances as of the end of the year $ 9,061 $ 9,061 $ 9,121 During 2023, there were no uncertain tax position changes. During 2022, the Company released less than $ 0.1 million of uncertain tax benefits related to lapse of statutes. During 2021, the Company recorded additional uncertain tax benefits related to the prior year and current tax positions of $ 1.6 million and $ 7.4 million, respectively. The reserve is classified as a current or long-term liability on the consolidated balance sheet based on the Company’s expectation of when the items will be settled. The Company records interest expense and penalties accrued in relation to uncertain tax benefits as a component of current income tax expense. As of December 31, 2023, the amount of accrued potential interest on unrecognized tax benefits included in the reserve was $ 0.8 million. The Company and its subsidiaries in Brazil, China, Ireland, Malaysia, Mexico, Netherlands, Romania, Singapore, Thailand and the United States remain open to examination by the various local taxing authorities, in total or in part, for fiscal years 2015 to 2023. During the course of such income tax examinations, disputes may occur as to matters of fact or law. Also, in most tax jurisdictions, the passage of time without examination will result in the expiration of applicable statutes of limitations thereby precluding examination of the tax period(s) for which such statute of limitation has expired. The Company believes that it has adequately provided for its tax liabilities. |
