Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes
Consolidated earnings before income taxes consists of the following for 2022, 2021, and 2020:
Year Ended
2022 2021 2020
U.S. $ (23,996) $ 13,017  $ 18,838 
Foreign 132,617  157,625  159,110 
Total earnings before income taxes $ 108,621  $ 170,642  $ 177,948 
Income tax expense (benefit) included in income from continuing operations consists of the following:
Year Ended
2022 2021 2020
Current
Federal $ 42  $ (264) $ 306 
State 297  567  303 
Foreign 45,869  56,668  55,147 
Total Current 46,208  56,971  55,756 
Deferred
Federal (9,180) (4,088) 1,317 
State (331) (40) (47)
Foreign 2,574  1,294  (3,742)
Total Deferred (6,937) (2,834) (2,472)
$ 39,271  $ 54,137  $ 53,284 
The effective tax rate for 2022, 2021, and 2020 reconciled to the statutory U.S. Federal tax rate is as follows:
Year Ended
2022 2021 2020
Statutory U.S. federal income tax rate 21.0  % 21.0  % 21.0  %
State income taxes, net of federal tax benefit 0.4  0.4  0.3 
Permanent tax differences 0.3  0.1  0.2 
Excess foreign tax credits (16.6) (10.9) (9.9)
Net increase in valuation allowance 11.9  10.6  8.2 
Foreign income tax rate differences 9.5  1.8  1.7 
Foreign withholding taxes 9.7  7.9  7.7 
Uncertain tax position reserve 0.5  (0.3) 0.8 
All other, net (0.5) 1.1  (0.1)
36.2  % 31.7  % 29.9  %
The effective tax rate for the year ended December 31, 2022 increased compared to the year ended January 1, 2022. The effective tax rate increase is due primarily to a change in the market mix of pre-tax book income.
The significant categories of deferred taxes are as follows:
December 31,
2022		 January 1,
2022
Deferred tax assets
Inventory $ 5,872  $ 5,106 
Accruals not currently deductible 8,627  11,634 
Equity-based compensation expense 2,746  2,355 
Property and equipment 922  1,143 
Intangible assets 6,680  7,545 
Foreign currency translation 1,448  — 
Capitalized R&D Expenses 9,618  2,337 
Tax credit carry forwards 115,539  96,635 
Net operating losses 1,720  1,401 
Other 3,223  4,824 
Gross deferred tax assets 156,395  132,980 
Valuation allowance (118,136) (99,958)
Net deferred tax assets 38,259  33,022 
Deferred tax liabilities
Property and equipment (5,723) (5,268)
Foreign currency translation —  (126)
Prepaid expenses (2,990) (3,596)
Intangible assets (6,680) (7,545)
Withholding tax on unremitted earnings (11,639) (13,556)
Other (5,499) (5,589)
Gross deferred tax liabilities (32,531) (35,680)
Net deferred taxes $ 5,728  $ (2,658)
The components of net deferred taxes on a jurisdiction basis are as follows:
December 31,
2022		 January 1,
2022
Net deferred tax assets $ 9,799  $ 4,839 
Net deferred tax liabilities (4,071) (7,497)
Net deferred taxes $ 5,728  $ (2,658)
As of December 31, 2022, the Company had foreign tax credit carryforwards of approximately $111,948. If unused, these carryforwards will expire between 2026 and 2032. The Company has generated excess foreign tax credits since the Tax Cuts and Jobs Act of 2017 was enacted on December 22, 2017. This is due to the U.S. tax rate being lower than most foreign taxing jurisdiction rates where the Company operates. Although the Company can claim foreign tax credits against U.S. source income due to overall domestic losses generated in previous years, the Company does not believe it will be able to use more foreign tax credits than it generates in a single year. The Company believes these foreign tax credit carryforwards will expire unused based on available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, available tax planning strategies, and available carryback opportunities. Similar with prior years, the Company continues to maintain a full valuation allowance on its
foreign tax credit carryforwards. Valuation allowances are determined using a more-likely-than-not realization criteria and are based upon all facts and circumstances.
The Company recorded a $1,390 valuation allowance on mirrored deferred tax assets recorded in the United States, which offset deferred tax liabilities of foreign disregarded entities. These mirrored deferred tax assets represent future foreign tax credits. This valuation allowance is necessary because the Company is limited in its ability to utilize future foreign tax credits due to the U.S. tax rate being lower than most foreign taxing jurisdiction rates where the Company operates.
The Company also had $1,568 of Utah research credit carryforwards, and $2,023 of Federal research credit carryforwards as of December 31, 2022. If unused, the Utah research credit carryforwards expire between 2027 and 2036, and the Federal research credits expire between 2036 and 2042. Utah research credits are limited to Utah tax due and the Company has a history of generating more credits than it can use. Federal research credit carryforwards can only be used in a year when U.S. taxes are owed after foreign tax credits have been applied. Due to the lack of sufficient evidence to the contrary, the Company has placed a full valuation allowance on these credit carryforwards.
In addition, the Company had $5,296 of foreign operating loss carry forwards, $2,808 of which have an unlimited carryforward period. The deferred tax asset associated with these losses was $1,666 and a valuation allowance of $1,174 has been applied against this deferred tax asset. The 2022 deferred tax asset for state-tax-loss carryforwards was $54. If unused, some of the state-tax-loss carryforwards will expire between 2032 and 2041 and others can be carried forward indefinitely.
The total combined valuation allowance was $118,136 as of December 31, 2022. The 2022 valuation allowance represents a $18,178 net increase from 2021. If the Company determines that there is sufficient evidence to remove the valuation allowances addressed above, the valuation allowance will be released and the provision for income taxes will be reduced.
As of December 31, 2022, the cumulative amount of undistributed earnings of the Company’s non-U.S. subsidiaries held for indefinite reinvestment is approximately $4,000. If this amount were repatriated to the United States, the amount of incremental taxes would be approximately $400.
As of December 31, 2022, the Company reported $66 of unrecognized tax benefits in "Other current liabilities" and $1,384 in "Other long-term liabilities" for a combined total of $1,450 in unrecognized tax benefits that would impact the effective tax rate if recognized. This compares to $199 of unrecognized tax benefits in "Other current liabilities" and $809 in "Other long-term liabilities" for a combined total of $1,008 reported as of January 1, 2022.
The following reconciliation provides the changes in unrecognized tax benefits for the years presented:
Year Ended
2022 2021 2020
Beginning balance of unrecognized tax benefits $ 1,008  $ 1,528  $ 560 
Increases related to prior year tax positions 107  21  775 
Decreases related to prior year tax positions —  (330) — 
Increases related to current year tax positions 468  424  753 
Decreases for settlements with taxing authorities (133) (635) (560)
Ending balance of unrecognized tax benefits $ 1,450  $ 1,008  $ 1,528 
The Company accounts for interest and penalties associated with unrecognized tax benefits as a component of income tax expense. For the period ended December 31, 2022 and January 1, 2022, the Company reported $201 and $91, respectively, as income tax expense related to interest and penalties. As of December 31, 2022, the Company recorded $64 of "Other current liabilities" and $239 of "Other long-term liabilities" associated with interest and penalties for
unrecognized tax benefits. This compares to $162 of "Other current liabilities" and $63 of "Other long-term liabilities" associated with interest and penalties reported as of January 1, 2022.
The Company files income tax returns in the United States and foreign jurisdictions. In general, the Company's tax filings are subject to examination for years ended on or after December 31, 2018. However, statutes of limitations in some markets may be as long as ten years for transfer pricing related issues.