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
NOTE 10 — INCOME TAXES

INCOME TAX PROVISION

Consolidated income from operations before income taxes consisted of the following:

Year Ended December 31,
(in thousands)
 2022 2021 2020
United States operations $ 243,695  $ 318,306  $ 29,154 
Foreign operations 153,715  133,205  110,369 
Income before income tax $ 397,410  $ 451,511  $ 139,523 

The components of the provision for income taxes consisted of the following:

Year Ended December 31,
(in thousands)
 2022 2021 2020
Current:
Federal $ 52,503  $ 51,790  $ 18,435 
State and local 11,191  14,429  4,929 
Non-United States 25,615  33,825  26,897 
89,309  100,044  50,261 
Deferred:
Federal (13,248) (3,042) (14,728)
State and local (710) (266) (5,097)
Non-United States 10,619  667  1,074 
(3,339) (2,641) (18,751)
Income tax expense $ 85,970  $ 97,403  $ 31,510 

The following is a reconciliation of the statutory federal income tax rate to the effective rate reported in the financial statements:

Year Ended December 31,
(percent of income before tax) 2022 2021 2020
Provision for federal income taxes at the statutory rate 21.0  % 21.0  % 21.0  %
State and local income taxes, net of federal benefit 1.6  2.5  1.5 
Non-United States income taxed at different rates (0.4) 2.7  2.1 
Foreign tax credits —  (2.4) (0.9)
Adjustment to deferred taxes 0.1  —  (1.2)
Global Intangible Low-Taxed Income 0.1  0.1  0.1 
Research credits (0.4) (0.4) (1.4)
Withholding taxes 0.2  (1.4) 0.5 
Excess tax benefits from stock plans —  (0.9) (0.8)
Other (0.6) 0.4  1.7 
Actual provision for income taxes 21.6  % 21.6  % 22.6  %
DEFERRED INCOME TAX BALANCES

Significant components of the Company's deferred taxes consisted of the following:

December 31,
(in thousands)
 2022
2021
Deferred tax assets:
Accruals and allowances $ 31,957  $ 40,518 
Lease liability 89,742  81,012 
Capitalized inventory costs 26,147  23,950 
Sales reserves 16,897  13,881 
Stock compensation 7,659  6,329 
Net operating loss carryforwards 18,778  22,767 
Depreciation and amortization 15,463  22,076 
Tax credits 2,751  387 
Other 10,902  2,164 
Gross deferred tax assets 220,296  213,084 
Valuation allowance (19,649) (22,502)
Net deferred tax assets 200,647  190,582 
Deferred tax liabilities:
Depreciation and amortization (5,844) (10,414)
Prepaid expenses (2,892) (3,447)
ROU lease asset (78,274) (68,148)
Deferred tax liability associated with future repatriations (11,267) (13,069)
Foreign currency (8,351) (3,383)
Gross deferred tax liabilities (106,628) (98,461)
Total net deferred taxes $ 94,019  $ 92,121 

The Company had foreign net operating loss carryforwards of $64.3 million as of December 31, 2022, all of which has an unlimited carryforward period. As of December 31, 2022 and 2021, the net operating losses result in deferred tax assets of $18.8 million and $22.8 million, respectively, and were subject to a valuation allowance of $18.8 million and $20.2 million, respectively.

As of December 31, 2022, the Company had accumulated undistributed earnings generated by the Company's foreign subsidiaries of $422.9 million. As a result of the Tax Cuts and Jobs Act, these earnings have been subject to U.S. tax, so any further taxes associated with such earnings would generally be limited to foreign withholding and state taxes. The Company has recorded a deferred tax liability for these, except in the jurisdictions where the Company intends to indefinitely reinvest the earnings.

UNRECOGNIZED TAX BENEFITS

The Company conducts business globally and, as a result, the Company or one or more of its subsidiaries file income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. The Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Canada, China, France, Japan, South Korea, Switzerland, and the United States. The Company has effectively settled Canadian tax examinations of all years through 2012, United States tax examinations of all years through 2018, Japanese tax examinations of all years through 2019, France tax examinations of all years through 2016, Swiss tax examinations of all years through 2019, Italy tax examinations of all years through 2016, and China tax examinations of all years through 2018. The Korean National Tax Service concluded an audit of the Company's 2009 through 2013 corporate income tax returns in 2014, an audit of the Company's 2014 corporate income tax return in 2016, and an audit of 2016 through 2020 corporate income tax returns in 2022. Due to the nature of the findings in the 2009 through 2014 audits, the Company has invoked the Mutual Agreement Procedures outlined in the United States-Korean income tax treaty. The Company does not anticipate that adjustments relative to these findings, or any other ongoing tax audits, will result in material changes to its financial condition, results of operations or cash flows. As of December 31, 2022, the
Company was under audit in Canada for tax year 2018. Other than the findings and audits previously noted, the Company is not currently under examination in any other major jurisdiction.

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

Year Ended December 31,
(in thousands)
 2022 2021 2020
Balance at beginning of year $ 13,855  $ 14,493  $ 12,478 
Increases related to prior year tax positions 234  355  1,903 
Decreases related to prior year tax positions (1,646) (1,447) (162)
Increases related to current year tax positions 1,355  883  906 
Expiration of statute of limitations (3,621) (429) (632)
Balance at end of year $ 10,177  $ 13,855  $ 14,493 

Due to the potential for resolution of income tax audits currently in progress, and the expiration of various statutes of limitation, it is reasonably possible that the unrecognized tax benefits balance may change within the twelve months following December 31, 2022 by a range of zero to $2.4 million. Open tax years, including those previously mentioned, contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing, or inclusion of revenue and expenses or the sustainability of income tax credits for a given examination cycle.

Unrecognized tax benefits of $9.2 million, $12.9 million and $13.6 million would affect the effective tax rate if recognized as of December 31, 2022, 2021 and 2020, respectively.
The Company recognizes interest expense and penalties related to income tax matters in Income tax expense. The Company recognized a net decrease of accrued interest and penalties of $0.8 million in 2022, and a net increase of accrued interest and penalties of $0.3 million in 2021 and a net increase of accrued interest and penalties of $0.8 million in 2020, all of which related to uncertain tax positions. The Company had $1.8 million and $2.6 million of accrued interest and penalties related to uncertain tax positions as of December 31, 2022 and 2021, respectively.