Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes
12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

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

Year Ended December 31,
(in thousands)
2021 2020 2019
United States operations $ 318,306  $ 29,154  $ 247,642 
Foreign operations 133,205  110,369  157,787 
Income before income tax $ 451,511  $ 139,523  $ 405,429 

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

Year Ended December 31,
(in thousands)
2021 2020 2019
Federal $ 51,790  $ 18,435  $ 41,148 
State and local 14,429  4,929  7,458 
Non-United States 33,825  26,897  30,930 
100,044  50,261  79,536 
Federal (3,042) (14,728) (7,887)
State and local (266) (5,097) (999)
Non-United States 667  1,074  4,290 
(2,641) (18,751) (4,596)
Income tax expense $ 97,403  $ 31,510  $ 74,940 
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) 2021 2020 2019
Provision for federal income taxes at the statutory rate 21.0  % 21.0  % 21.0  %
State and local income taxes, net of federal benefit 2.5  1.5  1.7 
Non-United States income taxed at different rates 2.7  2.1  (0.1)
Foreign tax credits (2.4) (0.9) (0.1)
Adjustment to deferred taxes —  (1.2) (2.1)
Global Intangible Low-Taxed Income 0.1  0.1  — 
Research credits (0.4) (1.4) (0.5)
Withholding taxes (1.4) 0.5  0.3 
Excess tax benefits from stock plans (0.9) (0.8) (1.6)
Other 0.4  1.7  (0.1)
Actual provision for income taxes 21.6  % 22.6  % 18.5  %


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

December 31,
(in thousands)
Deferred tax assets:
Accruals and allowances $ 40,518  $ 29,950 
Lease liability 81,012  84,346 
Capitalized inventory costs 23,950  24,222 
Sales reserves 13,881  14,610 
Stock compensation 6,329  6,078 
Net operating loss carryforwards 22,767  24,253 
Depreciation and amortization 22,076  29,358 
Tax credits 387  844 
Foreign currency —  2,418 
Other 2,164  2,304 
Gross deferred tax assets 213,084  218,383 
Valuation allowance (22,502) (23,534)
Net deferred tax assets 190,582  194,849 
Deferred tax liabilities:
Depreciation and amortization (10,414) (16,206)
Prepaid expenses (3,447) (2,085)
ROU lease asset (68,148) (66,629)
Deferred tax liability associated with future repatriations (13,069) (19,008)
Foreign currency (3,383) — 
Gross deferred tax liabilities (98,461) (103,928)
Total net deferred taxes $ 92,121  $ 90,921 
Subsequent to the issuance of the Company’s December 31, 2020 consolidated financial statements, the Company identified that the Lease liability and corresponding ROU lease asset shown in the table above had been presented net with accruals and allowances, rather than gross. As a result, 2020 amounts in the table above have been revised from balances previously reported. The Company has assessed the qualitative and quantitative impact of the misstatement and determined it is not material to the 2020 financial statements. Further, the Company had previously recorded Sales reserves within Capitalized inventory costs, rather than presenting them separately and has reclassified such amounts to conform to the current year presentation.

The Company has foreign net operating loss carryforwards of $87.5 million as of December 31, 2021, of which $68.4 million have an unlimited carryforward period and $19.1 million expire between 2025 and 2040. The net operating losses result in deferred tax assets of $22.8 million and $24.3 million and were subject to a valuation allowance of $20.2 million and $21.2 million at December 31, 2021 and 2020, respectively.

At December 31, 2021, the Company had accumulated undistributed earnings generated by the Company's foreign subsidiaries of $333.9 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 we intend to indefinitely reinvest the earnings.


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 2016, Japanese tax examinations of all years through 2019, France tax examinations of all years through 2016, Swiss tax examinations of all years through 2016, 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, and an audit of the Company's 2014 corporate income tax return in 2016. Due to the nature of the findings in both of these 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, 2021, the Company was under audit in the United States for tax years 2017 and 2018, Canada for tax years 2017 and 2018, and Korea for tax years 2016 through 2020. 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)
2021 2020 2019
Balance at beginning of year $ 14,493  $ 12,478  $ 11,064 
Increases related to prior year tax positions 355  1,903  4,374 
Decreases related to prior year tax positions (1,447) (162) (5,423)
Increases related to current year tax positions 883  906  4,991 
Settlements —  —  (1,464)
Expiration of statute of limitations (429) (632) (1,064)
Balance at end of year $ 13,855  $ 14,493  $ 12,478 

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, 2021 by a range of zero to $6.5 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 $12.9 million, $13.6 million and $11.5 million would affect the effective tax rate if recognized at December 31, 2021, 2020 and 2019, respectively.
The Company recognizes interest expense and penalties related to income tax matters in Income tax expense. The Company recognized 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 and a net reversal of accrued interest and penalties of $0.5 million in 2019, all of which related to uncertain tax positions. The Company had $2.6 million and $2.3 million of accrued interest and penalties related to uncertain tax positions at December 31, 2021 and 2020, respectively.