Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.24.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2023
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)
 2023 2022 2021
United States operations $ 125,578  $ 243,695  $ 318,306 
Foreign operations 200,614  153,715  133,205 
Income before income tax $ 326,192  $ 397,410  $ 451,511 

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

Year Ended December 31,
(in thousands)
 2023 2022 2021
Current:
Federal $ 39,939  $ 52,503  $ 51,790 
State and local 6,879  11,191  14,429 
Non-United States 33,109  25,615  33,825 
79,927  89,309  100,044 
Deferred:
Federal (5,492) (13,248) (3,042)
State and local (1,589) (710) (266)
Non-United States 1,946  10,619  667 
(5,135) (3,339) (2,641)
Income tax expense $ 74,792  $ 85,970  $ 97,403 
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) 2023 2022 2021
Provision for federal income taxes at the statutory rate 21.0  % 21.0  % 21.0  %
State and local income taxes, net of federal benefit 1.2  1.6  2.5 
Non-United States income taxed at different rates (1.4) (0.4) 2.7 
Foreign tax credits —  —  (2.4)
Adjustment to deferred taxes —  0.1  — 
Global Intangible Low-Taxed Income 0.9  0.1  0.1 
Research credits (0.7) (0.4) (0.4)
Withholding taxes 1.0  0.2  (1.4)
Excess tax benefits from stock plans 0.1  —  (0.9)
Other 0.8  (0.6) 0.4 
Actual provision for income taxes 22.9  % 21.6  % 21.6  %

DEFERRED INCOME TAX BALANCES

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

December 31,
(in thousands)
 2023
2022
Deferred tax assets:
Accruals and allowances $ 29,585  $ 31,957 
Lease liability 103,551  89,742 
Capitalized inventory costs 20,589  26,147 
Sales reserves 16,559  16,897 
Stock compensation 9,166  7,659 
Net operating loss carryforwards 1,720  18,778 
Depreciation and amortization 20,335  15,463 
Capitalized research and development expenditures (1)
17,008  8,530 
Tax credits 860  2,751 
Other 2,471  2,372 
Gross deferred tax assets 221,844  220,296 
Valuation allowance (7,141) (19,649)
Net deferred tax assets 214,703  200,647 
Deferred tax liabilities:
Depreciation and amortization (879) (5,844)
Prepaid expenses (3,315) (2,892)
ROU lease asset (90,756) (78,274)
Deferred tax liability associated with future repatriations (11,657) (11,267)
Foreign currency (2,588) (8,351)
Gross deferred tax liabilities (109,195) (106,628)
Total net deferred taxes $ 105,508  $ 94,019 
(1) Capitalized research and development expenditures balance as of December 31, 2022 were previously classified as Other.
The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. The Company had foreign net operating loss carryforwards of $8.2 million as of December 31, 2023, of which $7.9 million have a 15-year carryforward period and $0.3 million have an unlimited carryforward period. As of December 31, 2023 and 2022, the net operating losses result in deferred tax assets of $1.7 million and $18.8 million, respectively, and were subject to a valuation allowance of $0.0 million and $18.8 million, respectively. Due to a foreign reorganization, the $18.8 million net operating losses and related valuation allowance as of December 31, 2022 were written off as the losses were no longer available to offset income.

As of December 31, 2023, the Company had a foreign deferred tax asset of $9.4 million, which is subject to a valuation allowance of $7.0 million.

As of December 31, 2023, the Company had accumulated undistributed earnings generated by the Company's foreign subsidiaries of $299.6 million. 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 2018, 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 impacts to its financial condition, results of operations or cash flows. 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)
 2023 2022 2021
Balance at beginning of year $ 10,177  $ 13,855  $ 14,493 
Increases related to prior year tax positions 578  234  355 
Decreases related to prior year tax positions —  (1,646) (1,447)
Increases related to current year tax positions 1,376  1,355  883 
Expiration of statute of limitations (1,813) (3,621) (429)
Balance at end of year $ 10,318  $ 10,177  $ 13,855 

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, 2023 by a range of zero to $1.7 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, $9.2 million and $12.9 million would affect the effective tax rate if recognized as of December 31, 2023, 2022 and 2021, 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 $2.7 million in 2023, and 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, all of which related to uncertain tax positions. The Company had $4.5 million and $1.8 million of accrued interest and penalties related to uncertain tax positions as of December 31, 2023 and 2022, respectively.