Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes [Abstract]

Income Taxes

11. Income Taxes

Consolidated income before provision for income taxes consists of the following for the years ended December 31, 2021, 2020 and 2019 (U.S. dollars in thousands):

	2021		2020		2019
U.S.	$	45,371	$	71,138	$	24,211
Foreign		187,088		185,094		230,961
Total	$	232,459	$	256,232	$	255,172

The provision for current and deferred taxes for the years ended December 31, 2021, 2020 and 2019 consists of the following (U.S. dollars in thousands):

	2021			2020			2019
Current
Federal	$	—		$	—		$	—
State		1,458			1,629			2,213
Foreign		77,393			77,079			79,694
		78,851			78,708			81,907
Deferred
Federal		3,705			(14,430	)		(8,878	)
State		(38	)		(563	)		(473	)
Foreign		2,675			1,162			9,063
		6,342			(13,831	)		(288	)
Provision for income taxes	$	85,193		$	64,877		$	81,619

The principal components of deferred taxes are as follows (U.S. dollars in thousands):

	Year Ended December 31,
	2021			2020
Deferred tax assets:
Inventory differences	$	5,859		$	6,181
Foreign tax credit and other foreign benefits		69,401			57,720
Stock-based compensation		9,392			8,925
Accrued expenses not deductible until paid		36,401			42,694
Foreign currency exchange		605			1,403
Net operating losses		9,479			8,667
Capitalized research and development		22,962			23,019
R&D credit carryforward		1,451			1,229
Other		34			45
Gross deferred tax assets		155,584			149,883
Deferred tax liabilities:
Foreign withholding taxes		15,412			20,207
Intangibles step-up		4,446			4,623
Overhead allocation to inventory		3,373			2,684
Amortization of intangibles		21,936			18,551
Other		6,133			1,690
Gross deferred tax liabilities		51,300			47,755
Valuation allowance		(80,186	)		(67,340	)
Deferred taxes, net	$	24,098		$	34,788

At December 31, 2021, the Company had foreign operating loss carryforwards of $26.7 million for tax purposes, which will be available to offset future taxable income. If not used, $12.4 million of carryforwards will expire between 2022 and 2031, while $14.3 million do not expire. A valuation allowance has been placed on foreign operating loss carryforwards of $25.8 million, tax effected the valuation on the net operating loss is $9.3 million. In addition, a valuation allowance has been recorded on the foreign tax credit carryforward, and the R&D credit carryforward of $70.9 million which will expire between 2026 and 2030.

The Company uses the tax law ordering approach when determining when excess tax benefits have been realized.

The valuation allowances have been recognized for the foreign tax credit, the foreign net operating loss carryforwards, and the R&D credit carryforward.  The valuation allowances were recognized for assets which it is more likely than not some portion or all of the deferred tax asset will not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary difference, projected future taxable income, tax planning strategies and recent financial operations. When the Company determines that there is sufficient positive evidence to utilize the foreign tax credits, the foreign net operating losses, or the R&D credit carryforward, the valuation will be released which would reduce the provision for income taxes.

The deferred tax asset valuation adjustments for the years ended December 31, 2021, 2020 and 2019 are as follows (U.S. dollars in thousands):

	Year Ended December 31,
	2021			2020			2019
Balance at the beginning of period	$	67,340		$	77,042		$	68,697
Additions charged to cost and expenses		12,674	(1)		2,154	(4)		10,913	(6)
Decreases		—	(2)		(12,100	)(5)		(3,343	)(7)
Adjustments		172	(3)		244	(3)		775	(3)
Balance at the end of the period	$	80,186		$	67,340		$	77,042

(1) Increase in valuation is due primarily to $11.9 million that was recorded on the foreign tax credit carryforward due to the disposal of the Companies Grow Tech segment. The additional amount is due to net operating losses in foreign markets.

(2) No decreases in 2021.

(3) Represents the net currency effects of translating valuation allowances at current rates of exchange.

(4) Increase in valuation is due primarily to net operating losses in foreign markets. 

(5) The decrease was due to the utilization of prior year foreign tax credits that had previously had a valuation allowance recorded against the asset.

(6) Increase in valuation is due primarily to $9.8 million that was recorded on the foreign tax credit carryforward. The additional amount is due to net operating losses in foreign markets. 

(7) The decrease was due primarily to the utilization of foreign tax credits, and expiration of foreign net operating losses.

The components of deferred taxes, net on a jurisdiction basis are as follows (U.S. dollars in thousands):

	Year Ended December 31,
	2021		2020
Net noncurrent deferred tax assets	$	26,483	$	35,414
Net noncurrent deferred tax liabilities		2,385		626
Deferred taxes, net	$	24,098	$	34,788

The Company is subject to regular audits by federal, state and foreign tax authorities. These audits may result in proposed assessments that may result in additional tax liabilities.

The actual tax rate for the years ended December 31, 2021, 2020 and 2019 compared to the statutory U.S. Federal tax rate is as follows:

	Year Ended December 31,
	2021			2020			2019
Income taxes at statutory rate		21.00	%		21.00	%		21.00	%
Excess tax benefit from equity award		(0.19	)%		0.70	%		0.02	%
Non-U.S. income taxed at different rates		6.06	%		3.37	%		3.09	%
Foreign withholding taxes		4.71	%		5.21	%		4.10	%
Change in reserve for uncertain tax positions		(0.06	)%		1.98	%		1.07	%
Valuation allowance recognized foreign tax credit & others		5.12	%		(4.59	)%		2.56	%
Foreign-Derived Intangible Income (FDII)		(0.87	)%		(2.78	)%		(0.70	)%
Other		0.88	%		0.43	%		0.85	%
		36.65	%		25.32	%		31.99	%

The decrease in the effective tax rate for 2020 reflected the strong growth in the U.S. market and Manufacturing segment, which enabled the utilization of additional foreign tax credits to offset the U.S. income taxes.  The increase in the effective tax rate for 2021 was primarily caused by the disposal of the Company’s Grow Tech segment which reduced the utilization of foreign tax credits and increased the Company’s valuation allowance.

The cumulative amount of undistributed earnings of the Company’s non-U.S. Subsidiaries held for indefinite reinvestment is approximately $60.0 million, at December 31, 2021. If this amount were repatriated to the United States, the amount of incremental taxes would be approximately $6.0 million.