Income Taxes

12 Months Ended

Dec. 31, 2023

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, 2023, 2022 and 2021 (U.S. dollars in thousands):

	2023			2022		2021
U.S.	$	(37,152	)	$	24,411	$	45,371
Foreign		63,730			64,559		187,088
Total	$	26,578		$	88,970	$	232,459

The provision for current and deferred taxes for the years ended December 31, 2023, 2022 and 2021 consists of the following (U.S. dollars in thousands):

	2023			2022			2021
Current
Federal	$	—		$	—		$	—
State		3,903			1,515			1,458
Foreign		29,179			34,117			77,393
		33,082			35,632			78,851
Deferred
Federal		(18,039	)		(65,733	)		3,705
State		(1,440	)		(1,239	)		(38	)
Foreign		4,380			15,532			2,675
		(15,099	)		(51,440	)		6,342
Provision for income taxes	$	17,983		$	(15,808	)	$	85,193

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

	Year Ended December 31,
	2023			2022
Deferred tax assets:
Inventory differences	$	78,338		$	41,127
Foreign tax credit and other foreign benefits		37,369			51,273
Stock-based compensation		4,556			5,981
Accrued expenses not deductible until paid		33,066			37,181
Net operating losses		21,864			12,773
Capitalized research and development		27,750			26,406
R&D credit carryforward		2,294			1,795
Other		293			242
Gross deferred tax assets		205,530			176,778
Deferred tax liabilities:
Foreign currency exchange		3,596			3,225
Foreign withholding taxes		14,591			15,375
Intangibles step-up		3,787			4,446
Overhead allocation to inventory		106			3,504
Amortization of intangibles		25,020			21,211
Other		6,281			6,129
Gross deferred tax liabilities		53,381			53,890
Valuation allowance		(47,142	)		(33,557	)
Deferred taxes, net	$	105,007		$	89,331

At December 31, 2023, the Company had foreign operating loss carryforwards of $46.7 million for tax purposes, which will be available to offset future taxable income. If not used, $34.9 million of carryforwards will expire between 2024 and 2033, while $11.8 million do not expire. Tax effected, the foreign operating losses are $19.7 million. A valuation allowance has been placed on foreign operating loss carryforwards of $19.7 million. In addition, a valuation allowance of $25.1 million has been recorded on a portion of the foreign tax credit carryforwards which will expire between 2028 and 2031, and all of the R&D credit carryforward of $2.3 million which will expire between 2036 and 2042.

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

Valuation allowances have been recognized for a portion of the foreign tax credit, the foreign net operating loss carryforwards, and the R&D credit carryforward.  During 2023, the Company incurred restructuring charges that primarily affected their U.S. earnings. These additional expenses in the U.S. reduced the Company’s ability to utilize foreign tax credits. As a result, the Company recorded an additional $6.1 million valuation allowance against the Company’s foreign tax credits. The remaining 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 remaining foreign tax credits, the foreign net operating losses, or the R&D credit carryforward, the valuation allowance will be released which would reduce the provision for income taxes.

The deferred tax asset valuation adjustments for the years ended December 31, 2023, 2022 and 2021 are as follows (U.S. dollars in thousands):

	Year Ended December 31,
	2023			2022			2021
Balance at the beginning of period	$	33,557		$	80,186		$	67,340
Additions charged to cost and expenses		13,183	(1)		3,231	(4)		12,674	(6)
Decreases		(1,825	)(2)		(50,315	)(5)		—	(7)
Adjustments		2,227	(3)		455	(3)		172	(3)
Balance at the end of the period	$	47,142		$	33,557		$	80,186

(1) Increase in valuation is due primarily to net operating losses in foreign markets and the $6.1 million that was recorded on the foreign tax credit carryforward.

(2) The decrease was due to expiration of foreign net operating losses.

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

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

(5) The decrease was due to utilization of $18.1 million of foreign tax credits and the valuation allowance release of $32.2 million foreign tax credits.

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

(7) No decreases in 2021.

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

	Year Ended December 31,
	2023		2022
Net noncurrent deferred tax assets	$	105,529	$	89,770
Net noncurrent deferred tax liabilities		522		439
Deferred taxes, net	$	105,007	$	89,331

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, 2023, 2022 and 2021 compared to the statutory U.S. Federal tax rate is as follows:

	Year Ended December 31,
	2023			2022			2021
Income taxes at statutory rate		21.00	%		21.00	%		21.00	%
Excess tax benefit from equity award		5.04	%		(0.12	)%		(0.19	)%
Deferred compensation		(4.28	)%		2.18	%		(0.46	)%
Executive salary limitation		1.59	%		2.06	%		0.47	%
State taxes		7.34	%		0.25	%		0.50	%
Foreign exchange		(1.91	)%		0.68	%		(0.07	)%
Non-U.S. income taxed at different rates		12.70	%		4.78	%		6.06	%
Foreign withholding taxes		13.31	%		(0.73	)%		4.71	%
Change in reserve for uncertain tax positions		1.74	%		17.69	%		(0.06	)%
Valuation allowance recognized foreign tax credit & others		24.66	%		(56.17	)%		5.12	%
Foreign-Derived Intangible Income (FDII)		(14.11	)%		(8.14	)%		(0.87	)%
Other		0.58	%		(1.25	)%		0.44	%
		67.66	%		(17.77	)%		36.65	%

The increase in the Company’s effective tax rate for 2023 was primarily due to the Company incurring restructuring charges that primarily affected their U.S. earnings. These additional expenses in the U.S. reduced the Company’s ability to utilize foreign tax credits. The decrease in the effective tax rate for 2022 was primarily due to the Company making an election to change its capitalization policy for tax purposes related to certain direct and indirect costs for inventory and self-constructed assets under Internal Revenue Code (“IRC”) Section 263A. This method change allows the Company to utilize a portion of its tax attributes related to foreign tax credits in the United States that were previously fully reserved.

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, 2023.  If this amount were repatriated to the United States, the amount of incremental taxes would be approximately $6.0 million.