Income Taxes

6 Months Ended

Jun. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

11. INCOME TAXES

The determination of the annual effective tax rate is based upon a number of significant estimates and judgments, including the estimated annual pretax income in each tax jurisdiction in which we operate and the ongoing development of tax planning strategies during the year. In addition, our provision for income taxes can be impacted by changes in tax rates or laws, the finalization of tax audits and reviews, as well as other factors that cannot be predicted with certainty. As such, there can be significant volatility in interim tax provisions.

The following is a summary of our provision for income taxes and effective tax rate:

	For the Quarter Ended June 30,						For the Year to Date Ended June 30,
(Dollars in Thousands)	2023			2022			2023			2022
Pretax income	$	74,603		$	34,715		$	121,656		$	78,549
Provision for income taxes	$	19,930		$	8,948		$	32,499		$	20,704
Effective rate		26.7	%		25.8	%		26.7	%		26.4	%

As of March 31, 2023, a valuation allowance of $22.5 million was maintained with respect to our foreign tax credits not supported by an Overall Domestic Loss (“ODL”) account balance, equity investment, available for sale short-term investments and state net operating losses. Due to an increase in the cumulative unrealized holding loss on available for sale short-term investments that is reflected in total other comprehensive loss, the deferred tax asset and valuation allowance with respect to this item was increased from $1.0 million to $1.3 million during the current quarter. After considering both positive and negative evidence related to the realization of the deferred tax assets, we have determined that it is necessary to continue to maintain a $22.2 million valuation allowance against our non-ODL supported foreign tax credits, equity investment, available for sale short-term investments and state net operating losses as of June 30, 2023.

The effective tax rate for the quarter and year to date ended June 30, 2023 was impacted by a $5.3 million unfavorable discrete adjustment related to the $22.1 million gain on the sale of the LCB trademark, which was taxed at 24.1%. The effective tax rate for the quarter and year to date ended June 30, 2023 also includes the tax effect of stock-based compensation and the release of previously recorded tax reserves, which decreased the effective tax rate for the quarter and year to date by 0.6% and 0.7%, respectively. The effective tax rate for the quarter and year to date ended June 30, 2022 was impacted by the tax effect of stock-based compensation and the release of previously recorded tax reserves. The net effect of these discrete items decreased the effective tax rate for the prior year quarter and year to date by 1.2% and 0.3%, respectively.

We estimate that it is reasonably possible that the gross liability for unrecognized tax benefits for a variety of uncertain tax positions will decrease by up to $7.0 million in the next twelve months as a result of the completion of various tax audits currently in process and the expiration of the statute of limitations in several jurisdictions. The income tax rate for the quarter and year to date ended June 30, 2023 does not take into account the possible reduction of the liability for unrecognized tax benefits. The impact of a reduction to the liability will be treated as a discrete item in the period the reduction occurs. We recognize interest and penalties related to unrecognized tax benefits in tax expense. As of June 30, 2023, we had accrued $2.9 million as an estimate for reasonably possible interest and accrued penalties.

Our tax returns are routinely examined by federal, state and local tax authorities and these audits are at various stages of completion at any given time. The Internal Revenue Service has completed its examination of our U.S. income tax returns through our tax year ended December 31, 2014.