Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 19 — Income Taxes

Earnings (Loss) before income taxes consist of the following:

	Years Ended December 31,
	2022		2021			2020
U.S.	$	1,005	$	(128,699	)	$	(7,101	)
Non-U.S.		79,732		67,819			52,580
Total	$	80,737	$	(60,880	)	$	45,479

Significant components of income tax provision/(benefit) are as follows:

	Years Ended December 31,
	2022		2021			2020
Current:
U.S.	$	1,365	$	36		$	211
Non-U.S.		19,305		11,932			11,275
Total Current		20,670		11,968			11,486
Deferred:
U.S.		249		(35,979	)		(2,815	)
Non-U.S.		243		4,997			2,122
Total Deferred		492		(30,982	)		(693	)
Total provision for income taxes	$	21,162	$	(19,014	)	$	10,793

Significant components of our deferred tax assets and liabilities are as follows:

	As of December 31,
	2022			2021
Post-retirement benefits	$	947		$	1,226
Inventory reserves		251			69
Loss carry-forwards		4,547			5,070
Credit carry-forwards		10,467			19,665
Accrued expenses		4,543			4,917
Research and development expenditures		19,448			19,226
Operating lease liabilities		5,865			5,643
Stock compensation		2,426			1,970
Foreign exchange loss		2,075			2,052
Other		835			769
Gross deferred tax assets		51,404			60,607
Depreciation and amortization		23,067			13,386
Pensions		—			10,958
Qualified replacement plan		3,507			—
Operating lease assets		5,531			5,307
Subsidiaries' unremitted earnings		2,562			1,947
Other		900			—
Gross deferred tax liabilities		35,567			31,598
Net deferred tax assets		15,837			29,009
Deferred tax asset valuation allowance		(8,386	)		(9,489	)
Total net deferred tax assets	$	7,451		$	19,520

The deferred tax assets and deferred tax liabilities, classified as non-current, are as follows below:

	As of December 31,
	2022			2021
Non-current deferred tax assets	$	23,461		$	25,414
Non-current deferred tax liabilities	$	(16,010	)	$	(5,894	)
Total net deferred tax assets	$	7,451		$	19,520

At each reporting date, we weigh all available positive and negative evidence to assess whether it is more-likely-than-not that the Company's deferred tax assets, including deferred tax assets associated with accumulated loss carryforwards and tax credits in the various jurisdictions in which it operates, will be realized. As of December 31, 2022, and 2021, we recorded deferred tax assets related to certain U.S. state and non-U.S. income tax loss carryforwards of $4,547 and $5,070, respectively, and U.S. and non-U.S. tax credits of $10,467 and $19,665, respectively. The deferred tax assets expire in various years primarily between 2023 and 2042.

Generally, we assess if it is more-likely-than-not that our net deferred tax assets will be realized during the available carry-forward periods. As a result, we have determined that valuation allowances of $8,386 and $9,489 should be provided for certain deferred tax assets at December 31, 2022, and 2021, respectively. As of December 31, 2022, the valuation allowances relate to certain U.S. state and non-U.S. loss carry-forwards and certain U.S. state tax credits that management does not anticipate will be utilized.

A valuation allowance of $172 was recorded in 2022 against the U.S. federal foreign tax credit carryforwards of $362. These credits begin to expire in varying amounts between 2028 and 2032. No valuation allowance was recorded in 2022 against the U.S. federal research and development tax credits of $8,082. These credits begin to expire in varying amounts between 2023 and 2042. We assessed the anticipated realization of those tax credits utilizing future taxable income projections. Based on those projections, management believes it is more-likely-than-not that we will realize the benefits of these credit carryforwards.

The following table reconciles taxes at the U.S. federal statutory rate to the effective income tax rate:

	Years Ended December 31,
	2022	2021	2020
Taxes at the U.S. statutory rate	21.0%	21.0%	21.0%
State income taxes, net of federal income tax benefit	0.2%	4.3%	(0.1)%
Non-U.S. earnings taxed at rates different than the U.S. statutory rate	(3.2)%	3.1%	(0.9)%
Foreign source earnings, net of associated foreign tax credits	(0.6)%	0.1%	(0.7)%
Benefit of tax credits	(0.2)%	0.8%	(0.7)%
Non-deductible expenses	2.6%	(1.6)%	(0.5)%
Stock compensation - excess tax benefits	(0.2)%	0.7%	(0.1)%
Adjustment to valuation allowances	1.4%	(3.1)%	1.6%
Change in unrecognized tax benefits	(0.1)%	0.4%	(0.7)%
Impacts of unremitted foreign earnings	2.7%	(4.5)%	5.2%
Release of disproportionate tax effects of OCI	—	8.8%	—
Excise tax paid upon U.S. pension termination	1.8%	—	—
Other	0.8%	1.2%	(0.4)%
Effective income tax rate	26.2%	31.2%	23.7%

In 2020, the Company began the termination of the U.S.-based pension plan. As a result of the final settlement of the pension liability in 2021, we reclassified the disproportionate tax effect related to the pension plan of $5,375 that was previously recorded in accumulated other comprehensive loss to income tax expense. In 2022, the remaining assets of the pension plan were liquidated and reverted back to CTS. These funds are subject to both income and excise taxes. The excise taxes of $6,803 are nondeductible for U.S. tax purposes. Further information related to our pension terminations is included in Note 7 – "Retirement Plans."

Following the enactment of the 2017 Tax Cut and Jobs Act ("Tax Act") and the associated one-time transition tax, in general, repatriation of foreign earnings to the U.S. can be completed with no incremental U.S. tax. However, there are limited other taxes that continue to apply such as foreign withholding and certain state taxes. The Company records a deferred tax liability for the estimated foreign earnings and state tax cost associated with the undistributed foreign earnings that are not permanently reinvested. In 2020 the Company made the decision to no longer permanently reinvest the earnings of its Taiwan subsidiary.

The Tax Act also includes provisions for Global Intangible Low-Taxed Income (“GILTI”) wherein taxes on foreign income are imposed in excess of a deemed return on tangible assets of foreign corporations. We elected to recognize the tax on GILTI as an expense in the period the tax is incurred.

We recognize the financial statement benefit of a tax position when it is more-likely-than-not, based on its technical merits, that the position will be sustained upon examination. A tax position that meets the more-likely-than-not threshold is then measured to determine the amount of benefit to be recognized in the financial statements. As of December 31, 2022, we have approximately $2,079 of unrecognized tax benefits, which if recognized, would impact the effective tax rate. We anticipate reducing our unrecognized tax benefits by approximately $222 in the next 12 months.

A reconciliation of the beginning and ending unrecognized tax benefits is provided below:

	As of December 31,
	2022			2021
Balance at January 1	$	2,196		$	3,128
Increase related to current year tax positions		48			70
Decrease related to prior year tax positions		(165	)		(237	)
Decrease related to lapse in statute of limitation		—			(125	)
Decrease related to settlements with taxing authorities		—			(640	)
Balance at December 31	$	2,079		$	2,196

Our continuing practice is to recognize interest and/or penalties related to unrecognized tax benefits as income tax expense. As of December 31, 2022, and 2021, $39 and $39, respectively, of interest and penalties were accrued.

We are subject to taxation in the U.S., various states, and in non-U.S. jurisdictions. Our U.S. income tax returns are primarily subject to examination from 2019 through 2021; however, U.S. tax authorities also have the ability to review prior tax years to the extent loss carryforwards and tax credit carryforwards are utilized. The open years for the non-U.S. tax returns range from 2013 through 2021 based on local statutes.