Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income TaxesCurrent income tax expense or benefit represents the amounts expected to be reported on the Company's income tax returns, and deferred income tax expense or benefit represents the change in net deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted income tax rates that will be in effect when these differences reverse. Valuation allowances are recorded as appropriate to reduce deferred tax assets to the amount considered more likely than not to be realized.

Income (loss) from continuing operations before income taxes and equity income as reported on the Consolidated Statements of Operations consists of the following:

(In thousands)	2022		2021		2020
U.S.	$	(152,602)	$	(34,462)	$	(87,315)
International	29,644		71,968		33,095
Total income (loss) from continuing operations before income taxes and equity income	$	(122,958)	$	37,506	$	(54,220)

Income tax expense (benefit) as reported on the Consolidated Statements of Operations consists of the following:

(In thousands)	2022		2021		2020
Income tax expense (benefit):
Currently payable:
U.S. federal	$	—	$	—	$	(12,116)
U.S. state	1,416		507		468
International	14,914		22,295		16,518
Total income taxes currently payable	16,330		22,802		4,870
Deferred U.S. federal	(6,219)		(4,594)		(10,558)
Deferred U.S. state	(2,274)		(18)		(3,078)
Deferred international	2,544		(9,101)		93
Total income tax expense (benefit) from continuing operations	$	10,381	$	9,089	$	(8,673)

Cash payments for income taxes were $20.9 million, $21.7 million and $34.9 million for 2022, 2021 and 2020, respectively. The cash payments for 2022 are relatively consistent with the payments for 2021. The decrease in cash payments for 2021 is principally due to payments associated with the gain on the sale of IKG in 2020 not recurring in 2021.

A reconciliation of the normal expected statutory U.S. federal income tax expense (benefit) to the actual Income tax expense (benefit) from continuing operations as reported on the Consolidated Statements of Operations is as follows:

(In thousands)	2022		2021		2020
U.S. federal income tax expense (benefit), at statutory tax rate of 21%	$	(25,821)	$	7,877	$	(11,386)
U.S. state income taxes, net of federal income tax benefit	(929)		(310)		(2,015)
U.S. other domestic deductions and credits	(594)		(415)		(1,312)
Difference in effective tax rates on international earnings and remittances	8,929		4,488		7,872
Uncertain tax position contingencies and settlements	(290)		783		289
Changes in realization of deferred tax assets	8,263		(5,035)		(1,501)
U.S. non-deductible expenses	791		936		2,300
Nondeductible goodwill impairment	19,548		—		—
State deferred tax rate changes	154		592		(40)
Foreign derived intangible income deduction	(938)		—		—
Share-based compensation	1,268		173		(184)
Net operating loss carryback	—		—		(2,696)
Total income tax expense (benefit) from continuing operations	$	10,381	$	9,089	$	(8,673)

At December 31, 2022, 2021 and 2020, the Company's annual effective income tax rate on income (loss) from continuing operations was (8.4)%, 24.2% and 16.0%, respectively.

The Company’s international income from continuing operations before income taxes and equity income was $29.6 million and $72.0 million for 2022 and 2021, respectively. In 2021, the Company recorded $6.8 million income tax benefit arising from the recognition of deferred tax assets in HE Brazil. Brazil has 3 years of cumulative income and expects to utilize the deferred tax assets against future income. Also, in 2021, the Company recorded a $7.0 million nontaxable capital gain on the sale of U.K. assets not recurring in 2022. In 2022, the Company recorded a $15.0 million intangible assets impairment for the Altek business with no tax benefit. The Company's total international income tax expense increased from $13.2 million in 2021 to $17.4 million in 2022 primarily due to the Brazil income tax benefit in 2021 not recurring in 2022, partially offset by the change in mix of income.

The Company’s differences in income tax expense for 2022 and 2021 on international earnings and remittances was $10.3 million and $4.5 million, respectively, which included U.S income tax expense on international deemed remittances of $0.1 million and $0.1 million respectively. The increase is primarily due to no tax benefit recorded on the $15.0 million intangible assets impairment recorded for the Altek business and the change in mix of income.

The Company's U.S. loss from continuing operations before income taxes and equity income was $152.6 million and $34.5 million for 2022 and 2021, respectively. The Company's total U.S. income tax benefit increased from $4.1 million in 2021 to $7.1 million in 2022 primarily due to the reduced operational profit and a $3.0 million tax benefit recorded on the deductible portion of the goodwill impairment recorded for the Clean Earth business, offset by partially disallowed interest expense.

The income tax effects of the temporary differences giving rise to the Company's deferred tax assets and liabilities at December 31, 2022 and 2021 are as follows:

	2022 (a)				2021 (a)
(In thousands)	Asset		Liability		Asset		Liability
Depreciation and amortization	$	—	$	61,145	$	—	$	80,278
Right-of-use assets	—		24,826		—		25,130
Operating lease liabilities	25,024		—		24,802		—
Expense accruals	28,758		—		24,949		—
Inventories	4,011		—		3,400		—
Provision for receivables	2,781		—		3,997		—
Deferred revenue	4,484		—		—		2,750
Operating loss carryforwards	54,237		—		67,442		—
Tax credit carryforwards	21,443		—		18,608		—
Pensions	5,171		—		23,298		—
Currency adjustments	—		3,330		3,701		—
Section 163(j) disallowed interest expense	13,869		—		4,843		—
Research and development	2,795		—		—		—
Stock based compensation	6,580		—		7,396		—
Other	—		3,198		2,164		—
Subtotal	169,153		92,499		184,600		108,158
Valuation allowance	(89,234)		—		(92,385)		—
Total deferred income taxes	$	79,919	$	92,499	$	92,215	$	108,158

(a) Does not include approximately $1.0 billion of statutory loss carryforwards within Luxembourg for which the Company considers the utilization of these attributes remote and as such no deferred tax asset or corresponding valuation allowance has been recorded.

At December 31, 2022, the tax-effected amount of NOLs totaled $54.2 million. Tax-effected NOLs from international operations are $40.6 million. Of that amount, $35.5 million can be carried forward indefinitely and $5.1 million will expire at various times between 2023 and 2042. Tax-effected U.S. state NOLs are $12.1 million. Of that amount, $1.8 million expire at various times between 2023 and 2027, $2.5 million expire at various times between 2028 and 2032, $3.6 million expire at various times between 2033 and 2037 and $4.2 million expire at various times between 2038 and 2042. At December 31, 2022, the tax-effected amount of U.S. Federal NOLs totaled $1.5 million. Of that amount, $1.5 million can be carried forward indefinitely.

Valuation allowances of $89.2 million and $92.4 million at December 31, 2022 and 2021, respectively, related principally to deferred tax assets for pension liabilities, NOLs, disallowed interest expense and foreign currency translation that are uncertain as to realizability. In 2022, the Company recorded a valuation allowance reduction of $7.1 million related to current year pension adjustment recorded through AOCI, a valuation allowance reduction of $6.4 million from the effects of foreign currency translation adjustments and a valuation allowance reduction of $4.3 million related to the tax rate reduction in certain jurisdiction in U.S, partially offset by a $5.2 million valuation allowance increase related to current year losses in certain foreign jurisdictions where the Company determined that it is more likely than not that these assets will not be realized, and a $8.9 million valuation allowance increase related to disallowed interest expense.

The Tax Act introduced a transition tax and a territorial tax system, which was effective beginning in 2018. The territorial tax system impacts the Company's overall global capital and legal entity structure, working capital, and repatriation plan on a go-forward basis. The Company asserts that all foreign earnings will be indefinitely reinvested to meet local cash needs. The Company therefore intends to limit distributions to earnings previously taxed in the U.S., or earnings that would qualify for the 100 percent dividends received deduction provided for in the Tax Act, and earnings that would not result in any significant foreign taxes. Therefore, the Company has not recognized a deferred tax liability on its investment in foreign subsidiaries.

The Company recognizes accrued interest and penalty expense related to unrecognized income tax benefits in income tax expense or benefit. The Company recognized an income tax benefit of $0.4 million, an income tax expense of $0.4 million and $0.2 million during 2022, 2021 and 2020, respectively, for interest and penalties. The Company has accrued $1.3 million, $1.7 million and $1.4 million for the payment of interest and penalties at December 31, 2022, 2021 and 2020, respectively.

A reconciliation of the change in the unrecognized income tax benefits balance from January 1, 2020 to December 31, 2022 is as follows:

(In thousands)	Unrecognized Income Tax Benefits		Deferred Income Tax Benefits		Unrecognized Income Tax Benefits, Net of Deferred Income Tax Benefits
Balances, January 1, 2020	$	3,129	$	(22)	$	3,107
Additions for tax positions related to the current year (includes currency translation adjustment)	596		(2)		594
Other reductions for tax positions related to prior years	(771)		—		(771)
Statutes of limitation expirations	(58)		2		(56)
Balance at December 31, 2020	2,896		(22)		2,874
Additions for tax positions related to the current year (includes currency translation adjustment)	316		(1)		315
Additions for tax positions related to prior years (includes currency translation adjustment)	500		—		500
Statutes of limitation expirations	(585)		1		(584)
Balance at December 31, 2021	3,127		(22)		3,105
Additions for tax positions related to the current year (includes currency translation adjustment)	189		(1)		188
Statutes of limitation expirations	(524)		2		(522)
Total unrecognized income tax benefits that, if recognized, would impact the effective income tax rate at December 31, 2022	$	2,792	$	(21)	$	2,771

Within the next twelve months, it is reasonably possible that up to $1.1 million of unrecognized income tax benefits will be recognized upon settlement of income tax examinations and the expiration of various statutes of limitations.

The Company files income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. These tax returns are subject to examinations and possible challenge by the tax authorities. Positions challenged by the tax authorities may be settled or appealed by the Company.

The tax years that remain subject to examination for the Company's major tax jurisdictions as of December 31, 2022 are shown below:

Jurisdiction	Earliest Open Year
Brazil	2018
China	2017
France	2020
United States:
Federal income tax	2014
State income tax	2016