Taxes on Income

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Taxes on Income

Taxes on Income

On December 22, 2017, the U.S. government enacted comprehensive tax legislation which we refer to as U.S. Tax Reform. U.S. Tax Reform implemented a new system of taxation for non-U.S. earnings which eliminated U.S. federal income taxes on dividends from certain foreign subsidiaries and imposed a one-time transition tax on the deemed repatriation of undistributed earnings of certain foreign subsidiaries that is payable over eight years. Accordingly, the Company had initially recorded a $15.5 million transition tax liability for U.S. income taxes on undistributed earnings of non-U.S. subsidiaries. As of December 31, 2023, $8.5 million in installments have been paid with the remaining $7.0 million to be paid through installments in future years. The Company may also be subject to other taxes, such as withholding taxes and dividend distribution taxes, if these undistributed earnings are ultimately remitted to the U.S.

Taxes on income before equity in net income of associated companies for the years ended December 31, 2023, 2022 and 2021 are as follows:

	2023		2022		2021
Current:
Federal	$	12,159	$	(708)	$	955
State	2,938		1,450		2,115
Foreign	51,930		34,735		44,375
Total	67,027		35,477		47,445
Deferred:
Federal	518		(2,798)		(3,863)
State	(163)		(713)		(3,117)
Foreign	(11,797)		(7,041)		(5,526)
Total	$	(11,442)	$	(10,552)	$	(12,506)
Taxes on income before equity in net income of associated companies	$	55,585	$	24,925	$	34,939

The components of income before taxes and equity of associated companies for the years ended December 31, 2023, 2022 and 2021 are as follows:

	2023		2022		2021
U.S.	$	14,520	$	(4,933)	$	7,263
Foreign	138,604		12,051		139,728
Total	$	153,124	$	7,118	$	146,991

Total deferred tax assets and liabilities are composed of the following as of December 31, 2023 and 2022:

	2023		2022
Pension and other postretirement benefits	$	6,539	$	5,777
Allowance for credit losses	2,627		2,246
Insurance and litigation reserves	534		716
Performance incentives	5,839		3,327
Equity-based compensation	2,980		2,723
Prepaid expense	541		486
Operating loss carryforward	22,693		20,519
Foreign tax credit and other credits	13,360		5,506
Interest	12,926		9,928
Restructuring reserves	403		791
Right of use lease assets	8,018		8,440
Inventory reserves	4,810		3,712
Research and development	11,125		11,936
Other	5,712		3,562
Total deferred tax assets, gross	98,107		79,669
Valuation allowance	(24,182)		(11,730)
Total deferred tax assets, net	$	73,925	$	67,939
Depreciation	10,240		11,935
Intangibles	177,320		182,838
Lease liabilities	9,105		9,590
Outside basis in equity investment	5,276		5,886
Unremitted earnings	8,204		6,766
Total deferred tax liabilities	$	210,145	$	217,015
Total net deferred tax liabilities	$	(136,220)	$	(149,076)

The Company’s net deferred tax assets and liabilities are classified in the Consolidated Balance Sheets as of December 31, 2023 and 2022 as follows:

	2023		2022
Non-current deferred tax assets	$	10,737	$	11,218
Non-current deferred tax liabilities	146,957		160,294
Total net deferred tax liabilities	$	(136,220)	$	(149,076)

As of December 31, 2023, the Company has a deferred tax liability of $8.2 million on certain undistributed foreign earnings, which primarily represents the Company’s estimate of the non-U.S. income taxes the Company will incur to ultimately remit certain earnings to the U.S. Otherwise, it is the Company’s current intention to reinvest its additional undistributed earnings of certain non-U.S. subsidiaries to support working capital needs and certain other growth initiatives outside of the U.S. The amount of such undistributed earnings at December 31, 2023 was approximately $379.2 million. Any tax liability which might result from ultimate remittance of these earnings is expected to be substantially offset by foreign tax credits (subject to certain limitations). It is currently impractical to estimate any such incremental tax expense.

The Company has $7.3 million of deferred tax assets related to state net operating losses. Management analyzed the expected impact of the reversal of existing taxable temporary differences, considered expiration dates, analyzed current state tax laws, and determined that $1.9 million of state net operating loss carryforwards is expected to be realized as a future benefit based on the reversal of deferred tax liabilities. Accordingly, a partial valuation allowance of $5.4 million has been established. These state net operating losses are subject to various carryforward periods of 5 years to 20 years or an indefinite carryforward period. An additional $0.9 million of valuation allowance was established for other net state deferred tax assets.

The Company has $15.6 million of deferred tax assets related to foreign net operating loss carryforwards. A partial valuation allowance of $2.4 million has been established against this amount resulting in a net $13.2 million expected future benefit. These foreign net operating losses are subject to various carryforward periods with the majority having an indefinite carryforward period. An additional partial valuation allowance of $3.0 million has been established against certain other foreign deferred tax assets.

Foreign tax credits may be carried forward for 10 years. Management analyzed the expected impact of the utilization of foreign tax credits based on certain assumptions such as projected U.S. taxable income, overall domestic loss recapture, and annual limitations due to the ownership change under the Internal Revenue Code. The Company had a foreign tax credit carry forward of $13.0 million and $5.2 million as of December 31, 2023 and 2022, respectively, with a $12.5 million and $1.3 million valuation allowance as of December 31, 2023 and 2022, respectively, reflecting the amount of credits that are not expected to be utilized before expiration.

The following are the changes in the Company’s deferred tax asset valuation allowance for the years ended December 31, 2023, 2022 and 2021:

	2023		2022		2021
Balance at January 1,	$	11,730	$	17,400	$	21,511
Net charges to income tax expense	$	14,393	$	1,119	$	359
Release of valuation allowance	$	(1,941)	$	(6,789)	$	(4,470)
Balance at December 31,	$	24,182	$	11,730	$	17,400

The following is a reconciliation of income taxes at the Federal statutory rate with income taxes recorded by the Company for the years ended December 31, 2023, 2022 and 2021:

	2023		2022		2021
Income tax provision at the Federal statutory tax rate	$	32,156	$	1,495	$	30,868
Unremitted earnings	1,211		(1,839)		1,841
Tax law changes / reform	47		823		1,955
U.S. tax on foreign operations	9,014		4,864		10,479
Pension settlement	—		—		—
Foreign derived intangible income	(1,147)		(917)		(8,698)
Non-deductible acquisition expenses	—		45		129
Withholding taxes	11,193		7,785		6,584
Foreign tax credits	(3,432)		(5,850)		(14,725)
Share-based compensation	973		1,234		600
Foreign tax rate differential	4,731		4,782		1,712
Research and development credit	(2,000)		(1,757)		(1,685)
Audit Settlements	456		2,697		1,378
Uncertain tax positions	(598)		(6,375)		519
State income tax provisions, net	2,158		432		(1,446)
Non-deductible meals and entertainment	416		146		426
Intercompany transfer of intangible assets	(584)		(1,932)		4,347
Goodwill Impairment	—		19,550		—
Miscellaneous items, net	991		(258)		655
Taxes on income before equity in net income of associated companies	$	55,585	$	24,925	$	34,939

For the years ended December 31, 2023 and 2022, the Company’s cumulative liability for gross unrecognized tax benefits were $15.7 million and $16.3 million, respectively. For the years ended December 31, 2023 and 2022, the Company had accrued approximately $1.1 million and $1.3 million, respectively, for cumulative penalties and $2.9 million and $2.7 million, respectively, for cumulative interest.

The Company continues to recognize interest and penalties associated with uncertain tax positions as a component of tax expense on income before equity in net income of associated companies in its Consolidated Statements of Operations. The Company recognized a benefit of $0.4 million for penalties and an expense of $0.1 million for interest (net of expirations and settlements) in its Consolidated Statement of Income for the year ended December 31, 2023, a benefit of $1.7 million for penalties and a benefit of $0.3 million for interest (net of expirations and settlements) in its Consolidated Statement of Income for the year ended December 31, 2022, and a benefit of $0.5 million for penalties and a benefit of $0.3 million for interest (net of expirations and settlements) in its Consolidated Statement of Income for the year ended December 31, 2021.

The Company estimates that during the year ending December 31, 2023, it will reduce its cumulative liability for gross unrecognized tax benefits by approximately $2.7 million due to the expiration of the statute of limitations with regard to certain tax positions. This estimated reduction in the cumulative liability for unrecognized tax benefits does not consider any increase in liability for unrecognized tax benefits with regard to existing tax positions or any increase in cumulative liability for unrecognized tax benefits with regard to new tax positions for the year ending December 31, 2023.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31, 2023, 2022 and 2021, respectively, is as follows:

	2023		2022		2021
Unrecognized tax benefits as of January 1	$	16,340	$	22,464	$	22,152
(Decrease) increase in unrecognized tax benefits taken in prior periods	(147)		(1,174)		1,002
Increase in unrecognized tax benefits taken in current period	1,799		953		2,915
Decrease in unrecognized tax benefits due to lapse of statute of limitations	(2,736)		(2,378)		(1,527)
Decrease in unrecognized tax benefits due to audit settlements	—		(2,509)		(1,104)
(Decrease) increase due to foreign exchange rates	403		(1,016)		(974)
Unrecognized tax benefits as of December 31	$	15,659	$	16,340	$	22,464

The amount of net unrecognized tax benefits above that, if recognized, would impact the Company’s tax expense and effective tax rate is $10.1 million, $10.2 million and $15.2 million for the years ended December 31, 2023, 2022 and 2021, respectively.

The Company and its subsidiaries are subject to U.S. Federal income tax, as well as the income tax of various state and foreign tax jurisdictions. Tax years that remain subject to examination by major tax jurisdictions are shown in the table below:

Jurisdiction	Open Years
Brazil	2018-2023
China	2018-2023
Germany	2018-2023
India	2017-2023
Italy	2007, 2019-2023
Mexico	2018-2023
Netherlands	2017-2023
Spain	2018-2023
U.S. Federal and State	2019-2023
United Kingdom	2018-2023

Positions challenged by the taxing authorities may be settled or applied by the Company. As a result, income tax uncertainties are recognized in the Company’s financial statements in accordance with the accounting for income taxes, when applicable.