Note 19 - Income Taxes

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

19. Income Taxes

The following is a summary of the income (loss) before income taxes (in thousands):

Years Ended December 31,	2022			2021		2020
Domestic	$	97,235		$	13,531	$	(176,448	)
Foreign		(5,418	)		8,596		9,985
Total income (loss) before income taxes	$	91,817		$	22,127	$	(166,463	)

The following is a summary of the provision for (benefit from) income taxes (in thousands):

Years Ended December 31,	2022			2021			2020
Federal:
Current	$	255		$	1,382		$	(9,017	)
Deferred		10,326			15,022			7,941
Total federal		10,581			16,404			(1,076	)
State:
Current		5,721			(935	)		(443	)
Deferred		(1,691	)		2,652			2,052
Total state		4,030			1,717			1,609
Foreign:
Current		1,951			2,663			136
Deferred		(3,602	)		(1,071	)		(951	)
Total foreign		(1,651	)		1,592			(815	)
Total provision for (benefit from) income taxes	$	12,960		$	19,713		$	(282	)

The following is a reconciliation of our provision for (benefit from) income taxes based on the Federal statutory tax rate to our effective tax rate (dollars in thousands):

Years Ended December 31,	2022					2021					2020
Federal statutory tax	$	19,282		21.0	%	$	4,647		21.0	%	$	(34,957	)	21.0	%
State taxes, net of federal tax benefit		2,761		3.0			1,912		8.6			1,696		(1.0	)
Foreign taxes		(2,695	)	(2.9	)		1,912		8.6			(1,374	)	0.8
Percentage depletion deduction		(1,062	)	(1.2	)		(1,015	)	(4.6	)		(1,096	)	0.7
Non-controlling interests		933		1.0			1,613		7.3			4,423		(2.7	)
Non-cash impairment charges		—		—			—		—			32,905		(19.8	)
Nondeductible expenses		3,744		4.1			1,398		6.3			1,073		(0.6	)
Company-owned life insurance		902		1.0			(736	)	(3.3	)		—		—
Stock-based compensation		(330	)	(0.4	)		(664	)	(3.0	)		—		—
Changes in uncertain tax positions		(54	)	(0.1	)		—		—			(1,781	)	1.1
Valuation allowance		(3,212	)	(3.5	)		(518	)	(2.3	)		4,197		(2.5	)
Assets held for sale		(14,427	)	(15.7	)		10,089		45.6			—		—
Gain on sale of business		—		—			—		—			(3,827	)	2.3
Nondeductible goodwill disposal		8,212		9.0			—		—			—		—
Provision to return adjustments		(1,102	)	(1.2	)		1,153		5.2			—		—
Other		8		—			(78	)	(0.3	)		(1,541	)	0.9
Total	$	12,960		14.1	%	$	19,713		89.1	%	$	(282	)	0.2	%

The majority of the variance from the statutory tax rate in 2022 is due to the tax benefit associated with the reversal of net deferred tax liabilities related to businesses no longer held for sale and the release of valuation allowances related to the utilization of capital loss carryforwards. These were partially offset by nondeductible goodwill associated with the sale of Inliner and the impact of the relative change in income before income taxes to the provision for income taxes.

The following is a summary of the deferred tax assets and liabilities (in thousands):

December 31,	2022			2021
Long-term deferred tax assets:
Receivables	$	2,818		$	3,173
Insurance		12,575			14,334
Deferred compensation		9,432			11,133
Accrued compensation		3,354			3,792
Other accrued liabilities		1,536			1,088
Contract income recognition		16,181			11,453
Lease liabilities		12,572			16,351
Net operating loss carryforwards		41,388			59,760
Valuation allowance		(19,919	)		(26,533	)
Other		6,504			8,440
Total long-term deferred tax assets		86,441			102,991
Long-term deferred tax liabilities:
Property and equipment		53,921			64,915
Right of use assets		12,202			15,791
Total long-term deferred tax liabilities		66,123			80,706
Net long-term deferred tax assets	$	20,318		$	22,285

The following is a summary of the net operating loss carryforwards at December 31, 2022 (in thousands):

	Expiration		Gross Carryforward		Tax Effected Carryforward
Federal net operating loss carryforwards		N/A	$	90,073	$	18,915
State net operating loss carryforwards		2023-2041	$	196,507		9,996
Foreign tax loss carryforwards		2023-2041	$	45,895		12,477
Total net operating loss carryforwards at December 31, 2022					$	41,388

The federal, state and foreign net operating loss carryforwards above included unrecognized tax benefits taken in prior years and the net operating loss carryforward deferred tax asset is presented net of these unrecognized tax benefits in accordance with ASC Topic 740, Income Taxes. The federal and state net operating loss acquired during the Layne acquisition are subject to Internal Revenue Code Section 382 limitations and may be limited in future periods and a portion may expire unused. As we expect to use the federal net operating loss carryforwards prior to expiration we believe that is more likely than not that these deferred tax assets will be realized and no valuation allowance was deemed necessary. We have provided a valuation allowance on the net operating loss deferred tax asset or the net deferred tax assets for certain foreign, state and local jurisdictions because we do not believe it is more likely than not that they will be realized.

The following is a summary of the change in valuation allowance (in thousands):

December 31,	2022			2021
Beginning balance	$	26,533		$	29,547
Additions (deductions), net		(6,614	)		(3,014	)
Ending balance	$	19,919		$	26,533

The change in the valuation allowance is mainly due to the utilization of various state net operating losses as well as the release of valuation allowances related to the utilization of capital loss carryforwards.

We intend to indefinitely reinvest certain earnings of our foreign subsidiaries and affiliates. There are generally no federal income taxes on dividends from foreign subsidiaries therefore we would only be subject to other taxes, such as withholding and local taxes, upon distribution of these earnings. Of the $55.0 million of accumulated undistributed earnings that we consider indefinitely reinvested as of December 31, 2022, it is not practicable to determine the amount of taxes that would be payable upon remittance of these earnings. Deferred foreign withholding taxes have been provided on undistributed earnings of certain foreign subsidiaries and foreign affiliates where the earnings are not considered to be invested indefinitely.

Uncertain tax positions: We file income tax returns in the U.S. and various state and local jurisdictions. We are currently under examination by various state taxing authorities for various tax years. We do not anticipate that any of these audits will result in a material change in our financial position. We are no longer subject to U.S. federal examinations by tax authorities for years before 2017. With few exceptions, as of December 31, 2022, we are no longer subject to state examinations by taxing authorities for years before 2017.

We file income tax returns in foreign jurisdictions where we operate. The returns are subject to examination which may be ongoing at any point in time and tax liabilities are recorded based on estimates of additional taxes which will be due upon settlement of those examinations. The tax years subject to examination by foreign tax authorities vary by jurisdiction, but generally we are no longer subject to examinations by taxing authorities for years before 2016.

We had approximately $22.8 million and $22.7 million of total gross unrecognized tax benefits as of  December 31, 2022 and 2021, respectively. There were approximately $5.5 million of unrecognized tax benefits that would affect the effective tax rate in any future period at both December 31, 2022 and 2021. It is reasonably possible that our unrecognized tax benefit could decrease by approximately $1.5 million in 2023, of which $1.3 million would impact our effective tax rate in 2023. The decrease relates to anticipated statute expirations and anticipated resolution of outstanding unrecognized tax benefits.

The following is a tabular reconciliation of unrecognized tax benefits (in thousands) the balance of which is included in other long-term liabilities and accrued expenses and other current liabilities in the consolidated balance sheets:

December 31,	2022			2021			2020
Beginning balance	$	22,724		$	23,320		$	27,303
Gross increases – current period tax positions		—			—			(1,590	)
Gross decreases – current period tax positions		—			—			—
Gross increases – prior period tax positions		—			—			—
Gross decreases – prior period tax positions		(426	)		(9	)		(608	)
Settlements with taxing authorities/lapse of statute of limitations		(60	)		(69	)		(1,785	)
Reclassification of balances from (to) held for sale		518			(518	)		—
Ending balance	$	22,756		$	22,724		$	23,320