INCOME TAXES

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The components of income before income taxes and equity in (losses) earnings are as follows:

	Year Ended December 31,
	2023		2022		2021
	(in thousands)
Domestic	$	22,134	$	20,796	$	61,045
Foreign	(11,659)		(11,767)		(24,665)
Total income before income taxes and equity in earnings	$	10,475	$	9,029	$	36,380

The provision for income taxes (before equity in (losses) earnings) consists of:

	Year Ended December 31,
	2023		2022		2021
	(in thousands)
Current:
Federal	$	6,326	$	6,890	$	10,361
State and local	1,447		1,888		3,558
Foreign	579		775		823
Deferred	(2,130)		(3,825)		1,799
Income tax provision	$	6,222	$	5,728	$	16,541

Under the Tax Cuts and Jobs Act of 2017, research and development costs are no longer fully deductible and are required to be capitalized and amortized for U.S. tax purposes effective for tax years beginning after December 31, 2021. The mandatory capitalization requirement increases the Company’s deferred tax assets and income tax payable.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred

income tax assets and (liabilities) are as follows:

	December 31,
	2023		2022
	(in thousands)
Deferred income tax assets:
Operating lease liabilities	$	20,571	$	22,814
Stock options	1,454		1,679
Inventory	3,323		3,134
Operating loss carryforwards	21,036		17,450
Accounts receivable allowances	2,343		1,906
Accrued compensation	913		1,137
Deferred compensation	668		721
Environmental remediation accrual	1,379		1,432
Capitalized research and experimental expenditures	3,109		2,525
Other	2,440		755
Total deferred income tax assets	$	57,236	$	53,553
Deferred income tax liabilities:
Operating lease right-of-use assets	$	(17,060)	$	(18,872)
Fixed assets	(1,248)		(1,735)
Intangibles	(26,207)		(26,230)
Total deferred income tax liabilities	(44,515)		(46,837)
Net deferred income tax asset	12,721		6,716
Valuation allowance	(20,159)		(16,323)
Net deferred income tax liability	$	(7,438)	$	(9,607)

The Company has capital loss carryforwards of $7.2 million in foreign jurisdictions and $0.9 million in the U.S. federal jurisdiction at December 31, 2023 that are offset entirely by a valuation allowance.

The Company has net operating losses in foreign jurisdictions of $75.9 million and $12.1 million in state jurisdictions at December 31, 2023 that are offset entirely by a valuation allowance. The foreign net operating losses can be carried forward indefinitely. The state net operating losses begin to expire in 2026.

The provision for income taxes (before equity in (losses) earnings) differs from the amounts computed by applying the applicable federal statutory rates as follows:

	Year Ended December 31,
	2023		2022		2021
Federal income taxes at the statutory rate	21.0	%	21.0	%	21.0	%
Increases (decreases):
State and local income taxes, net of Federal income tax benefit	5.7		13.9		8.8
Foreign rate differences	(19.7)		6.9		(9.2)
Foreign withholding tax	5.0		6.1		1.2
Non-deductible expenses	7.9		7.1		3.3
Uncertain tax positions	(0.9)		1.2		0.1
Research and development credit	(2.5)		(5.4)		(1.1)
Federal return to provision	0.7		(3.4)		(0.4)
Equity-based compensation	5.0		0.1		(0.6)
Valuation Allowance	37.2		15.9		22.4
Provision for income taxes	59.4	%	63.4	%	45.5	%

The estimated values of the Company’s gross uncertain tax positions at December 31, 2023, 2022 and 2021 consist of the following:

	Year Ended December 31,
	2023		2022		2021
	(in thousands)
Balance at January 1	$	(1,130)	$	(1,071)	$	(1,648)
Additions based on tax positions related to the current year	(27)		(79)		(49)
Reductions for tax position of prior years	167		20		626
Balance at December 31	$	(990)	$	(1,130)	$	(1,071)

The Company had approximately $0.4 million, net of federal and state tax benefit, accrued at December 31, 2023 and 2022, for the payment of interest and penalties. The Company’s policy for recording interest and penalties is to record such items as a component of the provision for income taxes.

If the Company’s tax positions are ultimately sustained, the Company’s liability, including interest, would be reduced by $1.5 million, all of which would impact the Company’s tax provision. On a quarterly basis, the Company evaluates its tax positions and revises its estimates accordingly. The Company believes that it is reasonably possible that an immaterial amount of its tax positions will be resolved within the next 12 months.

The Company is no longer subject to U.S. Federal income tax examinations for the years prior to 2020, except for examination in tax year 2017 related to Transition Tax. The Company has identified the following jurisdictions as “major” tax jurisdictions: U.S. Federal, California, Massachusetts, New Jersey, New York, and the United Kingdom. At December 31, 2023, the periods subject to examination by the Company’s major state jurisdictions, except for New York State (which has been audited through 2019), are generally for the years ended 2019 through 2022. In certain jurisdictions, Filament may have additional periods subject to examination. As of December 31, 2023, there are no material assessments in any given year.