Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Loss before income taxes consists of the following components:

	Year Ended December 31,
(in thousands)	2022	2021	2020
Domestic	($33,229)	$1,270	($26,460)
Foreign	(1,188)	(4,774)	4,870
Total	($34,417)	($3,504)	($21,590)

Significant components of income taxes are as follows:

	Year Ended December 31,
(in thousands)	2022	2021	2020
Currently payable:
Federal	$1,603	$1,090	$377
State and local	142	26	4
Foreign	6,962	2,989	1,744
Total currently payable	8,707	4,105	2,125
Deferred:
Federal	(5,793)	(1,629)	27,705
State and local	(289)	(195)	305
Foreign	(3,238)	297	1,241
Total deferred	(9,320)	(1,527)	29,251
Provision (benefit) for income taxes	($613)	$2,578	$31,376

A reconciliation of income tax provision (benefit) at the U.S. Federal statutory income tax rate to actual income tax provision (benefit) is as follows:

	Year Ended December 31,
(in thousands)	2022	2021	2020
Tax at statutory rate	($7,228)	($736)	($4,534)
State income taxes, net of federal tax benefit	(86)	(128)	364
Effect of foreign items	1,099	88	1,502
Valuation allowance and unbenefited losses	(870)	4,280	33,478
Deferred tax rate changes	(23)	(755)	71
Transaction costs	1,004	(1,070)	(131)
Tax incentives	(250)	(226)	(311)
Disallowed foreign expenses and exchange losses	2,256	228	1,746
Sub Part F / Global intangible low taxed income	372	—	—
Unrecognized tax benefits	814	79	(817)
Goodwill impairment	—	1,340	—
Withholding taxes	1,200	—	—
Other	1,099	(522)	8
Provision (benefit) for income taxes	($613)	$2,578	$31,376

Income tax expense (benefit) for the year ended December 31, 2022, 2021 and 2020 include certain discrete tax items for changes in valuation allowances, foreign effective rate items and other rate modifying items.

The Tax Cuts and Jobs Act ("TCJA") subjects a U.S. corporation to tax on its global intangible low-taxed income ("GILTI"). U.S. GAAP allows companies to make an accounting policy election to either (1) treat taxes due on future GILTI inclusions in U.S. taxable income as a current-period expense when incurred (“period cost method”) or (2) factor such amounts into the measurement of its deferred taxes (“deferred method”). The Company elected to use the period cost method and estimated no impact on tax expense in tax year 2021. The Company provided no tax provision impact related to base erosion and anti-abuse tax (“BEAT”) provisions of the TCJA, as the Company’s average gross receipts are under $500 million. In addition, the Company has not been eligible for a benefit for foreign derived intangible income (“FDII”) due to the Company’s U.S. net operating loss positions in tax year 2019, 2020 and 2021 and no foreign derived intangible income in 2022.

The Company’s U.S. operations have incurred cumulative taxable losses through December 31, 2022. The Company’s U.S. net operating loss carry forwards and carry forwards of other tax attributes are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. The utilization of the tax attributes may become restricted in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Section 382 and Section 383 of the IRC, as well as similar state tax provisions. This could limit the amount of the tax attributes that the Company can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will generally be determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. Please refer to Note 3 - Related Party Transactions regarding the ownership change in the year ended December 31, 2020. The Company completed a Section 382 study and determined the ownership change gave rise to the restrictions that will limit the realizability of certain U.S. tax attributes and built-in losses related to future intangible amortization tax deductions.

For the year ended December 31, 2022, the Company recorded a tax benefit of $0.9 million for the net decrease in valuation allowances related to deferred tax assets that are not able to be realized. The Company did not have sufficient evidence to support future taxable income to realize the deferred tax assets associated with net operating losses and various other deferred tax assets in certain foreign jurisdictions (Argentina, Korea, Brazil, Poland, Australia, New Zealand, Mexico, Morocco, Turkey, South Africa, Peru and Italy) in 2021. In 2022, new evidence supporting the realization of certain deferred tax assets (Brazil, Morocco and Peru) resulted in the foreign tax benefit of $0.6 million. In addition to the foreign valuation allowance impact, the Company recorded a tax benefit of $0.3 million for a decrease in the U.S. valuation allowance for an additional source of future taxable income related to the increase in the indefinite-lived intangible deferred tax liability in the current year.

For the year ended December 31, 2021, the Company recorded a tax expense of $4.3 million for the net increase in valuation allowances related to deferred tax assets that will no longer be able to be realized. The unrealizable deferred tax assets within foreign jurisdictions resulted in a tax expense of $4.3 million. In addition to the foreign valuation allowance impact, there were two offsetting valuation allowance impacts recorded in the U.S. The Company recorded a tax benefit of $0.2 million for a

decrease in the U.S. valuation allowance for an additional source of future taxable income related to the increase in the indefinite-lived intangible deferred tax liability in the current year. A $0.2 million tax expense for untaxed income related to the elimination of intercompany profit in inventory made up the last component of the change in valuation allowance for the prior tax period.

For the year ended December 31, 2020, the Company recorded a tax expense of $33.5 million for the net increase in valuation allowances related to deferred tax assets that will no longer be able to be realized. The unrealizable deferred tax assets relate to the aforementioned Section 382 limitations on U.S. tax attributes for a tax expense of $36.3 million. After the annual limitation was determined in the Section 382 study, the Company did not have sufficient evidence to support future taxable income to realize the deferred tax assets associated with non-deductible net interest expense, U.S. and state net operating losses, and future intangible amortization tax deductions. The remaining $2.8 million tax benefit included in the net $33.5 million change in valuation allowance tax expense relates to a tax benefit of $0.3 million for decreases in foreign valuation allowances in Japan, Netherlands and Turkey, offset by immaterial increases in South Africa and Peru, and a tax benefit of $2.5 million for untaxed income related to the elimination of intercompany profit in inventory.

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 for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2022 and December 31, 2021 are as follows:

	December 31,
(in thousands)	2022	2021
Deferred tax assets:
Pension and other retiree obligations	$170	$265
Other accruals and reserves	12,132	6,132
Loss and credit carryforwards	43,242	43,737
Interest expense deduction limitation carryforward	13,501	8,975
Investments	2,044	2,075
Right-of-use asset	1,709	1,574
Other	687	3,527
Valuation allowance	(57,416)	(61,677)
Deferred tax assets	16,069	4,608
Deferred tax liabilities:
Inventory	(1,238)	(432)
Intangible assets other than goodwill	(24,461)	(24,508)
Property, plant and equipment	(679)	(376)
Unrealized foreign currency gains	(6,131)	(5,236)
Lease liability	(1,593)	(1,497)
Deferred tax liabilities	(34,102)	(32,049)
Net deferred tax (liabilities) assets	($18,033)	($27,441)

The Company makes significant judgments regarding the realizability of its deferred tax assets (principally net operating losses). The carrying value of deferred tax assets is based on the Company’s assessment that it is more likely than not that the Company will realize these assets after consideration of all available positive and negative evidence.

Gross operating loss carryforwards amounted to $15.0 million for foreign jurisdictions, $169.3 million for U.S. federal and $24.7 million for U.S. states at December 31, 2022. These operating loss carryforwards relate to the years 2015 through current 2022 tax periods. On December 31, 2022, none of the operating loss carryforwards were subject to expiration in 2023. The operating loss carryforwards expiring in years 2024 through 2030 make up $2.3 million of the recorded deferred tax asset. The operating loss carryforwards expiring in years 2031 through 2040 make up $9.6 million of the recorded deferred tax asset. The remaining deferred tax asset relating to operating loss carryforwards of $28.7 million have an indefinite expiration. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets.

As of December 31, 2022, management determined that sufficient negative evidence exists to conclude that it is more-likely-than-not that certain income tax assets in the U.S., Argentina, Korea, Belgium, Japan, Poland, Australia, New Zealand, Mexico, Turkey, South Africa, and Italy are not realizable, and therefore, retained or recorded a new valuation allowance accordingly.

The Company has recorded tax credits in the U.S. for research and development expenditures and foreign taxes that were generated in tax years 2015 through 2022 for a total amount of $2.6 million. The foreign tax credits will begin to expire in 2025 and the research and development credits will begin to expire in 2035.

U.S. income and foreign withholding taxes have not been recognized for the difference between the financial reporting and tax basis of the investments in foreign subsidiaries that are indefinitely reinvested outside the U.S. This amount may be recognized upon a sale or liquidation of the subsidiary. There is not a gross temporary difference as of December 31, 2022, since the tax basis of investments in foreign subsidiaries is in excess of the financial reporting basis.

Uncertain Tax Positions

Year ended December 31,
(in thousands)	2022	2021	2020
Beginning Balance	$883	$859	$2,670
Additions of tax positions of the current year	1,797	—	—
Additions to tax positions of the prior years	516	166	209
Reductions of tax positions of the prior years	—	(52)	(1,236)
Reductions related to prior tax positions due to foreign currency	(62)	(90)	(633)
Expiration of statutes of limitations	(735)	—	(151)
Ending Balance	$2,399	$883	$859

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. As of December 31, 2022, and 2021, the Company had unrecognized tax benefits, defined as the aggregate tax effect of differences between tax return positions and the benefits recognized in the Company's financial statements, of $2.4 million and $0.9 million, respectively. If recognized in the fiscal years ended December 31, 2022 and 2021, $2.4 million and $0.9 million, respectively, of these benefits would have reduced income tax expense and the effective tax rate. Of these amounts, approximately $0.0 million and $0.0 million of the Company's unrecognized tax benefits at December 31, 2022 and 2021, respectively, are indemnified and the release of the indemnification asset will have an offsetting impact to the effective tax rate of the Company. Of the $2.4 million and $0.9 million benefits at December 31, 2022 and 2021, respectively, approximately $0.4 million and $0.2 million have been recorded as a reduction to the related deferred tax asset for the net operating loss in accordance with Accounting Standards Update 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists for all periods. The total amount of unrecognized tax benefits is not expected to change within 12 months of the reporting date. The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefit within the provision for income taxes in the consolidated statements of operations. The Company recorded a decrease of $0.4 million of interest and penalties as part of "Provision for income taxes" in the Company's consolidated statements of operations during the period ending December 31, 2022. Cumulative interest and penalties of $0.4 million and $0.9 million are recorded as part of Income taxes payable for December 31, 2022 and 2021, respectively.