Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes [Abstract]

Income Taxes

NOTE 11 - INCOME TAXES

Income before income taxes includes the following:

(Dollars in thousands)	2022		2021		2020
United States	$	(40,087)	$	(35,835)	$	(56,709)
Foreign		3,975		76,335		(13,666)
Income (loss) before income taxes and equity earnings of unconsolidated joint ventures	$	(36,112)	$	40,500	$	(70,375)
Equity earnings of unconsolidated joint ventures:
United States		—		—		—
Foreign		271		258		(449)
Income (loss) before income taxes	$	(35,841)	$	40,758	$	(70,824)

Significant components of the provision for income taxes are as follows:

(Dollars in thousands)	2022		2021		2020
Current income tax expense (benefit)
Federal	$	(97)	$	(5,727)	$	349
State		19		(6,426)		424
Foreign		(487)		17,217		(2,233)
Total		(565)		5,064		(1,460)
Deferred income tax expense (benefit)
Federal		2		(119)		(3,263)
State		2		(32)		(5)
Foreign		1,380		1,031		(239)
Total		1,384		880		(3,507)
Total income tax expense (benefit)	$	819	$	5,944	$	(4,967)

Deferred income taxes reflect the “temporary differences” between the financial statement carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, adjusted by the relevant tax rate. The components of the deferred tax assets and liabilities are as follows:

	December 31,
(Dollars in thousands)	2022		2021
Deferred Tax Assets:
Net operating loss carry-forwards	$	26,237	$	18,917
Foreign Tax Credit		3,743		3,743
Compensation and employee benefits		3,252		3,539
Deferred revenue		2,713		2,642
Accrued expenses		12,206		8,646
Lease obligations		56,119		69,342
Land and property		1,620		958
Total Deferred Tax Assets		105,890		107,787
Deferred Tax Liabilities:
Lease liabilities		(52,747)		(63,293)
Accrued taxes		(532)		(523)
Intangibles		(444)		(396)
Other		(942)		(461)
Total Deferred Tax Liabilities		(54,665)		(64,673)
Net deferred tax assets before valuation allowance		51,225		43,114
Valuation allowance		(50,778)		(40,894)
Net deferred tax asset	$	447	$	2,220

We record net deferred tax assets to the extent we believe these assets will more-likely-than-not be realized. In making such determination, we considered all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial performance. As of December 31, 2022, based on all available evidence, we believe the U.S. and state deferred tax assets do not support a conclusion of being more-likely-than-not to be realized. Accordingly, we recorded an increase to valuation allowance of $9.9 million. We reassess the valuation allowance quarterly and a tax benefit is recorded if future evidence allows for a partial or full release of the valuation allowance.

As of December 31, 2022, we had the following carry-forwards:

approximately $73.5 million in Federal loss carry-forwards with no expiration date;

approximately $43.9 million in California loss carry-forwards expiring in 2042;

approximately $31.0 million in Hawaii loss carry-forwards expiring in 2042;

approximately $2.7 million in New Jersey state loss carry-forwards expiring in 2042;

approximately $52.5 million in New York state loss carry-forwards substantially expiring in 2036;

approximately $50.6 million in New York city loss carry-forwards substantially expiring in 2036; and,

We expect no substantial limitations on the future use of U.S. loss carry-forwards.

The provision for income taxes is different from amounts computed by applying U.S. statutory rates to consolidated losses before taxes. The significant reason for these differences is as follows:

(Dollars in thousands)	2022		2021		2020
Expected tax provision	$	(7,526)	$	8,559	$	(14,873)
Increase (decrease) in tax expense resulting from:
Foreign tax rate differential		384		6,473		(1,159)
Change in valuation allowance		8,071		(6,339)		11,424
State and local tax provision		21		(6,458)		418
Tax rate change		—		—		(1,397)
Prior year adjustment		(405)		(211)		877
Unrecognized tax benefits		75		(3,937)		246
GILTI		—		7,858		—
Other		199		(1)		(503)
Total income tax expense (benefit)	$	819	$	5,944	$	(4,967)

The undistributed earnings of the Company's Australian subsidiaries are not indefinitely reinvested. Due to the enactment of the Tax Act, future repatriations of foreign earnings will generally not be subject to U.S. federal taxation but may incur minimal state taxes.

The following table is a summary of the activity related to unrecognized tax benefits, excluding interest and penalties, for the years ended December 31, 2022, 2021, 2020:

(Dollars in thousands)	2022		2021		2020
Unrecognized tax benefits – gross beginning balance	$	11,536	$	2,086	$	4,082
Gross increase (decrease) - prior year tax positions		(82)		(1,664)		(1,996)
Gross increase (decrease) - current year tax positions		—		11,114		—
Settlements		—		—		—
Unrecognized tax benefits – gross ending balance	$	11,454	$	11,536	$	2,086

As of December 31, 2022 and 2021, if recognized, $11.5 million and $11.5 million respectively, of the unrecognized tax benefits would impact the Company’s effective tax rate.

During the year ended December 31, 2022, we recorded an increase to tax interest of $257,000, resulting in a total $641,000 in interest. During the year ended December 31, 2021, we recorded a decrease to tax interest of $10.5 million, resulting in a total $384,000 in interest.

It is difficult to predict the timing and resolution of uncertain tax positions. Based upon the Company’s assessment of many factors, including past experience and judgments about future events, it is probable that within the next 12 months the reserve for uncertain tax positions will increase within a range of $500,000 to $1.5 million. The reasons for such change include but are not limited to tax positions expected to be taken during 2022, revaluation of current uncertain tax positions, and expiring statutes of limitations.

As of December 31, 2022, federal income tax returns for 2019 and after are open for examination. California worldwide unitary income tax returns for 2018 and after are open for examination. Australia income tax returns for calendar years 2018 and after are open for examination. Generally, New Zealand returns for calendar years 2017 and after remain open for examination.