XML 39 R23.htm IDEA: XBRL DOCUMENT v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of income from continuing operations before income taxes consist of the following:
Year ended December 31,202220212020
Income from continuing operations before income taxes:
U.S.$(17,650)$231,424 $80,632 
Foreign28,541 45,330 29,276 
Income from continuing operations before income taxes$10,891 $276,754 $109,908 
The income tax provision (benefit) consists of the following:
Year ended December 31,202220212020
Current tax provision (benefit):
Federal$1,090 $54,087 $(4,430)
State5,125 15,961 6,527 
Foreign8,648 14,853 4,172 
Total current tax provision14,863 84,901 6,269 
Deferred tax provision (benefit):
Federal(8,671)(22,046)16,512 
State(5,395)(4,175)(1,132)
Foreign(12,295)(3,515)185 
Total deferred tax provision (benefit)(26,361)(29,736)15,565 
Total income tax (benefit) provision$(11,498)$55,165 $21,834 
A reconciliation of the federal statutory rate to our effective income tax rate is shown below:
Year ended December 31,202220212020
Federal statutory rate21.0 %21.0 %21.0 %
Increases (decreases) in the rate resulting from:
Net capital loss on divestiture— %(1.0)%(24.8)%
Tax reform— %(1.2)%(11.4)%
Unrecognized tax benefits10.2 %0.1 %5.0 %
State income taxes, net of federal income tax impact(7.1)%3.1 %3.2 %
Research and development credit(29.9)%(0.8)%(2.9)%
Foreign income taxes0.5 %0.3 %0.7 %
Valuation allowance— %1.1 %27.1 %
Restricted stock vestings(57.3)%(2.1)%1.0 %
Nondeductible compensation28.9 %1.0 %— %
Foreign repatriation change (Thailand)(96.3)%— %— %
Non-deductible transaction costs19.5 %— %— %
Foreign derived intangible income (FDII)— %(3.2)%— %
Global intangible low-taxed income5.0 %— %— %
Other(0.1)%1.6 %1.0 %
Effective income tax rate(105.6)%19.9 %19.9 %
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
December 31,20222021
Deferred tax assets:
Employee benefit plans$27,923 $40,121 
Accrued liabilities not currently deductible15,640 24,659 
Finance charges2,143 2,019 
Lease liabilities80,300 57,056 
Allowance for losses on accounts receivable6,703 3,370 
Net operating loss carryforwards55,992 4,985 
Capital loss carryover30,034 30,323 
Interest limitation19,890 206 
R&D Capitalized Costs14,017 — 
Other7,982 4,694 
Total deferred tax assets260,624 167,433 
Less: valuation allowances(35,253)(34,706)
Net deferred tax assets225,371 132,727 
Deferred tax liabilities:
Merchandise inventories18,904 32,261 
Goodwill4,151 2,759 
Property and equipment86,451 32,607 
Right-of-use assets75,623 52,755 
Computer software5,532 8,068 
Derivatives4,020 — 
Insurance(20)1,040 
Intangible assets81,068 21,953 
Withholding tax liabilities— 7,072 
Other826 101 
Total deferred tax liabilities276,555 158,616 
Net deferred tax liability$(51,184)$(25,889)

The valuation allowances relate to deferred tax assets for U.S. federal and state capital loss carryforwards and net operating loss carryforwards in various state jurisdictions. The U.S. capital loss carryforward, which has a full valuation allowance, has an expiration date of five years. As of December 31, 2022, federal net operating losses of approximately $190.6 million are available to offset future federal taxable income. The entire $190.6 million of net operating losses have an unlimited carryforward period and will not expire. The capital loss and net operating loss carryforwards in various state jurisdictions have various expiration dates ranging from five years to an unlimited carryforward period. Based on management’s judgment using available evidence about historical and expected future taxable earnings, management believes it is more likely than not that we will realize the benefit of the existing deferred tax assets, net of valuation allowances, at December 31, 2022.
Cash payments for income taxes, including interest, for 2022, 2021 and 2020 were $38.1 million, $102 million and $15.4 million. Cash tax refunds received for 2022, 2021 and 2020 were $4.2 million, $2.5 million and $32.8 million.
A summary of the changes in the liability for unrecognized tax benefits from the beginning to the end of the reporting period is as follows:
20222021
Unrecognized tax benefits at January 1,$21,385 $20,770 
Increases for positions taken during current period1,016 858 
Increases for positions taken during prior periods325 2,422 
Lapse of statute of limitations(227)(2,665)
Unrecognized tax benefits at December 31,$22,499 $21,385 
Included in the liability for unrecognized tax benefits at December 31, 2022 and 2021, were $2.7 million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. These tax positions are temporary differences which do not impact the annual effective tax rate under deferred tax accounting. Any change in the deductibility period of these tax positions would impact the timing of cash payments to taxing jurisdictions. Unrecognized tax benefits of $19.8 million and $18.7 million at December 31, 2022 and 2021 would impact our effective tax rate if recognized and the remaining would not impact our effective tax rate.
We recognize accrued interest and penalties related to unrecognized tax benefits. Accrued interest at December 31, 2022 and 2021 was $3.9 million and $2.9 million. The amounts recognized in interest expense for the years ended December 31, 2022, 2021 and 2020 were $1.0 million, $0.3 million and $1.3 million. There were no penalties accrued at December 31, 2022, 2021 and 2020 or recognized in 2022, 2021 and 2020.
On August 26, 2020, we received a Notice of Proposed Adjustment (NOPA) from the Internal Revenue Service (IRS) regarding our 2015 and 2016 consolidated income tax returns. On June 30, 2021, we received a NOPA from the IRS regarding our 2017 and 2018 consolidated income tax returns. Within the NOPAs, the IRS has asserted that our taxable income for the aforementioned years should be higher based on their assessment of the appropriate amount of taxable income that we should report in the United States in connection with our sourcing of products by our foreign subsidiaries for sale in the United States by our domestic subsidiaries. Our amount of taxable income in the United States is based on our transfer pricing methodology, which has been consistently applied through the current date. We strongly disagree with the IRS position and will pursue all available administrative and judicial remedies, including those available under the U.S. - Ireland Income Tax Treaty to alleviate double taxation. We regularly assess the likelihood of adverse outcomes resulting from examinations such as this to determine the adequacy of our tax reserves. We believe that we have adequately reserved for this matter and that the final adjudication of this matter will not have a material impact on our consolidated financial position, results of operations or cash flows. However, the ultimate outcome of disputes of this nature is uncertain, and if the IRS were to prevail on its assertions, the additional tax, interest, and any potential penalties could have a material adverse impact on our financial position, results of operations or cash flows.
We file income tax returns in the U.S. federal and various state and foreign jurisdictions. Our U.S. federal income tax returns for the years 2015 through 2021 are subject to examination. Our income tax returns for U.S. state and local jurisdictions are generally open for the years 2019 through 2021; however, certain returns may be subject to examination for differing periods. The former owners are contractually obligated to indemnify us for all income tax liabilities incurred by Byram entities prior to its acquisition on August 1, 2017, and for all income tax liabilities incurred by the Halyard foreign entities located in Thailand, Mexico, and Honduras prior to its acquisition on April 30, 2018.