Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Provision for income taxes consisted of the following:

For the year ended December 31
(in thousands)	2022		2021		2020
Income before income taxes:
U.S.	$	20,422	$	63,708	$	63,375
Non-U.S.	111,558		102,223		75,699
	$	131,980	$	165,931	$	139,074
Income tax expense/(benefit)
Current:
Federal	$	9,781	$	3,348	$	1,415
State	5,126		2,663		2,028
Non-U.S.	28,605		29,319		26,916
	$	43,512	$	35,330	$	30,359
Deferred:
Federal	$	(9,592)	$	9,911	$	11,211
State	(1,866)		(24)		192
Non-U.S.	3,418		1,946		69
	$	(8,040)	$	11,833	$	11,472
Total income tax expense	$	35,472	$	47,163	$	41,831

A reconciliation of the U.S. federal statutory tax rate to the Company’s effective income tax rate is as follows:

For the year ended December 31	2022		2021		2020
U.S. federal statutory tax rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	2.5		1.8		1.8
Non-U.S. local income taxes	3.8		2.5		3.2
U.S. permanent adjustments	1.4		1.1		0.1
Foreign permanent adjustments	(2.1)		0.3		—
Foreign rate differential	3.1		1.2		0.6
Net U.S. tax on non-U.S. earnings and foreign withholdings	3.5		2.1		1.2
Provision for/(resolution) of tax audits and contingencies, net	0.3		0.1		0.5
U.S. Pension Settlement - Release of Residual Tax Effect	(4.0)		—		—
Tax effect of non-deductible foreign exchange loss on intercompany loan	—		—		2.7
Impact of amended tax returns	(0.1)		(1.3)		—
Return to provision	(1.1)		(1.4)		(1.6)
Other adjustments	(1.4)		1.0		0.6
Effective income tax rate	26.9	%	28.4	%	30.1	%

The Company recorded a net tax benefit of $5.2 million for the release of the residual tax effects that were stranded within other comprehensive income related to the U.S. pension settlement. The residual tax effects were created as a result of the remeasurement of deferred tax assets and liabilities originally established in other comprehensive income in accordance with the Tax Cuts and Jobs Act lowering the U.S. corporate tax rate from 35% to 21% as of December 31, 2017.

The Company's subsidiary in Mexico has an intercompany loan payable in U.S. dollars. As a result of the weaker Mexican peso, the Company recorded a revaluation loss in 2020 which is not deductible under Mexican tax law, leading to a $3.8 million discrete tax charge.

The Company has operations which constitute a taxable presence in 18 countries outside of the United States. The Company is subject to audit in the U.S. and various foreign jurisdictions. Our open tax years for major jurisdictions generally range from 2014-2022.

During the periods reported, income outside of the U.S. was heavily concentrated within Brazil (34% tax rate), China (25% tax rate), and Mexico (30% tax rate). The foreign rate differential of these jurisdictions was partially offset by Switzerland (7.8% tax rate). As a result, the foreign income tax rate differential was primarily attributable to these tax rate differences.

On August 16th, 2022, The Inflation Reduction Act (“IRA”) was enacted, including various provisions which become effective for tax years beginning after December 31, 2022. Included within the IRA were provisions for a newly enacted Stock Repurchase Excise Tax, Corporate Alternative Minimum Tax, among others. None of the enacted provisions within the IRA are expected to have a material effect to the Company.

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

For the year ended December 31	U.S.				Non-U.S.
(in thousands)	2022		2021		2022		2021
Deferred tax assets:
Accounts receivable, net	$	436	$	428	$	1,300	$	1,378
Inventories	1,807		1,450		1,111		1,752
Incentive compensation	4,619		4,580		1,333		1,084
Property, plant, equipment and intangibles, net	—		—		1,892		4,339
Pension, post retirement benefits - non-current	9,141		12,912		—		—
Tax loss carryforwards	239		217		14,201		19,821
Tax credit carryforwards	2,635		4,643		—		—
Derivatives	—		468		—		—
Leases	7,597		1,658		—		—
Reserves	721		991		—		—
Deferred revenue	761		239		—		—
Other	47		329		1,707		1,791
Deferred tax assets before valuation allowance	28,003		27,915		21,544		30,165
Less: valuation allowance	(8)		(9)		(9,778)		(10,650)
Total deferred tax assets	$	27,995	$	27,906	$	11,766	$	19,515
Deferred tax liabilities:
Unrepatriated foreign earnings	$	5,827	$	6,308	$	—	$	—
Property, plant, equipment and intangibles, net	3,084		5,356		—		—
Basis difference in partner capital	2,161		2,466		—		—
Basis difference in investment	4,173		3,985		—		—
Derivatives	5,941		—		—		—
Leases	11,609		2,950		—		—
Deferred revenue	—		—		6,440		10,829
Other	—		—		419		602
Total deferred tax liabilities	32,795		21,065		6,859		11,431
Net deferred tax (liability)/asset	$	(4,800)	$	6,841	$	4,907	$	8,084

Deferred income tax assets, net of valuation allowances, are expected to be realized through the reversal of existing taxable temporary differences and future taxable income. In 2022, the Company recorded immaterial movements in its valuation allowance, which are included in Schedule II in Item 15.

As of December 31, 2022, the Company's net operating loss, capital loss and tax credit carryforwards were as follows:

(in thousands)	Expiration Period	Net Operating and Capital Loss Carryforwards		Tax Credit Carryforwards
Jurisdiction
U.S. Federal	2025 - 2040	$	—	$	2,792
U.S. State	2027 - 2041	3,973		402
U.S. State	Indefinite	—		—
Non-U.S.	2025 - 2030	9,094		—
Non-U.S.	Indefinite	37,008		—
Balance at end of year		$	50,075	$	3,194

The Company records the residual U.S. and foreign taxes on certain amounts of foreign earnings that have been targeted for repatriation to the U.S. These amounts are not considered to be indefinitely reinvested, and the Company accrued for the tax cost on these earnings to the extent they cannot be repatriated in a tax-free manner. The Company has targeted for repatriation $215.3 million of current year and prior year earnings of the Company’s foreign operations. If these earnings were distributed, the Company would be subject to foreign withholding taxes of $4.4 million and U.S. income taxes of $1.5 million which have already been recorded.

The accumulated undistributed earnings of the Company’s foreign operations not targeted for repatriation to the U.S. were approximately $201.6 million, and are intended to remain indefinitely invested in foreign operations.

No additional income taxes have been provided on the indefinitely invested foreign earnings at December 31, 2022. If these earnings were distributed, the Company could be subject to income taxes and additional foreign withholding taxes. Determining the amount of unrecognized deferred tax liability related to any additional outside basis difference in these entities is not practical due to the complexities of the hypothetical calculation.

The following table provides a reconciliation of the beginning and ending amount of unrecognized tax benefits. If recognized, $0.8 million would impact the effective tax rate at December 31, 2022:

(in thousands)	2022		2021		2020
Unrecognized tax benefits balance at January 1,	$	1,459	$	5,491	$	5,834
Increase in gross amounts of tax positions related to prior years	399		278		540
Decrease in gross amounts of tax positions related to prior years	(929)		(4,236)		(637)
Increase in gross amounts of tax positions related to current years	37		—		—
Decrease due to settlements with tax authorities	—		—		—
Decrease due to lapse in statute of limitations	—		(39)		(300)
Currency translation	(174)		(35)		54
Unrecognized tax benefits balance at December 31,	$	792	$	1,459	$	5,491

The Company recognizes interest and penalties related to unrecognized tax benefits within its global operations as a component of income tax expense. The Company recognized immaterial interest and penalties related to the unrecognized tax benefits noted above, for the years 2022, 2021 and 2020.