Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Provision for income taxes consisted of the following:

	Years ended December 31,
(in thousands)	2023		2022		2021
Income before income taxes:
U.S.	$	68,872	$	20,422	$	63,708
Non-U.S.	91,584		111,558		102,223
	$	160,456	$	131,980	$	165,931
Income tax expense/(benefit)
Current:
Federal	$	17,005	$	9,781	$	3,348
State	2,030		5,126		2,663
Non-U.S.	34,110		28,605		29,319
	$	53,145	$	43,512	$	35,330
Deferred:
Federal	$	(1,700)	$	(9,592)	$	9,911
State	863		(1,866)		(24)
Non-U.S.	(3,462)		3,418		1,946
	$	(4,299)	$	(8,040)	$	11,833
Total income tax expense	$	48,846	$	35,472	$	47,163

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

	Years ended December 31,
	2023		2022		2021
U.S. federal statutory tax rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	1.9		2.5		1.8
Non-U.S. local income taxes	1.4		3.8		2.5
U.S. permanent adjustments	0.8		1.4		1.1
Foreign permanent adjustments	0.7		(2.1)		0.3
Foreign rate differential	2.0		3.1		1.2
Net U.S. tax on non-U.S. earnings and foreign withholdings	5.1		3.5		2.1
Provision for/(resolution) of tax audits and contingencies, net	0.3		0.3		0.1
U.S. Pension Settlement - Release of Residual Tax Effect	—		(4.0)		—
Change in valuation allowances	(1.2)		(0.6)		0.6
Impact of amended tax returns	—		(0.1)		(1.3)
Return to provision	(1.2)		(1.1)		(1.4)
Other adjustments	(0.4)		(0.8)		0.4
Effective income tax rate	30.4	%	26.9	%	28.4	%

In 2022, 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 percent to 21 percent as of December 31, 2017. No similar charges were incurred during 2023.

The Company has operations which constitute a taxable presence in 22 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 2009-2023. We believe appropriate provisions for all outstanding tax issues have been made for all jurisdictions and all open years.

During the periods reported, income outside of the U.S. was heavily concentrated within Brazil (34 percent tax rate), China (25 percent tax rate), and Mexico (30 percent tax rate). The foreign rate differential of these jurisdictions was partially offset by Switzerland (15.2 percent tax rate). As a result, the foreign income tax rate differential was primarily attributable to these tax rate differences. Cash payments for taxes amounted to $54.5 million in 2023, $50.0 million in 2022, and $32.5 million in 2021.

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)	2023		2022		2023		2022
Deferred tax assets:
Accounts receivable, net	$	528	$	436	$	1,489	$	1,300
Inventories	1,608		1,807		1,429		1,111
Incentive compensation	5,843		4,619		1,162		1,333
Property, plant, equipment and intangibles, net	—		—		—		1,892
Pension, post retirement benefits - non-current	6,939		9,141		4,899		—
Tax loss carryforwards	110		239		29,811		14,201
Tax credit carryforwards	3,167		2,635		19		—
Leases	8,685		7,597		2,463		611
Reserves	877		721		—		—
Deferred revenue	244		761		—		—
Other	—		47		1,050		1,707
Deferred tax assets before valuation allowance	28,001		28,003		42,322		22,155
Less: valuation allowance	(118)		(8)		(9,730)		(9,778)
Total deferred tax assets	$	27,883	$	27,995	$	32,592	$	12,377
Deferred tax liabilities:
Unrepatriated foreign earnings	$	4,270	$	5,827	$	—	$	—
Property, plant, equipment and intangibles, net	8,433		3,084		19,000		—
Basis difference in partner capital	1,719		2,161		—		—
Basis difference in investment	4,192		4,173		—		—
Derivatives	3,009		5,941		109		—
Leases	8,091		11,609		2,331		515
Deferred revenue	—		—		9,843		6,440
Other	117		—		—		515
Total deferred tax liabilities	29,831		32,795		31,283		7,470
Net deferred tax (liability)/asset	$	(1,948)	$	(4,800)	$	1,309	$	4,907

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 2023, the Company recorded immaterial movements in its valuation allowance, which are included in Schedule II in Item 15, Exhibits and Financial Statement Schedules, of this Annual Report on Form 10-K.

As of December 31, 2023, 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	$	—	$	2,626
U.S. State	2027 - 2042	1,889		541
Non-U.S.	2025 - 2033	12,983		—
Non-U.S.	Indefinite	115,787		—
Balance at end of year		$	130,659	$	3,167

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 $160.8 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 $3.6 million and U.S. income taxes of $0.6 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 $154.8 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, 2023. 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, the $2.7 million would impact the effective tax rate as of December 31, 2023 as follows:

(in thousands)	2023		2022		2021
Unrecognized tax benefits balance at January 1,	$	792	$	1,459	$	5,491
Increase in gross amounts of tax positions related to prior years	2,373		399		278
Decrease in gross amounts of tax positions related to prior years	—		(929)		(4,236)
Increase in gross amounts of tax positions related to current years	196		37		—
Decrease due to lapse in statute of limitations	(656)		—		(39)
Currency translation	36		(174)		(35)
Unrecognized tax benefits balance at December 31,	$	2,741	$	792	$	1,459

Of the $2.7 million total unrecognized tax benefits balance as of December 31, 2023, $1.3 million is related to unrecognized tax benefits acquired in the Heimbach acquisition.

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 $0.5 million, $0.1 million and $0.1 million interest and penalties related to the unrecognized tax benefits noted above, for the years 2023, 2022 and 2021, respectively. It is reasonably possible that within the next 12 months, unrecognized tax benefits related to international tax matters may decrease by up to $0.7 million based on current estimates.