Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 13 - INCOME TAXES

Income/(loss) before income taxes from domestic and international jurisdictions is comprised of the following:

Year Ended December 31,	2022			2021
(Dollars in thousands)
Income (loss) before income taxes:
Domestic	$	(22,538	)	$	(44,129	)
Foreign		73,676			55,320
	$	51,138		$	11,191

The benefit/(provision) for income taxes is comprised of the following:

Year Ended December 31,	2022			2021
(Dollars in thousands)
Current taxes
Federal	$	(1,946	)	$	(67	)
State		(77	)		(99	)
Foreign		(21,345	)		(9,229	)
Total current taxes		(23,368	)		(9,395	)
Deferred taxes
Federal		275			711
State		—			—
Foreign		8,989			1,247
Total deferred taxes		9,264			1,958
Income tax provision	$	(14,104	)	$	(7,437	)

The following is a reconciliation of the U.S. federal tax rate to our effective income tax rate:

Year Ended December 31,	2022			2021
Statutory rate		21.0	%		21.0	%
State tax provisions, net of federal income tax benefit		1.7			(14.2	)
Tax credits		(26.4	)		(13.2	)
Foreign income taxes at rates other than the statutory rate		(19.9	)		(97.1	)
Valuation allowance		15.6			203.6
Changes in tax liabilities, net		4.9			(89.7	)
Share based compensation		3.4			10.9
Unremitted non-U.S. Earnings		2.0			3.6
US tax on non-US income		19.9			16.3
Non-deductible charges		4.1			22.3
Other		1.2			3.0
Effective income tax rate		27.5	%		66.5	%

Tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:

Year Ended December 31,	2022			2021
(Dollars in thousands)
Deferred income tax assets:
Accrued liabilities	$	7,220		$	4,964
Hedging and foreign currency gains (losses)		1,353			9,231
Deferred compensation		6,638			8,162
Inventory reserves		3,895			3,777
Net loss carryforwards and credits		48,774			40,747
Interest carryforwards		23,098			29,366
Intangibles, property, plant and equipment and other		7,865
Competent authority deferred tax assets and    other foreign timing differences		4,915			4,739
Other		946			1,143
Total before valuation allowance		104,704			102,129
Valuation allowance		(67,626	)		(69,388	)
Net deferred income tax assets		37,078			32,741
Deferred income tax liabilities:
Intangibles, property, plant and equipment and other					(4,408	)
Unremitted earnings		(5,359	)		(4,531	)
Deferred income tax liabilities		(5,359	)		(8,939	)
Net deferred income tax assets	$	31,719		$	23,802

The classification of our net deferred tax asset is shown below:

Year Ended December 31,	2022			2021
(Dollars in thousands)
Long-term deferred income tax assets	$	35,187		$	27,715
Long-term deferred income tax liabilities		(3,468	)		(3,913	)
Net deferred tax asset	$	31,719		$	23,802

As of December 31, 2022, we have cumulative tax effected Germany NOL carryforwards of $25.6 million that carryforward indefinitely and U.S. state NOL carryforwards of $11.5 million that expire in the years 2023 to 2043. Also, we have $13.9 million of U.S. tax credit carryforwards.

The Company continuously evaluates the realizability of our net deferred tax assets. As of December 31, 2022, substantially all our U.S. and certain German deferred tax assets, net of deferred tax liabilities, were subject to valuation allowances. If our financial results continue to improve, our assessment of the realization of our net deferred tax assets could result in the release of some or all the valuation allowances. Such a release would result in a material non-cash income tax benefit in the period of release and the recording of additional deferred tax assets. There is a reasonable possibility that within the next six to eighteen months, sufficient positive evidence becomes available to reach a conclusion that all or a significant portion of the valuation allowances against our U.S. net deferred tax assets would no longer be required.

The transition tax substantially eliminated the basis difference on foreign subsidiaries that existed previously for purposes of Accounting Standards Codification topic 740 (“ASC 740”). However, there are limited other taxes that could continue to apply such as foreign withholding and certain state taxes. Provisions are made for income tax liabilities on the undistributed earnings of non-U.S. subsidiaries.

A reconciliation of the beginning and ending amounts of uncertain tax positions is as follows:

Year Ended December 31,	2022			2021
(Dollars in thousands)
Beginning balance	$	16,362		$	31,858
Increases (decreases) due to foreign currency translations	$	(712	)		(1,192	)
Increases (decreases) as a result of positions    taken during:
Prior periods		10,580			(13,633	)
Current period		50			48
Settlements with taxing authorities					(719	)
Expiration of applicable statutes of limitation		(180	)
Ending balance	$	26,100		$	16,362

Our policy regarding interest and penalties related to uncertain tax positions is to record interest and penalties as an element of income tax expense. At the end of 2022 and 2021, the Company had liabilities of $6.2 million of potential interest and penalties associated with uncertain tax positions. Included in the unrecognized tax benefits is $3.1 million that, if recognized, would favorably affect our annual effective tax rate. Within the next 12-month period we expect a decrease in unrecognized tax benefits as uncertain tax positions begin to expire.

Income tax returns are filed in multiple jurisdictions and are subject to examination by tax authorities in various jurisdictions where the Company operates. The Company has open tax years from 2015 to 2021 with various significant tax jurisdictions, including ongoing tax audits in the U.S. for 2015 to 2018 and Germany for 2018 to 2019.

During the examination of our U.S. federal income tax return for tax years 2015-2018, the Internal Revenue Service (IRS) asserted that income earned by a foreign subsidiary from its Mexican branch operations should be categorized as foreign base company sales income (FBCSI) under Section 954(d) of the Internal Revenue Code and issued a Notice of Proposed Adjustment (“NOPA”). We believed that the proposed adjustment was without merit and contested the matter with the IRS administrative appeals office. The IRS administrative appeals office denied our position, however, the final assessment has not been received as of December 31, 2022. At this time, we do not intend to further pursue with litigation and as a result we have recorded the relevant income tax expense and liability, which is not significant.