Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of Income from continuing operations before income taxes and Income taxes follow:

	2023		2022		2021
Income from continuing operations before income taxes:
U.S.	$	(61,688)	$	(53,088)	$	(28,832)
International	94,952		91,273		156,649
Income from continuing operations before income taxes	$	33,264	$	38,185	$	127,817
Income tax provision:
Current:
U.S. – federal	$	535	$	276	$	4,733
U.S. – state	972		778		1,009
International	21,875		29,374		38,609
	23,382		30,428		44,351
Deferred:
U.S. – federal	$	(407)	$	(790)	$	(6,800)
U.S. – state	(58)		(579)		(1,051)
International	(5,649)		(4,353)		(8,556)
	(6,114)		(5,722)		(16,407)
Income taxes	$	17,268	$	24,706	$	27,944

In 2021, the Company had a deferred tax liability for foreign withholding taxes of $185 on $3,501 of undistributed earnings on its international subsidiaries earned before 2017. In 2022, the Company removed the deferred tax liability as any related foreign withholding tax has been paid and all other undistributed earnings have been considered indefinitely reinvested. All remaining earnings are considered indefinitely reinvested as defined per the indefinite reversal criterion within the accounting guidance for income taxes. If the earnings were distributed in the form of dividends, the Company would not be subject to U.S. Tax but could be subject to foreign income and withholding taxes. Determination of the amount of this unrecognized deferred income tax liability is not practicable. The Company did not repatriate any dividends to the U.S. from accumulated foreign earnings in 2023. On December 31, 2023, the Company's unremitted foreign earnings were approximately $1,835,000.

Deferred income tax assets and liabilities at December 31 consist of the tax effects of temporary differences related to the following:

	2023		2022
Deferred tax assets:
Pension	$	3,578	$	11,505
Tax loss carryforwards	24,277		10,970
Inventory valuation	10,363		8,015
Other postretirement/postemployment costs	5,073		7,715
Accrued compensation	11,631		7,430
Goodwill	6,313		8,981
Lease obligation	13,052		8,493
Other	55,248		17,310
Valuation allowance	(41,625)		(6,456)
Total deferred tax assets	87,910		73,963
Deferred tax liabilities:
Depreciation and amortization	(130,227)		(81,409)
Goodwill	(41,313)		(9,899)
Swedish tax incentive	(7,105)		(7,196)
Right of use liability	(14,355)		(8,456)
Other	(5,223)		(11,537)
Total deferred tax liabilities	(198,223)		(118,497)
Net deferred tax liabilities	$	(110,313)	$	(44,534)

Amounts related to deferred taxes in the balance sheets as of December 31, 2023 and 2022 are presented as follows:

	2023		2022
Non-current deferred tax assets	$	10,295	$	18,028
Non-current deferred tax liabilities	(120,608)		(62,562)
Net deferred tax liabilities	$	(110,313)	$	(44,534)

The standards related to accounting for income taxes require that deferred tax assets be reduced by a valuation allowance if, based on all available evidence, it is more likely than not that the deferred tax asset will not be realized. Available evidence includes the reversal of existing taxable temporary differences, future taxable income exclusive of temporary differences, taxable income in carryback years and tax planning strategies.

The realization of these assets is dependent in part on the amount and timing of future taxable income in the jurisdictions where deferred tax assets reside. As of December 31, 2023, the Company has gross tax loss carryforwards of $85,716; $47,918 which relates to U.S tax loss carryforwards which have carryforward periods up to 20 years for federal purposes and ranging from one to 20 years for state purposes; $2,599 of which relates to international tax loss carryforwards with carryforward periods ranging from one to 20 years; and $35,198 of which relates to international tax loss carryforwards with unlimited carryforward periods. In addition, the Company has tax credit carryforwards of $417 with remaining carryforward periods ranging from one to five years. Currently the Company has a valuation allowance of $13,353 and $366 related to loss carryforwards and credit carryforwards, respectively, as it believes it is more likely than not that future income will not be earned to timely utilize certain net operating losses or credit carryforwards which have expiration dates. As the ultimate realization of the remaining net deferred tax assets is dependent upon future taxable income, if such future taxable income is not earned and it becomes necessary to recognize a valuation allowance, it could result in a material increase in the Company’s tax expense which could have a material adverse effect on the Company’s financial condition and results of operations.

In the second quarter of 2021, the Italian tax authorities released tax guidance related to the application of tax basis realignment rules for intangible property ("Realignment") which provides Italian taxpayers with the opportunity to step up the basis of goodwill and intangibles to their fair market value and amortize the step up over 18 years for tax purposes in exchange for paying a 3% tax on the step up, payable over a three years period. The Company opted to elect the Realignment in June 2021 and accordingly recorded a tax payable of $3,008 and a long-term tax payable of $6,016. The Company made its first required installment payment of $3,008 during the third quarter of 2021, reducing the long-term tax payable accordingly. The Company also recorded a deferred tax asset of $83,921 related to the Realignment. Accounting guidance requires that when a deferred tax asset is realigned for tax purposes, a corresponding revaluation reserve also be recorded. Under Italian tax rules, any dividends paid out of this revaluation reserve are subject to tax at a 24% rate. Accordingly, the Company recorded a deferred tax liability of $72,190 related to the potential 24% tax due on any dividends, paid out of the revaluation reserve. The deferred tax asset and liability balances have been presented on a net basis on the Consolidated Balance Sheets. The Company also recorded a one-time $2,707 benefit to the provision related to this election and related accounting. In December 2021, the Italian government increased the amortization period to 50 years but then reversed the period back to 10 years for the intangible component of the step up in 2022; however the change has no impact on the accounting for the transaction as reported above.

In October 2021, the Organisation for Economic Co-operation and Development ("OECD") announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large multinational corporations at a minimum rate of 15%. Subsequently multiple sets of administrative guidance have been issued. Many non-US tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in 2024 with the adoption of additional components in later years or announced their plans to enact legislation in future years. We are continuing to evaluate the impacts of enacted legislation and pending legislation to enact Pillar Two Model Rules in the non-US tax jurisdictions we operate in.

In August 2022, the U.S. government enacted tax legislation commonly referred to as the Inflation Reduction Act of 2022 (“IRA”) into law. The IRA will impose a 1% excise tax on the fair market value of certain stock repurchased by a public traded company after December 31, 2022 and restored and modified certain tax-related energy incentives. The Company does not anticipate a material impact on our business, financial condition, results of operations or cash flow as a result of this change.

Management is required to assess whether its valuation allowance analysis is affected by various components of tax law including future GILTI inclusions, changes to the deductibility of executive compensation and interest expense and changes to the NOL and FTC rules. The total valuation allowance as of December 31, 2023 was $41,625. Of this balance, $28,513 was recorded for carryforward items from the MB Aerospace acquisition, which primarily relate to disallowed interest and operating losses from this business with the remaining balance primarily consisting of $6,758 for allowances related to U.S. interest expense that is disallowed under Section 163(j) and $4,047 for net operating losses.

A reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate from continuing operations follows:

	2023		2022		2021
U.S. federal statutory income tax rate	21.0	%	21.0	%	21.0	%
Foreign operations taxed at different rates	13.9		0.6		0.1
Foreign losses without tax benefit	20.7		7.5		1.9
Italian goodwill & intangible realignment	—		—		(2.1)
Goodwill impairment	—		37.5		—
GILTI	9.8		12.0		2.3
Capitalized Transaction Costs	8.2		—		—
Tax holidays	(45.8)		(30.2)		(2.5)
Stock awards excess tax expense	2.8		3.3		0.4
Charge for change in valuation allowances	20.4		9.3		—
Tax Reserves and audits including MAP Approval	2.3		2.8		(1.5)
Adjustment to prior year's tax return	(3.8)		(2.2)		1.0
Foreign tax rate change	(0.1)		—		0.4
Other	2.5		3.1		0.9
Consolidated effective income tax rate	51.9	%	64.7	%	21.9	%

In 2019 and 2017, the Company recorded additional income taxes resulting from audits at certain subsidiaries in Germany. The Company filed applications with the Internal Revenue Service ("IRS") under the Mutual Aid Process ("MAP") to allow for offsetting positions within the US tax filings for the Germany-related adjustments. In 2021, the MAP applications were approved by the IRS. The Company recognized a tax benefit of $1,967 in 2021 to reflect the tax benefit realized as a result of the IRS approval.

Payment of the Transition Tax assessed is required over an eight-year period. The short-term portion of the Transition Tax payable, $17,371, has been included within Accrued Liabilities on the Consolidated Balance Sheet as of December 31, 2023. The long-term portion of the assessment, $21,714, is included as a Long-term tax liability on the Consolidated Balance Sheet and is payable in 2025.

The Aerospace and Industrial segments have a number of multi-year tax holidays in Singapore, China and Malaysia. Tax benefits of $15,233 ($0.30 per diluted share), $11,528 ($0.23 per diluted share) and $3,219 ($0.06 per diluted share) were realized in 2023, 2022 and 2021, respectively. These holidays are subject to the Company meeting certain commitments in the respective jurisdictions. Aerospace was granted an income tax holiday for operations recently established in Malaysia. This holiday commenced effective November 2020 (retroactively) and remains effective for a period of ten years. The China tax holiday was granted in 2021 and the holiday runs for a three year period which ended December 31, 2023. It is anticipated that the Company will re-apply for the holiday in 2024. The Aerospace business was granted additional tax holidays in Singapore under the Pioneer program in 2022. This holiday provides reduced tax rates for certain Aerospace programs manufactured at the Singapore location and will run through December 2025.

Income taxes paid globally, net of refunds, were $39,916, $49,639, and $58,324 in 2023, 2022 and 2021, respectively.

As of December 31, 2023, 2022 and 2021, the total amount of unrecognized tax benefits recorded in the consolidated balance sheet was $10,993, $8,250, and $8,671, respectively, which, if recognized, would have reduced the effective tax rate in prior years, with the exception of amounts related to acquisitions. A reconciliation of the unrecognized tax benefits for 2023, 2022 and 2021 follows:

	2023		2022		2021
Balance at January 1	$	8,250	$	8,671	$	9,156
Increase (decrease) in unrecognized tax benefits due to:
Tax positions taken during prior periods	—		—		—
Tax positions taken during the current period	637		873		637
Acquisition	2,950		—		—
Settlements	—		—		(70)
Lapse of the applicable statute of limitations	(790)		(1,171)		(1,218)
Foreign currency translation	(54)		(123)		166
Balance at December 31	$	10,993	$	8,250	$	8,671

The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense. The Company recognized interest and penalties as a component of income taxes of $(388), $(264), and $(93) in the years 2023, 2022 and 2021, respectively. The liability for unrecognized tax benefits includes gross accrued interest and penalties of $2,930, $3,318, and $3,582 at December 31, 2023, 2022 and 2021, respectively.

The Company or its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by various taxing authorities, including the IRS in the U.S. and the taxing authorities in other major jurisdictions including China, Germany, Singapore, Sweden and Switzerland. With a few exceptions, tax years remaining open to examination in significant foreign jurisdictions include tax years 2018 forward and for the U.S. include tax years 2016 and forward. The Company is undergoing a tax audit by the IRS for the 2016, 2017 and 2018 tax year. The Company is under a German tax audit for the Seeger business group for the years 2018 through 2019 and the first month of 2020. Pursuant to the sale and purchase agreement, the Company agreed to certain indemnifications for taxes assessed for audit periods related to the Seeger business. Refer to Note 2. The Company is also under German tax audits for the FOBOHA and Manner business groups for years 2019 and 2020 and under audit in Canada for tax years 2019 through 2021.