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Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2022
Income Tax Disclosure [Abstract] |
Income Taxes | 15) Income Taxes A reconciliation of the Company’s effective tax rate to the U.S. federal statutory rate is as follows:
|  | Years Ended December 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
U.S. federal statutory tax rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 21.0 | %
Federal tax credits |  |  | (1.5 | ) |  |  | (0.7 | ) |  |  | (1.5 | )
State income taxes, net of credits and net of federal benefit |  |  | (0.3 | ) |  |  | 1.5 |  |  |  | 1.1 |
Effect of foreign operations taxed at various rates |  |  | (6.8 | ) |  |  | (4.5 | ) |  |  | (5.0 | )
Executive compensation |  |  | 1.5 |  |  |  | 0.9 |  |  |  | 1.1 |
Foreign derived intangible income deduction |  |  | (4.8 | ) |  |  | (1.7 | ) |  |  | (1.5 | )
Global intangible low taxed income, net of foreign tax credits |  |  | 3.6 |  |  |  | 0.5 |  |  |  | 0.9 |
Stock-based compensation |  |  | 0.3 |  |  |  | (0.5 | ) |  |  | (0.7 | )
Deferred tax asset valuation allowance |  |  | (0.4 | ) |  |  | (0.8 | ) |  |  | 0.6 |
Change in income tax reserves (including interest) |  |  | 0.8 |  |  |  | (0.6 | ) |  |  | — |
Withholding taxes on foreign dividends, net of foreign tax credits |  |  | 10.7 |  |  |  | 1.5 |  |  |  | 0.7 |
Other |  |  | (1.0 | ) |  |  | 0.4 |  |  |  | 0.5 |
|  |  | 23.1 | % |  |  | 17.1 | % |  |  | 17.2 | %
The components of income before income taxes and the related provision (benefit) for income taxes consist of the following:
|  | Years Ended December 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
Income before income taxes: |  |  |  |  |  |  |  |  |
United States |  | $ | (90 | ) |  | $ | 249 |  |  | $ | 132 |
Foreign |  |  | 523 |  |  |  | 416 |  |  |  | 291 |
|  | $ | 433 |  |  | $ | 665 |  |  | $ | 423 |
Current taxes: |  |  |  |  |  |  |  |  |
United States |  | $ | 40 |  |  | $ | 38 |  |  | $ | 29 |
State |  |  | 7 |  |  |  | 10 |  |  |  | 6 |
Foreign |  |  | 99 |  |  |  | 64 |  |  |  | 45 |
|  |  | 146 |  |  |  | 112 |  |  |  | 80 |
Deferred taxes: |  |  |  |  |  |  |  |  |
United States |  |  | (68 | ) |  |  | 5 |  |  |  | (8 | )
State and Foreign |  |  | 22 |  |  |  | (3 | ) |  |  | 1 |
|  |  | (46 | ) |  |  | 2 |  |  |  | (7 | )
Provision for income taxes |  | $ | 100 |  |  | $ | 114 |  |  | $ | 73 |
The significant components of the deferred tax assets and deferred tax liabilities are as follows:
|  | December 31, |
|  | 2022 |  |  | 2021 |
Deferred tax assets: |  |  |  |  |  |
Interest, loss, and credit carryforwards |  | $ | 224 |  |  | $ | 49 |
Inventory and warranty reserves |  |  | 50 |  |  |  | 37 |
Accrued expenses and other reserves |  |  | 22 |  |  |  | 16 |
Stock-based compensation |  |  | 3 |  |  |  | 4 |
Executive supplemental retirement benefits |  |  | 1 |  |  |  | 1 |
Capitalized research expenditures |  |  | 31 |  |  |  | — |
Loan costs |  |  | 9 |  |  |  | — |
Lease liability |  |  | 55 |  |  |  | 45 |
Other |  |  | 4 |  |  |  | 1 |
Total deferred tax assets |  | $ | 399 |  |  | $ | 153 |
Deferred tax liabilities: |  |  |  |  |  |
Acquired intangible assets and goodwill |  | $ | (781 | ) |  | $ | (137 | )
Depreciation and amortization |  |  | (62 | ) |  |  | (23 | )
Loan costs |  |  | — |  |  |  | (2 | )
Right-of-use asset |  |  | (55 | ) |  |  | (41 | )
Foreign withholding taxes |  |  | (56 | ) |  |  | (6 | )
Unrealized gain |  |  | (14 | ) |  |  | (2 | )
Total deferred tax liabilities |  |  | (968 | ) |  |  | (211 | )
Valuation allowance |  |  | (181 | ) |  |  | (26 | )
Net deferred tax liabilities |  | $ | (750 | ) |  | $ | (84 | )
As of December 31, 2022, the Company had U.S. federal and state as well as foreign gross research and other tax credit carryforwards of $42. Included in the total carryforwards are $12 of credits that can be carried forward indefinitely while the remaining credits expire at various dates through 2036. The Company also had U.S. federal and state as well as foreign gross net operating loss and capital loss carryforwards of $370. Included in the total carryforwards are $52 of losses that can be carried forward indefinitely while the remaining losses expire at various dates through 2039. The Company has $444 of foreign interest carryforwards that can be carried forward indefinitely. Although the Company believes that its tax positions are consistent with applicable U.S. federal, state and international laws, it maintains certain income tax reserves as of December 31, 2022 in the event its tax positions were to be challenged by the applicable tax authority and additional tax assessed upon audit. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and penalties, is as follows:
|  | Years Ended December 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
Balance at beginning of year |  | $ | 43 |  |  | $ | 47 |  |  | $ | 44 |
Increases for tax positions taken during prior years |  |  | 35 |  |  |  | — |  |  |  | 1 |
Increases for tax positions taken during the current year |  |  | 9 |  |  |  | 2 |  |  |  | 6 |
Reductions related to expiration of statutes of limitations and audit settlements |  |  | (4 | ) |  |  | (6 | ) |  |  | (4 | )
Balance at end of year |  | $ | 83 |  |  | $ | 43 |  |  | $ | 47 |
The net increase in gross unrecognized tax benefits during 2022, particularly the increases for tax positions taken during prior years, was primarily attributable to the addition of historical gross unrecognized tax benefits of Atotech as a result of the Atotech Acquisition. The Company accrues interest and, if applicable, penalties for any uncertain tax positions. Interest and penalties are classified as a component of income tax expense. As of December 31, 2022, 2021 and 2020, the Company accrued interest on unrecognized tax benefits of approximately $6, $1 and $1, respectively. Over the next 12 months, it is reasonably possible that the Company may recognize approximately $3 of previously net unrecognized tax benefits, excluding interest and penalties, related to various U.S. federal and state as well as foreign tax positions, primarily due to the expiration of statutes of limitations. The Company is subject to examination by U.S. federal and state as well as foreign tax authorities. The U.S. federal statute of limitations remains open for tax years 2018 through the present. The statute of limitations for the Company’s tax filings in other jurisdictions varies between fiscal years 2015 through present. The Company also has certain U.S. federal and state as well as foreign tax loss and credit carryforwards that are open to examination. In addition, the 2017 U.S. federal transition tax remains open for examination. On a quarterly basis, the Company evaluates both positive and negative evidence that affects the realizability of its net deferred tax assets and assesses the need for a valuation allowance. The future benefit to be derived from its deferred tax assets is dependent upon its ability to generate sufficient future taxable income to realize the assets. During 2022, the Company increased its valuation allowance by $155, primarily related to the valuation allowance recorded in connection with foreign interest and net operating loss carryforwards associated with the Atotech Acquisition. During 2021, the Company decreased its valuation allowance by $4. This decrease was primarily related to the release of the valuation allowance on its Austrian entities. During 2020, the Company increased its valuation allowance by $3. This increase was primarily related to certain foreign net operating loss carry-forward amounts. Deferred taxes have been recorded related to historical outside basis differences, primarily unremitted earnings, of certain of the Company’s foreign subsidiaries. During 2022, the Company recorded a tax provision of $33 related to such taxes for prior periods. The Company has a tax incentive in Singapore with benefits of approximately $0.05 ($0.01 per share) in 2022 and $0.4 ($0.01 per share) in 2021. The tax incentive in Singapore expires in June 2026.

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