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INCOME TAXES | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Income before income taxes consisted of the following:
| Years Ended December 31,
Dollars in thousands | 2022 |  | 2021 |  | 2020
United States operations | $ | 92,642 |  |  | $ | 91,150 |  |  | $ | 15,082 |
Foreign operations | 121,252 |  |  | 123,527 |  |  | 78,438 |
Total | $ | 213,894 |  |  | $ | 214,677 |  |  | $ | 93,520 |
A reconciliation of the U.S. Federal statutory rate to the Company’s effective tax rate is as follows:
| Years Ended December 31,
| 2022 |  | 2021 |  | 2020
Federal statutory rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Increase (decrease) in income taxes resulting from: |  |  |  |  |
State income taxes, net of federal tax benefit | 0.1 | % |  | 1.9 | % |  | 1.2 | %
Foreign operations | (3.9) | % |  | (4.0) | % |  | (7.9) | %
Excess tax benefits from stock compensation | (2.4) | % |  | (1.2) | % |  | (1.0) | %
Intercompany profit in inventory | 0.3 | % |  | (0.2) | % |  | 1.2 | %
Nondeductible facilitative costs | 0.2 | % |  | 0.3 | % |  | 1.1 | %
Contingent Consideration | (2.0) | % |  | (0.2) | % |  | 0.2 | %
Research and development credit | (1.4) | % |  | (1.2) | % |  | (1.6) | %
Return to provision | (0.5) | % |  | (0.7) | % |  | (2.3) | %
Global intangible low-taxed income ("GILTI") | 2.8 | % |  | 0.7 | % |  | 2.5 | %
Nondeductible executive compensation | 1.8 | % |  | 0.9 | % |  | 2.4 | %
Fair market value step up on intra-entity transfer of intellectual property | — | % |  | — | % |  | (63.3) | %
Gain from sale of business - book to tax differences | — | % |  | 3.9 | % |  | 2.8 | %
Other | (0.4) | % |  | — | % |  | 0.5 | %
Effective tax rate | 15.6 | % |  | 21.2 | % |  | (43.2) | %
Our effective tax rate was 15.6% and 21.2% of income before income taxes for the years ended December 31, 2022 and December 31, 2021, respectively. In 2022, the Company’s lower effective tax rate was driven by a $5.1 million income tax benefit related to stock compensation and a $2.4 million income tax benefit related to the filing of amended federal and state returns for prior years. In 2021, the Company's higher effective tax rate was driven in part by an $8.5 million income tax expense for nondeductible goodwill related to the sale of the Extremity Orthopedics business, offset by a $3.1 million income tax benefit related to excess tax benefits from stock compensation. In 2020, the Company’s lower worldwide effective tax rate was primarily driven by an $59.2 million income tax benefit on an intra-entity transfer of certain intellectual property, substantially completed during the fourth quarter in 2020. Excluding this transaction, the effective worldwide tax rate for 2020 was 20.2%. In December 2020, the Company completed an intra-entity transfer of certain intellectual property rights to one of its subsidiaries in Switzerland. While the transfer did not result in a taxable gain, the Company’s Swiss subsidiary received a step-up in tax basis based on the fair value of the transferred intellectual property rights. The Company determined the fair value using a discounted cash flow model based on expectations of revenue growth rates, royalty rates, discount rates, and useful lives of the intellectual property. The Co mpany recorded a $59.2 million deferred tax benefit in Switzerland related to the amortizable tax basis in the transferred intellectual property. During 2022, the Company’s foreign operations generated a $0.4 million increase in income tax expense when compared to the same period in 2021, because of geographic and business mix of taxable earnings and losses, among other factors. The 2022 foreign effective tax rate is 15.9%, compared to 15.2% in 2021. The Company’s foreign tax rate is primarily based upon statutory rates. During 2021, the Company’s foreign operations generated a $63.6 million increase in income tax expense when compared to the same period in 2020, because of the intra-entity transfer of certain intellectual property in 2020, geographic and business mix of taxable earnings and losses, among other factors. The 2021 foreign effective tax rate is 15.2%, compared to (57.1)% in 2020. The Company’s foreign tax rate is primarily based upon statutory rates and is also impacted by the intra-entity transfer of certain intellectual property as described above for 2020. Changes to income tax laws and regulations, in any of the tax jurisdictions in which the Company operates, could impact the effective tax rate. Various governments, both U.S. and non-U.S., are increasingly focused on tax reform and revenue-raising legislation. On August 16, 2022, the Inflation Reduction Act of 2022 (the “Act”) was signed into law, the company does not expect the law to have a material impact on the company’s effective tax rate. Further, legislation in foreign jurisdictions may be enacted, in response to the base erosion and profit-sharing (BEPS) project begun by the Organization for Economic Cooperation and Development (OECD). The OECD recently finalized major reform of the international tax system with respect to implementing a global minimum tax rate. Such changes in U.S. and Non-U.S. jurisdictions could have an adverse effect on the Company’s effective tax rate. The provision for income taxes consisted of the following:
| Years Ended December 31,
Dollars in thousands | 2022 |  | 2021 |  | 2020
Current: |  |  |  |  |
Federal | $ | 24,201 |  |  | $ | 31,938 |  |  | $ | 6,184 |
State | 3,835 |  |  | 11,377 |  |  | 5,029 |
Foreign | 9,893 |  |  | 5,042 |  |  | 12,553 |
Total current | $ | 37,929 |  |  | $ | 48,357 |  |  | $ | 23,766 |
Deferred: |  |  |  |  |
Federal | (11,591) |  |  | (12,830) |  |  | (5,079) |
State | (2,316) |  |  | (3,688) |  |  | (1,760) |
Foreign | 9,322 |  |  | 13,763 |  |  | (57,299) |
Total deferred | $ | (4,585) |  |  | $ | (2,755) |  |  | $ | (64,138) |
Provision for income taxes | $ | 33,344 |  |  | $ | 45,602 |  |  | $ | (40,372) |
The income tax effects of significant temporary differences that give rise to deferred tax assets and liabilities, shown before jurisdictional netting, are presented below:
| December 31,
Dollars in thousands | 2022 |  | 2021
Assets: |  |  |
Doubtful accounts | $ | 2,261 |  |  | $ | 2,029 |
Inventory related items | 31,950 |  |  | 31,841 |
Tax credits | 13,084 |  |  | 13,319 |
Accrued vacation | 2,175 |  |  | 3,042 |
Accrued bonus | 4,944 |  |  | 7,415 |
Stock compensation | 10,175 |  |  | 13,955 |
Deferred revenue | 2,130 |  |  | 1,742 |
Net operating loss carryforwards | 30,707 |  |  | 26,198 |
Capitalization of research and development expenses | 51,542 |  |  | 36,770 |
Unrealized foreign exchange gain | 6,228 |  |  | 12,849 |
Charitable contributions carryforward | 180 |  |  | 206 |
Leases and Other | 39,788 |  |  | 41,371 |
Total deferred tax assets | 195,164 |  |  | 190,737 |
Less valuation allowance | (9,651) |  |  | (9,767) |
Deferred tax assets after valuation allowance | $ | 185,513 |  |  | $ | 180,970 |
Liabilities: |  |  |
Intangible and fixed assets | (166,891) |  |  | (152,150) |
Unrealized foreign exchange loss | (12,991) |  |  | — |
Leases and Other | (22,975) |  |  | (17,658) |
Total deferred tax liabilities | $ | (202,857) |  |  | $ | (169,808) |
Total net deferred tax assets (liabilities) | $ | (17,344) |  |  | $ | 11,162 |
The 2017 U.S. Tax Cuts and Jobs Act contained a provision which requires, for tax purposes, the capitalization and amortization of research and development expenses; effective for years beginning after December 31, 2021. The Company’s deferred tax assets increased by $20.2 million within the table above, related to the 2017 Tax Act. At December 31, 2022, the Company had net operating loss carryforwards of $79.5 million for federal income tax purposes, $75.5 million for foreign income tax purposes and $37.9 million for state income tax purposes to offset future taxable income. The majority of the federal net operating loss carryforwards expire through 2037, while $18.6 million have an indefinite carry forward period. For foreign net operating loss carryforwards, $59.1 million will expire through 2028, while the remaining $16.4 million have an indefinite carry forward period. The state net operating loss carryforwards expire through 2036. The valuation allowance relates to deferred tax assets for certain items that will be deductible for income tax purposes under very limited circumstances and for which the Company believes it will not satisfy the more likely than not threshold for realization of the associated tax benefit. In the event that the Company determines that it would be able to realize more or less than the recorded amount of net deferred tax assets, an adjustment to the deferred tax asset valuation allowance would be recorded in the period such a determination is made. The valuation allowance at December 31, 2022 and 2021 primarily remained unchanged from respective prior periods; decreasing by an immaterial amount in both periods.
| Balance at Beginning of Period |  | Charged to Costs and Expenses |  | Other |  | Deductions |  | Balance at End of Period
Description |  |  |  |
Dollars in thousands |  |  |
Year ended December 31, 2022 |  |  |  |  |  |  |  |  |
Deferred tax assets valuation allowance | 15,258 |  |  | (515) |  |  |  |  | (71) |  |  | 14,672 |
Year ended December 31, 2021 |  |  |  |  |  |  |  |  |
Deferred tax assets valuation allowance | 13,825 |  |  | 1,444 |  |  | 89 |  |  | (100) |  |  | 15,258 |
Year ended December 31, 2020 |  |  |  |  |  |  |  |  |
Deferred tax assets valuation allowance | 12,069 |  |  | 1,617 |  |  | — |  |  | 139 |  |  | 13,825 |
As of December 31, 2022, the Company has not provided deferred income taxes on unrepatriated earnings from foreign subsidiaries as they are deemed to be indefinitely reinvested unless there is a manner under which to remit the earnings with no material tax cost. Material taxes would primarily be attributable to foreign withholding taxes and local income taxes when such earnings are distributed. The Company will repatriate foreign earnings when there is no need for reinvestment overseas and no material tax cost to bring the earnings back to the United States. Reinvestment considerations would include future acquisitions, transactions, and capital expenditure plans. A reconciliation of the beginning and ending amount of uncertain tax benefits is as follows:
| Years Ended December 31,
Dollars in thousands | 2022 |  | 2021 |  | 2020
| (In thousands)
Balance, beginning of year | $ | 676 |  |  | $ | 702 |  |  | $ | 676 |
Gross increases: |  |  |  |  |
Current year tax positions | 37 |  |  | — |  |  | — |
Prior years' tax positions | — |  |  | — |  |  | 26 |
Other | — |  |  | (26) |  |  | — |
Balance, end of year | $ | 713 |  |  | $ | 676 |  |  | $ | 702 |
Approximately $0.7 million of the balance at December 31, 2022 relates to uncertain tax positions that, if recognized, would affect the annual effective tax rate. The Company has $0.3 million of uncertain tax positions at December 31, 2022 related to tax positions for which it is reasonably possible that the amounts could be reduced during the twelve months following December 31, 2022. The Company recognizes interest and penalties relating to uncertain tax positions in income tax expense. The Company recognized a minimal benefit for the years ended December 31, 2022, 2021 and 2020. The Company had minimal interest and penalties accrued for the years ended December 31, 2022 and 2021 and 2020. The Company files Federal income tax returns, as well as multiple state, local and foreign jurisdiction tax returns. The Company is no longer subject to examinations of its U.S. consolidated Federal income tax returns by the IRS through fiscal year 2015. Additionally, the Company is no longer subject to examinations by the IRS for fiscal year 2017. All significant state and local matters have been concluded through fiscal year 2014. All significant foreign matters have been settled through fiscal 2015.

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