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INCOME TAXES | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Income before income taxes consisted of the following:
| Years Ended December 31,
Dollars in thousands | 2023 |  | 2022 |  | 2021
United States operations | $ | (31,649) |  |  | $ | 92,642 |  |  | $ | 91,150 |
Foreign operations | 112,718 |  |  | 121,252 |  |  | 123,527 |
Total | $ | 81,069 |  |  | $ | 213,894 |  |  | $ | 214,677 |
A reconciliation of the U.S. Federal statutory rate to the Company’s effective tax rate is as follows:
| Years Ended December 31,
| 2023 |  | 2022 |  | 2021
Federal statutory rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Increase (decrease) in income taxes resulting from: |  |  |  |  |
State income taxes, net of federal tax benefit | 2.9 | % |  | 0.1 | % |  | 1.9 | %
Benefit derived from foreign operations | (17.2) | % |  | (1.6) | % |  | (3.3) | %
Nondeductible meals and entertainment | 1.1 | % |  | 0.1 | % |  | 0.1 | %
Intercompany profit in inventory | 3.3 | % |  | 0.3 | % |  | (0.2) | %
Research and development credit | (5.7) | % |  | (1.4) | % |  | (1.2) | %
Nondeductible executive compensation & stock compensation shortfall | 2.3 | % |  | (0.6) | % |  | (0.3) | %
Transaction and deal related costs | 3.3 | % |  | (1.8) | % |  | 0.1 | %
Gain from sale of business - book to tax differences | — | % |  | — | % |  | 3.9 | %
Changes in valuation allowances | 4.9 | % |  | — | % |  | 0.1 | %
Other | 0.5 | % |  | (0.5) | % |  | (0.9) | %
Effective tax rate | 16.4 | % |  | 15.6 | % |  | 21.2 | %
Our effective tax rate was 16.4% and 15.6% of income before income taxes for the years ended December 31, 2023 and December 31, 2022, respectively. In 2023, the Company’s higher effective tax rate was driven by the the inclusion of Global Intangible Low-Taxed Income ("GILTI"), offset by a $5.8 million income tax benefit related to a four-year tax credit received by a Swiss subsidiary. The Company received an extension of the 2018 Swiss tax grant for three years, until the 2027 tax year. The net benefit of the tax credit, recorded as of December 31, 2023, was based on projections of use of the incremental tax grant. The Company’s Swiss subsidiary may offset the tax credit against cantonal and communal income and capital taxes during tax years 2024 through 2027. Any unused balance at the end of the 2027 tax period will be forfeited. 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. During 2023, the Company’s foreign operations generated a $0.7 million decrease in income tax expense when compared to the same period in 2022, because of geographic and business mix of taxable earnings and losses, among other factors. The 2023 foreign effective tax rate is 16.4%, compared to 15.9% in 2022. 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. 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, for which the company did not experience a material impact on the company’s effective tax rate. Further, legislation in foreign jurisdictions may be enacted, in continued response to the base erosion and profit-sharing (BEPS) project begun by the Organization for Economic Cooperation and Development (OECD). The OECD released model rules related to a new 15% global minimum tax regime (“Pillar 2”). Several of the jurisdictions that we operate in have already adopted some form of the model rules, which could impact the amount of taxes that the Company pays after 2023. However, the rules are complex and provide for delays during the early transition years, if certain conditions are met. The Company will continue to analyze the law to determine potential impacts. At this time, the Company does not expect the Pillar 2 legislation to have a material impact on its consolidated financial statements. 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 | 2023 |  | 2022 |  | 2021
Current: |  |  |  |  |
Federal | $ | 10,973 |  |  | $ | 24,201 |  |  | $ | 31,938 |
State | 2,851 |  |  | 3,835 |  |  | 11,377 |
Foreign | 11,389 |  |  | 9,893 |  |  | 5,042 |
Total current | $ | 25,213 |  |  | $ | 37,929 |  |  | $ | 48,357 |
Deferred: |  |  |  |  |
Federal | (19,060) |  |  | (11,591) |  |  | (12,830) |
State | 93 |  |  | (2,316) |  |  | (3,688) |
Foreign | 7,082 |  |  | 9,322 |  |  | 13,763 |
Total deferred | $ | (11,885) |  |  | $ | (4,585) |  |  | $ | (2,755) |
Provision for income taxes | $ | 13,328 |  |  | $ | 33,344 |  |  | $ | 45,602 |
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 | 2023 |  | 2022
Assets: |  |  |
Doubtful accounts | $ | 2,581 |  |  | $ | 2,261 |
Inventory related items | 41,466 |  |  | 31,950 |
Tax credits | 18,859 |  |  | 13,084 |
Accrued vacation | 2,184 |  |  | 2,175 |
Accrued bonus | 4,259 |  |  | 4,944 |
Stock compensation | 9,117 |  |  | 10,175 |
Deferred revenue | 1,849 |  |  | 2,130 |
Net operating loss carryforwards | 28,799 |  |  | 30,707 |
Capitalization of research and development expenses | 61,138 |  |  | 51,542 |
Unrealized foreign exchange gain | 13,907 |  |  | 6,228 |
Charitable contributions carryforward | 206 |  |  | 180 |
Leases and Other | 55,271 |  |  | 55,228 |
Total deferred tax assets | 239,636 |  |  | 210,604 |
Less valuation allowance | (12,486) |  |  | (9,651) |
Deferred tax assets after valuation allowance | $ | 227,150 |  |  | $ | 200,953 |
Liabilities: |  |  |
Intangible and fixed assets | (168,229) |  |  | (166,891) |
Unrealized foreign exchange loss | (10,024) |  |  | (12,991) |
Leases and Other | (38,134) |  |  | (38,415) |
Total deferred tax liabilities | $ | (216,387) |  |  | $ | (218,297) |
Total net deferred tax assets (liabilities) | $ | 10,763 |  |  | $ | (17,344) |
Prior period amounts were re-classed, as it relates to Leases and Other, between tax assets and liabilities within this table, to conform to the current period presentation. 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 $14.4 million and $20.3 million at December 31, 2023 and December 31, 2022 respectively within the table above, related to the 2017 Tax Act. At December 31, 2023, the Company had net operating loss carryforwards of $64.7 million for federal income tax purposes, $98.4 million for foreign income tax purposes and $19.2 million for state income tax purposes to offset future taxable income. For the federal net operating loss carryforwards, $55.8 million will expire through 2037; while $8.9 million have an indefinite carry forward period. For foreign net operating loss carryforwards, $81.0 million will expire through 2028, while the remaining $17.4 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, 2023 increased by $2.8 million, as compared to 2022, primarily driven by a $3.3 million increase related to the new Swiss tax credit. The valuation allowance for 2022 had remained substantially unchanged, as compared to 2021.
| 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, 2023 |  |  |  |  |  |  |  |  |
Deferred tax assets valuation allowance | 14,672 |  |  | 3,069 |  |  | 26 |  |  | 56 |  |  | 17,823 |
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 |
As of December 31, 2023, 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 | 2023 |  | 2022 |  | 2021
| (In thousands)
Balance, beginning of year | $ | 713 |  |  | $ | 676 |  |  | $ | 702 |
Gross increases: |  |  |  |  |
Current year tax positions | — |  |  | 37 |  |  | — |
Prior years' tax positions | 372 |  |  | — |  |  | — |
Lapse of statute | (273) |  |  | — |  |  | — |
Other | — |  |  | — |  |  | (26) |
Balance, end of year | $ | 812 |  |  | $ | 713 |  |  | $ | 676 |
Approximately $0.8 million of the balance at December 31, 2023 relates to uncertain tax positions that, if recognized, would affect the annual effective tax rate. The Company has no uncertain tax positions at December 31, 2023 related to tax positions for which it is reasonably possible that the amounts could be reduced during the twelve months following December 31, 2023. The Company recognizes interest and penalties relating to uncertain tax positions in income tax expense. The Company recognized a minimal expense for the years ended December 31, 2023, 2022 and 2021. The Company had minimal interest and penalties accrued for the years ended December 31, 2023 and 2022 and 2021. 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 2017. All significant state and local matters have been concluded through fiscal year 2018. All significant foreign matters have been settled through fiscal 2017.

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