XML 37 R22.htm IDEA: XBRL DOCUMENT v3.24.0.1

INCOME TAXES

12 Months Ended

Dec. 31, 2023

INCOME TAXES

INCOME TAXES

15.INCOME TAXES

The Company is subject to United States federal, state, and local income taxes, as well as other foreign income taxes. The domestic and foreign components of its (loss) income before income taxes are as follows (in thousands):

​

​	​	​	​	​	​	​	​	​	​
​	​	Year Ended
​	​	December 31,
​		2023			2022			2021
(Loss) income before income taxes:		​			​			​
Domestic	​	$	(16,303)	​	$	2,574	​	$	(68,261)
Foreign	​		6,243	​		11,147	​		14,731
Total	​	$	(10,060)	​	$	13,721	​	$	(53,530)

​

Current and deferred income tax (benefit) expense is composed of the following (in thousands):

​

​	​	​	​	​	​	​	​	​	​
​	​	Year Ended
​	​	December 31,
​		2023			2022			2021
Current income tax expense:		​			​			​
Domestic	​	$	1,225	​	$	22,133	​	$	19,855
Foreign	​		788	​		1,084	​		991
Total current tax expense	​		2,013	​		23,217	​		20,846
Deferred income tax (benefit) expense:	​			​			​
Domestic	​		(9,965)	​		(6,020)	​		(1,912)
Foreign	​		280	​		2,218	​		(10,116)
Total deferred tax (benefit)	​		(9,685)	​		(3,802)	​		(12,028)
Total income tax (benefit) expense	​	$	(7,672)	​	$	19,415	​	$	8,818

​

The reconciliation of the statutory federal income tax rate with the Company’s effective income tax rate is as follows (% of (Loss) Income Before Income Taxes):

​

​	​	​	​	​	​	​	​	​	​
​		Year Ended		​	Year Ended		​	Year Ended
​		December 31, 2023		​	December 31, 2022		​	December 31, 2021
Federal statutory tax rate		21.0	%	​	21.0	%	​	21.0	%
Foreign rate differential		(5.6)	%	​	4.1	%	​	(1.4)	%
State income tax, net of federal benefit		14.0	%	​	14.0	%	​	(3.3)	%
Uncertain tax positions		101.7	%	​	2.1	%	​	(0.3)	%
Change in valuation allowance		(30.9)	%	​	—	%	​	23.8	%
GILTI (FDII)		(3.7)	%	​	(4.0)	%	​	0.8	%
Meals and entertainment		(3.1)	%	​	0.7	%	​	(0.2)	%
Foreign expenses not deductible for tax		(3.7)	%	​	3.2	%	​	(0.8)	%
Transaction costs not deductible for tax		—	%	​	18.8	%	​	(0.2)	%
Other non-deductible expense	​	(6.8)	%	​	—	%	​	—	%
Nondeductible stock compensation	​	(24.1)	%	​	67.3	%	​	(48.0)	%
Stock compensation shortfall (windfall)		(1.5)	%	​	1.2	%	​	—	%
Other compensation	​	(4.6)	%	​	—	%	​	(0.9)	%
Canadian branch income		1.3	%	​	8.8	%	​	(9.1)	%
Foreign tax restructuring	​	21.3	%	​	—	%	​	—	%
Other permanent items		0.9	%	​	4.3	%	​	2.1	%
​		76.2	%	​	141.5	%	​	(16.5)	%

​

The following table summarizes changes in the valuation allowance (in thousands):

​	​	​	​	​	​	​	​	​	​
​	​	Year Ended
​	​	December 31,
​		2023			2022			2021
Balance at January 1	​	$	—	​	$	—	​	$	(12,704)
Additions	​		3,114	​		—	​		—
Deductions	​	​	—	​	​	—	​	​	12,704
Balance at December 31	​	$	3,114	​	$	—	​	$	—

​

The Inflation Reduction Act (IRA) was passed into law on August 16, 2022. The key provisions from the IRA include the implementation of a 15% alternative book income minimum tax, an excise tax on stock buybacks, and significant tax incentives for energy and climate initiatives. The Company evaluated the key provisions under the IRA and concluded that the provisions are not applicable to Latham for year ended December 31, 2023.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the U.S. Tax Cuts and Jobs Act of 2017 (the “Act”). The Act made broad and complex changes to the U.S. tax code, including, but not limited to (1) reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, (2) bonus depreciation that allows for full expensing of qualified property, (3) interest expense deduction limitation rules, and (4) new international tax provisions including, but not limited to, GILTI and Foreign Derived Intangible Income (“FDII”). The Act also required companies to record/pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. The one-time transition tax was based on the Company’s total post-1986 earnings and profits (“E&P”) that were previously deferred for U.S. income tax purposes. The Company did not record a liability for the one-time transition tax for all of its foreign subsidiaries as the Company did not have aggregate E&P from those foreign subsidiaries.

During the year ended December 31, 2019, the Company finalized the computations of the income tax effects of the Act. Although the Company has completed its accounting for the effects of the Act, the determination of the Act’s income tax effects may change following future legislation or further interpretation of the Act based on the publication of recently proposed U.S. Treasury regulations and guidance from the Internal Revenue Service and state tax authorities. The Company has elected with respect to its treatment of GILTI to account for taxes on GILTI as incurred.

As of 2022, the Act's amendments to Section 174 no longer permitted an immediate deduction for research and development (R&D) expenditures, including those related to internally developed software, in the tax year that such costs are incurred. Instead, companies are required to capitalize and amortize all R&D expenditures and taxpayers are required to determine the proper amount of their Section 174 costs. The Company considered these requirements and recorded a deferred tax asset on the capitalization of the R&D expenditures.

In addition, the Act provides for a change to the interest deduction limitation (Section 163(j)) for tax years starting January 1, 2022, and later. Taxable income no is longer adjusted for depreciation, amortization, and depletion in arriving at adjusted taxable income ("ATI"), resulting in lower ATI and potentially a greater interest expense disallowance. The Company's interest expense deduction is limited in the current year and has established a deferred tax asset for the carry-forward balance.

The Coronavirus Aid, Relief, and Economic Security ("CARES") Act was passed into law on March 27, 2020 and included a provision to temporarily increased the bonus depreciation deduction from 80% to 100% for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023. The 100% bonus depreciation provision under the CARES Act expired on December 31, 2022 and as a result, the Company has reverted to the 80% bonus depreciation rate for qualified property acquired and placed in service during 2023.

Deferred Income Taxes

Deferred income taxes recognize the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the carrying amounts used for income tax purposes, and the

impact of available net operating loss (“NOL”) and tax credit carryforwards. These items are stated at the enacted tax rates that are expected to be in effect when taxes are actually paid or recovered.

​

Deferred income tax assets and liabilities recorded on the balance sheets as of December 31, 2023 and 2022 consist of the following (in thousands):

​

​	​	​	​	​	​	​
​		December 31,
​	​	2023			2022
Deferred tax assets:		​			​
Net operating loss carryforwards	​	$	6,715	​	$	7,267
Capital loss carryforwards	​	​	3,114	​	​	—
Inventories, net	​		3,234	​		2,663
Warranty reserve	​		595	​		783
Trade receivables	​		1,737	​		719
Profits interest units	​		2,581	​		1,885
Section 163(j)	​		2,345	​		—
Accrued expenses	​		509	​		352
Transaction costs	​		1,052	​		1,211
Future branch taxes	​	​	(1,691)	​	​	(1,820)
Other	​		2,082	​		1,335
Gross deferred tax assets	​		22,273	​		14,395
Valuation allowance	​		(3,114)	​		—
Total deferred tax asset	​		19,159	​		14,395
Less: Foreign deferred tax benefit	​		(7,485)	​		(7,762)
Total domestic deferred tax asset	​		11,674	​		6,633
Deferred tax liabilities:	​			​
Intangible assets	​		(45,150)	​		(49,257)
Property and equipment, net	​		(5,656)	​		(6,078)
Prepaid expenses and other	​		(644)	​		(1,161)
Investments in partnerships	​	​	(312)	​	​	(318)
Total deferred tax liabilities	​		(51,762)	​		(56,814)
Net deferred tax liabilities	​	$	(40,088)	​	$	(50,181)

​

ASC 740, Income Taxes, requires that the Company reduce its deferred income tax assets by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that all or a portion of a deferred tax asset will not be realized.

As of December 31, 2023, after consideration of all evidence, both positive and negative, management concluded that it is not more likely than not that it would be able to realize all of its deferred tax assets and that a valuation allowance of $3.1 million for the Company's capital loss carryforward deferred tax asset was necessary as of December 31, 2023. This deferred tax asset was previously presented net in the balance sheet with the Company's uncertain tax position liability. With the release of the Company's uncertain tax position liability during the fourth quarter of 2023, management concluded a valuation allowance was necessary for the capital loss carryforward. It is reasonably possible that the Company’s estimates of future taxable income may change within the next 12 months, resulting in a change to the valuation allowance in one or more jurisdictions.

As of December 31, 2023, the Company had net NOL carryforwards of approximately $6.7 million (tax effected), which will be available to offset future taxable income. The foreign NOL carryforwards expire in calendar years 2036 through 2040.

The Company reinvests earnings of foreign operations indefinitely and, accordingly, does not provide for income taxes that could result from the remittance of such earnings. The Company acknowledges that it would need to accrue and pay taxes should it decide to repatriate cash generated from earnings of its foreign subsidiaries that are considered indefinitely reinvested but expects that the potential tax liability would be insignificant.

Tax Uncertainties

The liability related to uncertain tax positions, exclusive of interest, was $6.4 million at December 31, 2022. As of December 31, 2023, the statute of limitations expired with respect to the Company’s 2019 U.S. Federal income tax return for which the uncertain tax position liability had been recorded. As a result of the expiration of the statute of limitations, the Company released the uncertain tax position liability with a corresponding net tax benefit of $7.5 million (a gross tax benefit of $10.6 million from the liability release offset by tax expense of $3.1 million from establishing a valuation allowance on an associated deferred tax asset) during the fourth fiscal quarter of 2023.

The Company is subject to income taxes in the U.S., certain states, and numerous foreign jurisdictions. While the Company believes it has adequately provided for all tax positions, amounts asserted by taxing authorities could be greater than its accrued position. Accordingly, additional provisions on federal and foreign tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved.

The Company files a federal consolidated tax return that includes all U.S. entities as well several combined/consolidated state tax returns and separate state tax returns. In addition, the Company files Canadian and Australian tax returns for its Canadian, Australian, and New Zealand entities. The Company is subject to the regular examination of our income tax returns by tax authorities. The Company does not have any federal audits in process. Examinations in material jurisdictions or changes in laws, rules, regulations, or interpretations by local taxing authorities could result in impacts to tax years open under statute or to foreign operating structures currently in place. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations or changes in laws, rules, regulations, or interpretations to determine the adequacy of our provision for taxes. It is possible the outcomes from these examinations will have a material adverse effect on our financial condition and operating results.

Tax years from the year ended December 31, 2020 through present are open for examination in the U.S. Tax years and tax periods ended December 31, 2019 through present are open for state examination. The Latham 2019 and 2020 Illinois returns are currently under examination by the state of Illinois. Tax years and tax periods from June 30, 2020 through present are currently open for examination in Canada. Tax years and tax periods from June 30, 2019 through present are currently open for examination in Australia. Tax years and tax periods from March 31, 2019 through present are currently open for examination in New Zealand.

​

The following is a reconciliation of the beginning and ending amount of uncertain tax positions (in thousands):

​

​	​	​	​	​	​	​
​	​	Year Ended
​	​	December 31,
​		2023			2022
Balance at the beginning of the year	​	$	10,303	​	$	10,011
Gross amounts of increases and decreases in unrecognized tax benefits as a result of tax positions taken during a prior period	​	​	379	​	​	—
Gross amounts of increases and decreases in unrecognized tax benefits as a result of tax positions taken during the current period	​	​	—	​	​	—
The amounts of decreases in the unrecognized tax benefits relating to settlements with taxing authorities	​		—	​		292
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations	​		(10,682)	​		—
Balance at the end of the year	​	$	—	​	$	10,303

​

X

- References

No definition available.

+ Details

Name:	us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix:	us-gaap_
Data Type:	xbrli:stringItemType
Balance Type:	na
Period Type:	duration

X

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Topic 946
-SubTopic 20
-Name Accounting Standards Codification
-Section 50
-Paragraph 13
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147480990/946-20-50-13

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Topic 235
-SubTopic 10
-Name Accounting Standards Codification
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08(h)(2))
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147480678/235-10-S99-1

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-Name Accounting Standards Codification
-Publisher FASB
-URI https://asc.fasb.org//740/tableOfContent

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 14
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147482685/740-10-50-14

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 21
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147482685/740-10-50-21

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-SubTopic 270
-Name Accounting Standards Codification
-Section 50
-Paragraph 1
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147482526/740-270-50-1

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 17
-Subparagraph (b)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147482685/740-10-50-17

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-SubTopic 10
-Name Accounting Standards Codification
-Section S99
-Paragraph 1
-Subparagraph (SAB TOPIC 6.I.5.Q1)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479360/740-10-S99-1

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-SubTopic 10
-Name Accounting Standards Codification
-Section S99
-Paragraph 2
-Subparagraph (SAB Topic 11.C)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479360/740-10-S99-2

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-SubTopic 30
-Name Accounting Standards Codification
-Section 50
-Paragraph 2
-Subparagraph (a)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147482603/740-30-50-2

+ Details

Name:	us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix:	us-gaap_
Data Type:	dtr-types:textBlockItemType
Balance Type:	na
Period Type:	duration