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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Taxes [Abstract]  
Income Taxes
11.
Income Taxes

Consolidated income before provision for income taxes consists of the following for the years ended December 31, 2022, 2021 and 2020 (U.S. dollars in thousands):

 
2022
    
2021
    
2020
  
U.S.
  
$
24,411
    
$
45,371
    
$
71,138
Foreign
    
64,559
      
187,088
      
185,094
  
Total
  
$
88,970
    
$
232,459
    
$
256,232
  

The provision for current and deferred taxes for the years ended December 31, 2022, 2021 and 2020 consists of the following (U.S. dollars in thousands):

 
2022
    
2021
    
2020
  
Current
                  
Federal
  
$
—
    
$
—
    
$
—
  
State
    
1,515
      
1,458
      
1,629
  
Foreign
    
34,117
      
77,393
      
77,079
  
     
35,632
      
78,851
      
78,708
  
Deferred
                        
Federal
    
(65,733
)
    
3,705
      
(14,430
)
State
    
(1,239
)
    
(38
)
    
(563
)
Foreign
    
15,532
      
2,675
      
1,162
  
     
(51,440
)
    
6,342
      
(13,831
)
Provision for income taxes
  
$
(15,808
)
  
$
85,193
    
$
64,877
  

The principal components of deferred taxes are as follows (U.S. dollars in thousands):

 
Year Ended December 31,
  
   
2022
    
2021
  
Deferred tax assets:
            
Inventory differences
  
$
41,127
    
$
5,859
  
Foreign tax credit and other foreign benefits
    
51,273
      
69,401
  
Stock-based compensation
    
5,981
      
9,392
  
Accrued expenses not deductible until paid
    
37,181
      
36,401
  
Foreign currency exchange
    
—
      
605
  
Net operating losses
    
12,773
      
9,479
  
Capitalized research and development
    
26,406
      
22,962
  
R&D credit carryforward
    
1,795
      
1,451
  
Other
    
242
      
34
  
Gross deferred tax assets
    
176,778
      
155,584
  
Deferred tax liabilities:
                
Foreign currency exchange
     3,225       —  
Foreign withholding taxes
    
15,375
      
15,412
  
Intangibles step-up
    
4,446
      
4,446
  
Overhead allocation to inventory
    
3,504
      
3,373
  
Amortization of intangibles
    
21,211
      
21,936
  
Other
    
6,129
      
6,133
  
Gross deferred tax liabilities
    
53,890
      
51,300
  
Valuation allowance
    
(33,557
)
    
(80,186
)
Deferred taxes, net
  
$
89,331
    
$
24,098
  

At December 31, 2022, the Company had foreign operating loss carryforwards of $35.4 million for tax purposes, which will be available to offset future taxable income. If not used, $18.6 million of carryforwards will expire between 2023 and 2042, while $16.8 million do not expire. A valuation allowance has been placed on foreign operating loss carryforwards of $34.8 million, tax effected the valuation on the net operating loss is $12.7 million. In addition, a valuation allowance of $19.1 million has been recorded on a portion of the foreign tax credit carryforwards which will expire between 2028 and 2031, and all of the R&D credit carryforward of $1.8 million which will expire between 2036 and 2041.

The Company uses the tax law ordering approach when determining when excess tax benefits have been realized.

Valuation allowances have been recognized for a portion of the foreign tax credit, the foreign net operating loss carryforwards, and the R&D credit carryforward.  During 2022, the Company made an election to change its capitalization policy for tax purposes related to certain direct and indirect costs for inventory and self-constructed assets under Internal Revenue Code (“IRC”) Section 263A. This method change allows the Company to utilize a portion of its tax attributes related to foreign tax credits in the United States that were previously fully reserved. The impact of the method change is approximately $51.3 million from the utilization of foreign tax credits and the release of valuation allowances. This change only impacts a portion of the Company’s foreign tax credit carryforwards and the Company will maintain a valuation allowance against the remaining balance of foreign tax credit carryforwards. The remaining valuation allowances were recognized for assets which it is more likely than not some portion or all of the deferred tax asset will not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary difference, projected future taxable income, tax planning strategies and recent financial operations. When the Company determines that there is sufficient positive evidence to utilize the remaining foreign tax credits, the foreign net operating losses, or the R&D credit carryforward, the valuation allowance will be released which would reduce the provision for income taxes.

The deferred tax asset valuation adjustments for the years ended December 31, 2022, 2021 and 2020 are as follows (U.S. dollars in thousands):

 
Year Ended December 31,
  
   
2022
    
2021
    
2020
  
Balance at the beginning of period
  
$
80,186
    
$
67,340
    
$
77,042
  
Additions charged to cost and expenses
    
3,231
(1) 
    
12,674
(4) 
    
2,154
(6) 
Decreases
    
(50,315
)(2)
    
—
(5)
    
(12,100
)(7)
Adjustments
    
455
(3) 
    
172
(3) 
    
244
(3) 
Balance at the end of the period
  
$
33,557
    
$
80,186
    
$
67,340
  

(1)
Increase in valuation is due primarily to net operating losses in foreign markets.
(2)
The decrease was due to utilization of $18.1 million of foreign tax credits and the valuation allowance release of $32.2 million foreign tax credits.
(3)
Represents the net currency effects of translating valuation allowances at current rates of exchange.
(4)
Increase in valuation is primarily due to $11.9 million that was recorded on the foreign tax credit carryforward due to the disposal of the Company’s Grow Tech segment. The additional amount is due to net operating losses in foreign markets.
(5)
No decreases in 2021.
(6)
Increase in valuation is due primarily to net operating losses in foreign markets.
(7)
The decrease was due primarily to the utilization of foreign tax credits that had previously had a valuation allowance recorded against the asset.


The components of deferred taxes, net on a jurisdiction basis are as follows (U.S. dollars in thousands):

 
Year Ended December 31,
  
   
2022
    
2021
  
Net noncurrent deferred tax assets
  
$
89,770
    
$
26,483
  
Net noncurrent deferred tax liabilities
    
439
      
2,385
  
Deferred taxes, net
  
$
89,331
    
$
24,098
  

The Company is subject to regular audits by federal, state and foreign tax authorities. These audits may result in proposed assessments that may result in additional tax liabilities.

The actual tax rate for the years ended December 31, 2022, 2021 and 2020 compared to the statutory U.S. Federal tax rate is as follows:

 
Year Ended December 31,
  
   
2022
    
2021
    
2020
  
Income taxes at statutory rate
    
21.00
%
    
21.00
%
    
21.00
%
Excess tax benefit from equity award
    
(0.12
)%
    
(0.19
)%
    
0.70
%
Deferred compensation
     2.18 %     (0.46 )%     (0.30 )%
Executive salary limitation
     2.06 %     0.47 %     0.04 %
Non-U.S. income taxed at different rates
    
4.78
%
    
6.06
%
    
3.37
%
Foreign withholding taxes
    
(0.73
)%
    
4.71
%
    
5.21
%
Change in reserve for uncertain tax positions
    
17.69
%
    
(0.06
)%
    
1.98
%
Valuation allowance recognized foreign tax credit & others
    
(56.17
)%
    
5.12
%
    
(4.59
)%
Foreign-Derived Intangible Income (FDII)
    
(8.14
)%
    
(0.87
)%
    
(2.78
)%
Other
    
(0.32
)%
    
0.87
%
    
0.69
%
     
(17.77
)%
    
36.65
%
    
25.32
%

The decrease in effective tax rate for the 2022 was primarily due to the Company making an election to change its capitalization policy for tax purposes related to certain direct and indirect costs for inventory and self-constructed assets under Internal Revenue Code (“IRC”) Section 263A. This method change allows the Company to utilize a portion of its tax attributes related to foreign tax credits in the United States that were previously fully reserved. The increase in the effective tax rate for 2021 was primarily caused by the disposal of the Company’s Grow Tech segment which reduced the utilization of foreign tax credits and increased the Company’s valuation allowance.

The cumulative amount of undistributed earnings of the Company’s non-U.S. Subsidiaries held for indefinite reinvestment is approximately $60.0 million, at December 31, 2022. If this amount were repatriated to the United States, the amount of incremental taxes would be approximately $6.0 million.