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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Components of the Company's income (loss) before taxes are as follows:
|  | Year ended December 31,
(in thousands) |  | 2023 |  | 2022 |  | 2021
Domestic (including U.S. exports) |  | $ | (54,649) |  |  | $ | 3,966 |  |  | $ | 11,266 |
Foreign subsidiaries |  | 37,244 |  |  | 36,785 |  |  | 15,397 |
|  | $ | (17,405) |  |  | $ | 40,751 |  |  | $ | 26,663 |
Components of the Company’s income tax provision are as follows:
|  | Year ended December 31,
(in thousands) |  | 2023 |  | 2022 |  | 2021
Current taxes |  |  |  |  |  |
Federal |  | $ | 25,727 |  |  | $ | 22,189 |  |  | $ | 17,760 |
State |  | 5,458 |  |  | 5,526 |  |  | 3,835 |
Foreign |  | 11,853 |  |  | 11,889 |  |  | 5,234 |
Total current taxes |  | 43,038 |  |  | 39,604 |  |  | 26,829 |
Deferred taxes: |  |  |  |  |  |
Federal |  | (20,974) |  |  | (3,079) |  |  | (11,277) |
State |  | (798) |  |  | 2,834 |  |  | (1,823) |
Foreign |  | 65 |  |  | (2,266) |  |  | 1,538 |
Total deferred taxes |  | (21,707) |  |  | (2,511) |  |  | (11,562) |
Total tax provision |  | $ | 21,331 |  |  | $ | 37,093 |  |  | $ | 15,267 |
The tax effects of temporary differences that have resulted in the creation of deferred tax assets and deferred tax liabilities at December 31, 2023 and 2022 are as follows:
| December 31,
(in thousands) | 2023 |  | 2022
Deferred tax assets: |  |  |
Tax credits | $ | 8,552 |  |  | $ | 9,958 |
Accounts receivable and allowances | 1,181 |  |  | 1,658 |
Net operating loss carryforwards | 10,574 |  |  | 27,095 |
Accrued expenses | 6,685 |  |  | 7,722 |
Interest expense limitation carryforwards | 19,386 |  |  | 7,419 |
Lease liabilities | 46,226 |  |  | 39,026 |
Inventory | 9,226 |  |  | 9,406 |
Stock based compensation | 5,976 |  |  | 6,048 |
Capitalized research & development expenses | 5,695 |  |  | 3,232 |
Other | 4,039 |  |  | 3,763 |
Total deferred tax assets | $ | 117,540 |  |  | $ | 115,327 |
Valuation allowance (1) | (10,510) |  |  | (21,104) |
Net deferred tax assets | $ | 107,030 |  |  | $ | 94,223 |
Deferred tax liabilities: |  |  |
Intangible assets | $ | (162,771) |  |  | $ | (178,224) |
Property and equipment | (23,273) |  |  | (23,551) |
Repatriation of foreign earnings | (38) |  |  | (38) |
Prepaid and other expenses | (842) |  |  | (863) |
Right of use assets | (40,237) |  |  | (34,174) |
Total deferred tax liabilities | $ | (227,161) |  |  | $ | (236,850) |
Total net deferred tax liability | $ | (120,131) |  |  | $ | (142,627) |
(1)Primarily relates to the Trust and 5.11, Arnold, Ergo and Velocity operating segments. For the years ending December 31, 2023 and 2022, the Company recognized approximately $227.2 million and $236.9 million, respectively in deferred tax liabilities. A significant portion of the balance in deferred tax liabilities reflects temporary differences in the basis of property and equipment and intangible assets related to the Company’s purchase accounting adjustments in connection with the acquisition of certain of its businesses. For financial accounting purposes the Company has recognized a significant increase in the fair values of the intangible assets and property and equipment in certain of the businesses it acquired. For income tax purposes the existing, pre-acquisition tax basis of the intangible assets and property and equipment is utilized. In order to reflect the increase in the financial accounting basis over the existing tax basis, a deferred tax liability was recorded. This liability will decrease in future periods as these temporary differences reverse but may be replaced by deferred tax liabilities generated as a result of future acquisitions. At December 31, 2023 and 2022, the Company had U.S. Federal net operating loss carryforwards of approximately $19.2 million and $101.5 million, respectively. Approximately $19.2 million of the these carryforwards will expire, if not utilized, beginning in 2036. The remaining balance of the Company's U.S. Federal net operating loss carryforwards do not expire and are subject to utilization limitations based on a percentage of taxable income in a given year. As of December 31, 2023 and 2022, the Company had net operating loss carryforwards for state income tax purposes of $62.4 million and $92.9 million, respectively. The Company’s state net operating loss carryforwards will expire, if not utilized, beginning in 2023. As of December 31, 2023 and 2022, the Company had foreign net operating loss carryforwards of $13.0 million and $6.8 million, respectively. The foreign net operating loss carryforwards will expire, if not utilized, beginning in 2023. As of December 31, 2023 and 2022, the Company had federal research and development tax credit carryforwards of $1.7 million and $1.5 million, respectively. The research and development tax credit carryforwards will expire beginning in 2036 if not utilized. As of December 31, 2023 and 2022, the Company had foreign tax credit carryforwards of $6.4 million and $6.4 million, respectively. The foreign tax credit carryforwards will expire beginning in 2031 if not utilized. As of December 31, 2023 and 2022, the Company had state tax credit carryforwards, consisting mostly of California business tax credits of $1.2 million and $3.4 million, respectively. The California business tax credit carryforwards will expire, if not utilized, beginning in 2024. A valuation allowance relating to the realization of domestic and foreign net operating losses, domestic and foreign tax credits and the limitation on the deduction of interest expense of $10.5 million was provided at December 31, 2023 and a valuation allowance related to the realization of domestic and foreign net operating losses, domestic and foreign tax credits and the limitation on the deduction of interest expense of $21.1 million was provided at December 31, 2022. A valuation allowance is provided whenever it is more likely than not that some or all of deferred assets recorded may not be realized. The reconciliation between the Federal Statutory Rate and the effective income tax rate for 2023, 2022 and 2021 are as follows:
| Year ended December 31,
| 2023 |  | 2022 |  | 2021
United States Federal Statutory Rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State income taxes (net of Federal benefits) | (17.8) |  |  | 8.5 |  |  | 6.5 |
Foreign income taxes | (25.9) |  |  | 5.8 |  |  | 13.3 |
Expenses of Compass Group Diversified Holdings LLC representing a pass through to shareholders (1) | — |  |  | — |  |  | 56.6 |
Impact of subsidiary employee stock options | 20.4 |  |  | 1.4 |  |  | (0.4) |
Non-deductible acquisition costs | 0.2 |  |  | 1.3 |  |  | 1.0 |
Impairment expense | (90.1) |  |  | 2.2 |  |  | — |
Non-recognition of various carryforwards at subsidiaries | 2.0 |  |  | 35.9 |  |  | (3.7) |
United States tax on foreign income | (8.3) |  |  | 1.1 |  |  | (3.9) |
Dividend (net of dividend received deduction) | (51.0) |  |  | 7.7 |  |  | — |
Utilization of tax credits | 29.7 |  |  | (19.0) |  |  | (8.4) |
Effect of classification of assets held for sale | — |  |  | 21.1 |  |  | (27.3) |
Other | (2.8) |  |  | 4.0 |  |  | 2.8 |
Effective income tax rate | (122.6) | % |  | 91.0 | % |  | 57.5 | %
(1)The effective income tax rate for the year 2021 includes a loss at the Company’s parent, which was taxed as a partnership through August 31, 2021. Beginning September 1, 2021, the Company's parent is taxed as a corporation. A reconciliation of the amount of unrecognized tax benefits for 2023, 2022 and 2021 are as follows (in thousands):
Balance at January 1, 2021 | $ | 1,334 |
Additions for current years’ tax positions | 31 |
Additions for prior years’ tax positions | 15 |
Reductions for prior years’ tax positions | (63) |
Reductions for expiration of statute of limitations | $ | (63) |
Balance at December 31, 2021 | $ | 1,254 |
Additions for current years’ tax positions | 91 |
Additions for prior years’ tax positions | 15 |
Reductions for prior years' tax positions | (71) |
Reductions for expiration of statute of limitations | (73) |
Balance at December 31, 2022 | $ | 1,216 |
Additions for current years’ tax positions | 28,325 |
Additions for prior years’ tax positions | 33 |
Reductions for prior years' tax positions | (184) |
Reductions for expiration of statute of limitations | (68) |
Balance at December 31, 2023 | $ | 29,322 |
The unrecognized tax benefits are recorded in the consolidated balance sheet in other noncurrent liabilities. Included in the unrecognized tax benefits at December 31, 2023 and 2022 is $1.3 million and $1.2 million, respectively, of tax benefits that, if recognized, would affect the Company’s effective tax rate. Also included in the unrecognized tax benefits at December 31, 2023 i s $27.9 million of unrecognized tax benefits that, if recognized, would not affect the Company's effective tax rate but would result in an adjustment to discontinued operations in future periods. The $27.9 million in unrecognized tax benefits is recorded as a reduction to the gain on sale related to the sale of our ACI and Marucci subsidiaries in the year ended December 31, 2023. If recognized, the tax benefit would result in additional gain on sale in discontinued operations. The Company accrues interest and penalties related to uncertain tax positions. The amounts accrued at December 31, 2023, 2022 and 2021 are not material to the Company. Such amounts are included in the provision (benefit) for income taxes in the accompanying consolidated statements of operations. It is expected that the amount of unrecognized tax benefits will change in the next twelve months. However, we do not expect the change to have a significant impact on the consolidated results of operations or financial position. Each of the Company’s businesses file U.S. Federal, state and foreign income tax returns in multiple jurisdictions with varying statutes of limitations. The 2018 through 2023 tax years generally remain subject to examinations by the taxing authorities.

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