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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes For financial reporting purposes, income before taxes includes the following components (in thousands):
| Years ended December 31,
| 2023 |  | 2022 |  | 2021
Domestic | $ | (4,111) |  |  | $ | (4,979) |  |  | $ | (5,956) |
Foreign | 42,547 |  |  | 50,067 |  |  | 31,868 |
| $ | 38,436 |  |  | $ | 45,088 |  |  | $ | 25,912 |
The expense (benefit) for income taxes is comprised of (in thousands):
| Years ended December 31,
| 2023 |  | 2022 |  | 2021
Current: |  |  |  |  |
Federal | $ | 517 |  |  | $ | 21 |  |  | $ | 245 |
State and local | 162 |  |  | 97 |  |  | 38 |
Foreign | 11,903 |  |  | 10,457 |  |  | 8,442 |
| 12,582 |  |  | 10,575 |  |  | 8,725 |
Deferred: |  |  |  |  |
Federal | 154 |  |  | (2,808) |  |  | (2,992) |
State and local | (628) |  |  | 109 |  |  | (588) |
Foreign | 318 |  |  | 659 |  |  | 324 |
| (156) |  |  | (2,040) |  |  | (3,256) |
Total income tax expense | $ | 12,426 |  |  | $ | 8,535 |  |  | $ | 5,469 |
A reconciliation of income tax expense (benefit) at the U.S. federal statutory income tax rate to the actual income tax provision is as follows (in thousands):
| Years ended December 31,
| 2023 |  | 2022 |  | 2021
Tax at statutory rate | $ | 8,072 |  |  | $ | 9,468 |  |  | $ | 5,441 |
State income taxes, net of U.S. federal tax benefit | (368) |  |  | 164 |  |  | (391) |
U.S. GILTI tax, net of foreign tax credits | 72 |  |  | 8 |  |  | 77 |
Effect of foreign operations | 2,378 |  |  | 1,246 |  |  | 2,096 |
Residual U.S. tax on foreign earnings | 899 |  |  | 291 |  |  | (258) |
Change in valuation allowance | 1,270 |  |  | (1,629) |  |  | (1,204) |
Change in unrecognized tax benefits, net | 476 |  |  | (1,000) |  |  | 107 |
Impairment of goodwill | — |  |  | — |  |  | 237 |
Specialty tax credits | (520) |  |  | (639) |  |  | (333) |
Statutory rate changes | 56 |  |  | 3 |  |  | (282) |
Effect of foreign exchange | 128 |  |  | 667 |  |  | (35) |
Other | (37) |  |  | (44) |  |  | 14 |
Total income tax expense | $ | 12,426 |  |  | $ | 8,535 |  |  | $ | 5,469 |
In 2023, the Company recognized deferred tax benefits of $0.2 million on net operating loss carryforwards generated in certain foreign jurisdictions, which is included in deferred tax expense (benefit) above. The 2017 Tax Cuts and Jobs Act subjects a U.S. shareholder to tax on Global Intangible Low-Taxed Income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in the future years or provide for tax expense related to GILTI in the year the tax is incurred. The Company has elected to recognize tax expense related to GILTI in the year the tax is incurred. The Company recognized approximately $22.5 million and $26.3 million of GILTI for the years ended December 31, 2023 and 2022, respectively. The U.S. tax on GILTI, net of foreign tax credits and research credits, was less than $0.1 million for each of the years ended December 31, 2023 and 2022. Any excess foreign tax credits associated with GILTI are lost and cannot be carried forward to future years. Deferred income taxes represent the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
| December 31,
| 2023 |  | 2022
Deferred tax assets: |  |  |
Pension and other postretirement costs | $ | 1,082 |  |  | $ | 1,775 |
Inventories | 4,102 |  |  | 4,057 |
Net operating/capital loss and interest carryforwards | 10,800 |  |  | 9,060 |
Tax credit carryforwards | 1,390 |  |  | 2,372 |
Deferred compensation | 2,845 |  |  | 2,921 |
Research and development costs | 4,707 |  |  | 2,940 |
Other accruals and reserves | 3,709 |  |  | 2,228 |
Total gross deferred tax assets | 28,635 |  |  | 25,353 |
Less: valuation allowance | (13,136) |  |  | (10,726) |
| 15,499 |  |  | 14,627 |
Deferred tax liabilities: |  |  |
Tax over book depreciation | (2,151) |  |  | (1,453) |
Investment in subsidiary | (2,121) |  |  | (2,137) |
Intangible assets, including tax deductible goodwill | (10,843) |  |  | (10,675) |
Total gross deferred tax liabilities | (15,115) |  |  | (14,265) |
Net deferred tax assets | $ | 384 |  |  | $ | 362 |
In 2015, the Company established a valuation allowance with respect to substantially all of its U.S. deferred tax assets due to uncertainty regarding the realization of these assets. Throughout 2022 and 2023, the Company reassessed its ability to realize its U.S. and other deferred tax assets by considering both positive and negative evidence regarding realization. The most significant negative evidence is continuing cumulative operating losses in the U.S. The impact of the acquisitions of Stress-Tek, Pacific Instruments, DSI and DTS was also considered in determining the realization of the U.S. deferred tax assets. Other aspects, such as operating results, additional interest expense and additional tax deductions related to the Stress-Tek acquisition, were also considered. The Company also considered positive evidence such as tax planning strategies and the projected benefits of our restructuring efforts. However, there was insufficient positive evidence to overcome the negative evidence. In June 2021, the Company acquired DTS. DTS's opening balance sheet included $26.4 million of gross deferred tax liabilities, including $2.4 million of indefinite-lived liabilities. The acquisition contributed to a $1.6 million net reduction in valuation allowance and deferred tax benefit for the Company in 2021. In the second quarter of 2022, the Company completed the purchase accounting for the acquisition of DTS, which resulted in a $0.3 million reduction of deferred tax assets and corresponding increase in goodwill. Overall, the cumulative losses and the acquisition impacts still indicate that realization of our U.S. deferred tax assets remains uncertain such that the Company cannot conclude that it is "more likely than not" that the deferred tax assets will be recoverable. We will continue to monitor the realization of U.S. deferred tax assets and reduce the valuation allowance if, and when, sufficient positive evidence of realization exists. At December 31, 2023 and 2022, the valuation allowance on U.S. deferred tax assets was approximately $10.9 million and $8.7 million, respectively. The net change in this valuation allowance was approximately $2.3 million, of which approximately $0.5 million related to state valuation allowances. The change in valuation allowance related to state taxes exclusive of rate changes was $0.5 million benefit and $0.4 million expense for the years ended December 31, 2023 and 2022, respectively. The Company also has valuation allowances of $2.2 million and $2.1 million at December 31, 2023 and 2022, respectively, with respect to certain foreign net operating loss and capital loss carryforwards. Significant valuation allowances are as follows (in thousands):
| December 31,
Jurisdiction | 2023 |  | 2022
U.S. federal | $ | 4,402 |  |  | $ | 2,647 |
U.S. state (net of U.S. federal tax benefit) | 6,545 |  |  | 6,026 |
Israel - capital losses | 1,369 |  |  | 1,287 |
The following table summarizes significant net operating losses, capital losses and credit carryforwards as of December 31, 2023 (in thousands):
| December 31, |  |
Jurisdiction | 2023 |  | Expiring
U.S. federal net operating losses | $ | 3,566 |  |  | No expiration
U.S. federal interest expense carryover | 12,209 |  |  | No expiration
U.S. foreign tax credit | 577 |  |  | 2028-2032
U.S. state net operating losses | 120,710 |  |  | 2023-2042
Israel capital losses | 5,928 |  |  | No expiration
Utilization of U.S. federal net operating losses is taken into account before the GILTI deduction allowable by IRC Section 250. Undistributed earnings of the Company’s foreign subsidiaries were approximately $277.6 million at December 31, 2023 compared to $233.2 million at December 31, 2022. As of December 31, 2023, the Company had provided for a deferred tax liability of approximately $2.1 million of withholding tax associated with unremitted earnings, including planned cash distributions of $16.6 million. Substantially all of the remaining undistributed earnings are considered to be indefinitely reinvested and accordingly no provision has been made with respect to these earnings for incremental foreign income taxes, state income taxes or foreign withholding taxes. If those earnings were distributed to the U.S., the Company could be subject to incremental foreign income taxes, state income taxes, and withholding taxes. Determination of the amount of unrecognized deferred tax liability is not practicable because of the uncertainty regarding the timing of any such distribution and the impact on existing valuation allowances. In addition to the $2.1 million, additional withholding taxes of approximately $29.2 million are estimated to be payable upon distribution of the remaining previously unremitted earnings as of December 31, 2023. Net income taxes paid were $10.9 million, $10.8 million and $7.7 million for the years ended December 31, 2023, 2022 and 2021, respectively. The Company and its subsidiaries are subject to income taxes imposed by the U.S., various states, and the foreign jurisdictions in which we operate. Each jurisdiction establishes rules that set forth the years which are subject to examination by its tax authorities. While the Company believes the tax positions taken on its tax returns for each jurisdiction are supportable, they may still be challenged by the jurisdiction's tax authorities. In anticipation of such challenges, the Company has established reserves for tax-related uncertainties. These liabilities are based on the Company’s best estimate of the potential tax exposures in each respective jurisdiction. It may take a number of years for a final tax liability in a jurisdiction to be determined, particularly in the event of an audit. If an uncertain matter is determined favorably, there could be a reduction in the Company’s tax expense. An unfavorable determination could increase tax expense and could require a cash payment, including interest and penalties. The following table summarizes changes in the Company's gross liabilities, excluding interest and penalties, associated with unrecognized tax benefits (in thousands):
| December 31,
| 2023 |  | 2022 |  | 2021
Balance at beginning of year | $ | 439 |  |  | $ | 1,282 |  |  | $ | 1,244 |
Addition based on tax positions related to current year | 589 |  |  | 176 |  |  | 52 |
Addition based on tax positions related to prior years | — |  |  | 216 |  |  | — |
Reduction based on tax positions related to prior years | (128) |  |  | — |  |  | — |
Currency translation adjustments | (8) |  |  | (6) |  |  | 41 |
Reduction for settled tax examinations | — |  |  | (1,229) |  |  | — |
Reduction for payments made | (94) |  |  | — |  |  | — |
Reduction for lapses of statute of limitations | — |  |  | — |  |  | (55) |
Balance at end of year | $ | 798 |  |  | $ | 439 |  |  | $ | 1,282 |
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Related to the unrecognized tax benefits noted above, for the years ended December 31, 2023, 2022 and 2021, the Company accrued total penalties and interest of 0.0 million, $(0.2) million and $0.1 million, respectively. As of December 31, 2023, 2022 and 2021, accrued penalties and interest were $0.0 million, $0.0 million and $0.2 million, respectively. Included in the balance of unrecognized tax benefits as of December 31, 2023, 2022, and 2021 is $0.8 million, $0.4 million, and $1.3 million, respectively, of tax benefits that, if recognized, would impact the effective tax rate. The Company believes that it is reasonably possible that an increase in unrecognized tax benefits related to foreign exposures of between $0.1 million and $0.2 million may be necessary in 2024. Furthermore, as of December 31, 2023, the Company does not anticipate that any of its current unrecognized tax benefits will reverse within the next calendar year due to the expiration of the statute of limitations. The Company and its subsidiaries file U.S. federal income tax returns, as well as income tax returns in various state, local, and foreign jurisdictions. The Company files federal, state, and local income tax returns on a combined, unitary, or stand-alone basis. The statute of limitations in those jurisdictions generally ranges from 3 to 4 years. Additionally, the Company's foreign subsidiaries file income tax returns in the countries in which they have operations and the statutes of limitations in those jurisdictions generally range from 3 to 10 years. During the fourth quarters of 2021 and 2022, the Company concluded tax examinations in Israel for one of its subsidiaries covering 2016 and 2017 through 2020, respectively. The conclusions of the audits resulted in the release of $1.4 million of reserves for uncertain tax positions, including accrued interest. During the third quarter of 2022, the Company concluded tax examinations in Germany for two of its subsidiaries, covering the years 2017 through 2019. The conclusion of the tax examinations resulted in no significant change in tax. During the fourth quarter of 2022, the Company concluded a tax examination in Taiwan for one of its subsidiaries, covering the year 2020. The conclusion of the tax examinations resulted in no change in tax. During the fourth quarter of 2023, the Company received notice that an examination of 2021 and 2022 will begin in the first quarter of 2024 for one of its subsidiaries in France. The Company also concluded a tax examination in Taiwan for one of its subsidiaries, covering the year 2021. The conclusion of this tax examination resulted in no change in tax. The Company is subject to ongoing income tax audits, administrative appeals and judicial proceedings in India spanning a number of years.

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