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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of loss before income taxes for the years ended December 31, 2021 and 2020 are as follows (in thousands):
20212020
U.S.$(98,445)$(106,785)
Non-U.S.16,436 (2,985)
Loss before income taxes$(82,009)$(109,770)
The components of income tax expense (benefit) for the years ended December 31, 2021 and 2020 are as follows (in thousands):
20212020
Current
U.S. federal and state$1,235 $(17,219)
Non-U.S.(3,384)4,487 
Total current(2,149)(12,732)
Deferred
U.S. federal and state(169)723 
Non-U.S.2,960 (872)
Total deferred2,791 (149)
Income tax expense (benefit)$642 $(12,881)
The reconciliation between the actual provision for income taxes and that computed by applying the U.S. statutory rate to loss before income taxes are outlined below (in thousands):
20212020
Income tax benefit at the statutory rate$(17,222)(21.0)%$(23,052)(21.0)%
State taxes, net of federal tax benefit22 — %(4,190)(3.8)%
Non-U.S. operations(7,594)(9.3)%625 0.6 %
Domestic incentives(264)(0.3)%(264)(0.2)%
Prior year federal, non-U.S. and state tax(7,183)(8.8)%(1,827)(1.7)%
Nondeductible expenses1,624 2.0 %2,053 1.9 %
U.S. CAREs Act113 0.1 %(15,981)(14.6)%
Valuation allowance31,079 37.9 %25,349 23.1 %
Other67 0.2 %4,406 4.0 %
Income tax benefit$642 0.8 %$(12,881)(11.7)%
Our effective tax rate was 0.8% and (11.7)% for the years ended December 31, 2021 and 2020, respectively.
For the year ended December 31, 2020, we recognized a $16.0 million benefit related to a carryback claim for U.S. federal tax losses based on provisions in the U.S. Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which was signed into law on March 27, 2020. The CARES Act provided relief to corporate taxpayers by permitting a five-year carryback of 2018-2020 NOLs, increased the 30% limitation on interest expense deductibility to 50% of adjusted taxable income for 2019 and 2020, and accelerated refunds for minimum tax credit carryforwards, among other provisions. The tax effects of changes in tax laws are recognized in the period in which the law is enacted.
The tax benefit for the year ended December 31, 2021 and 2020 includes an increase in our valuation allowance of $31.1 million and $25.3 million, respectively, consisting of a full valuation allowance against our deferred tax assets in the U.S., U.K., Germany, Singapore, China and Saudi Arabia as further described below under the primary components of deferred taxes.
The primary components of deferred taxes include (in thousands):
20212020
Deferred tax assets
Reserves and accruals$3,978 $14,917 
Operating lease liabilities11,176 3,097 
Inventory14,692 37,784 
Stock awards2,340 2,180 
Net operating loss and other tax carryforwards109,402 53,781 
Goodwill and intangible assets32,513 39,381 
Fair value discount on 2025 Notes22,250 30,564 
Property and equipment6,424 — 
Other1,912 931 
Gross deferred tax assets204,687 182,635 
Valuation allowance(198,366)(167,287)
Total deferred tax assets6,321 15,348 
Deferred tax liabilities
Property and equipment— (6,861)
Operating lease assets(6,490)(6,818)
Prepaid expenses and other(462)(3,519)
Total deferred tax liabilities(6,952)(17,198)
Net deferred tax liabilities$(631)$(1,850)
Goodwill from certain acquisitions is tax deductible due to the acquisition structure as an asset purchase or due to tax elections made by the Company and the respective sellers at the time of acquisition.
We have deferred tax assets related to net operating loss and other tax carryforwards in the U.S., and in certain states and foreign jurisdictions. We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized.
At December 31, 2021, we had $243.6 million of U.S. net operating loss carryforwards and $10.1 million of state net operating losses. Of these losses, $14.9 million will expire no later than 2037 if they are not utilized prior to that date. The remaining $238.8 million will not expire. We also had $186.9 million of non-U.S. net operating loss carryforwards with indefinite expiration dates. The ultimate realization of income tax benefits for these net operating loss carryforwards depends on our ability to generate sufficient taxable income in the respective taxing jurisdictions. Where we have unrecognized tax benefits in jurisdictions with existing net operating losses, we utilize the unrecognized tax benefits as a source of income to offset such losses. We do not anticipate being able to fully utilize all of the losses prior to their expiration in the following jurisdictions: the U.S, the U.K, Germany, Singapore, China and Saudi Arabia.
During 2021, we recognized $31.1 million of tax expense related to the increase in our valuation allowance provided against our deferred tax assets to write down our deferred tax assets in these jurisdictions to what is more likely than not realizable. We increased our valuation allowance related to our U.S. and foreign deferred tax assets by $15.6 million and $15.5 million, respectively. In making such a determination for each of these jurisdictions, we considered all available positive and negative evidence, including our recent history of pretax losses over the prior three year period, the goodwill and intangible asset impairments for various reporting units, the future reversals of existing taxable temporary differences, the projected future taxable income or loss and tax-planning.
Deferred tax liabilities arising from the difference between the financial reporting and income tax bases inherent in our foreign subsidiaries, referred to as outside basis differences, have not been provided for U.S. income tax purposes because we do not intend to sell, liquidate or otherwise trigger the recognition of U.S. taxable income with regard to our investment in these foreign subsidiaries. Determining the amount of U.S. deferred tax liabilities associated with outside basis differences is not practicable at this time.
We file income tax returns in the U.S. as well as in various states and non-U.S. jurisdictions. With few exceptions, we are no longer subject to income tax examination by tax authorities in these jurisdictions prior to 2015.
We account for uncertain tax positions in accordance with guidance in Accounting Standards Codification Topic 740, which prescribes the minimum recognition threshold a tax position taken or expected to be taken in a tax return is required to meet before being recognized in the financial statements. A reconciliation of the beginning and ending amount of uncertain tax positions is as follows (in thousands):
Balance at January 1, 2021$12,382 
Additional based on tax positions related to prior years367 
Additional based on tax positions related to current year1,712 
Reduction based on tax positions related to prior years— 
Settlement with tax authorities— 
Lapse of statute of limitations(6,103)
Balance at December 31, 20218,358 
The total amount of unrecognized tax benefits at December 31, 2021 was $8.4 million, of which it is reasonably possible that $1.6 million could be settled during the next twelve-month period as a result of the conclusion of various tax audits or due to the expiration of the applicable statute of limitations. We estimate that $8.4 million of the unrecognized tax benefits at December 31, 2021, excluding consideration of valuation allowance, would impact our future effective income tax rate, if recognized.
We recognize interest and penalties related to uncertain tax positions within the provision for income taxes in the consolidated statements of comprehensive loss. As of December 31, 2021 and 2020, we had accrued approximately $0.5 million and $1.4 million in interest and penalties, respectively. During the years ended December 31, 2021 and 2020, we recognized no material change in the interest and penalties related to uncertain tax positions.