XML 33 R20.htm IDEA: XBRL DOCUMENT v3.24.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]

Note 12—Income Taxes

 

The Company does not file a consolidated return with its foreign subsidiaries. The Company files federal and state returns and its foreign subsidiaries file returns in their respective jurisdiction.

 

For the years ended 2023, 2022 and 2021, the provision for income taxes, which included federal, state and foreign income taxes, was an expense of $6.8 million, a benefit of $41.0 million, and an expense of $0.2 million, respectively, reflecting effective tax provision rates of 15.2%, (81.9)% and (4.0)%, respectively.

 

The 2023 tax expense of $6.8 million included a discrete tax benefit of $2.7 million primarily comprised of valuation allowance adjustments. Absent these discrete tax benefits, our effective tax rate for 2023 was 21.3%, primarily due to taxes on federal, state and foreign income.

 

For the years ended 2022 and 2021, provision for income taxes includes federal, state and foreign income taxes at effective tax rates of (81.9)% and (4.0)%, respectively. Exclusive of discrete items, the effective tax provision rate would be 17.6% in 2022 and (10.7)% in 2021.

 

As of December 31, 2023 and 2022, the Company had net deferred tax assets of $68.1 million and $57.8 million, respectively, related to U.S. and foreign jurisdictions.

 

Provision for income taxes reflected in the accompanying consolidated statements of operations are comprised of the following (in thousands):

 

   

Year ended December 31,

  
   

2023

    

2022

    

2021

  

Current income tax expense (benefit):

                        

Federal

   $ 11,935     $ 11,293     $ 1  

State and local

     2,167       2,031       43  

Foreign

     3,070       3,523       254  

Total current income tax expense (benefit)

     17,172       16,847       298  

Deferred income tax expense (benefit):

                        

Federal

     (8,989 )     (51,579 )     —  

State and Local

     (1,358 )     (6,071 )     —  

Foreign

     8       (205 )     (72 )

Total deferred income tax expense (benefit)

     (10,339 )     (57,855 )     (72 )
                         

Total income tax expense (benefit)

   $ 6,833     $ (41,008 )   $ 226  

 

The components of deferred tax assets/(liabilities) are as follows (in thousands):

 

   

Year ended December 31,

  

Deferred Income Tax Assets:

 

2023

   

2022

  

Reserve for sales allowances and possible losses

   $ 654     $ 469  

Accrued expenses

     3,467       3,884  

Prepaid royalties

     676       599  

Accrued royalties

     1,693       465  

Inventory

     12,444       9,574  

State income taxes

     477       420  

Property and equipment

     1,789       1,701  

Goodwill and intangibles

     1,192       2,412  

Share based compensation

     1,025       738  

Interest limitation

     2,243       2,256  

Operating lease liabilities

     4,991       4,120  

Federal and state net operating loss carryforwards

     34,458       31,263  

Credit carryforwards

     110       110  

Research and development capitalization

     7,962       3,792  

Other

     1,097       1,195  

Total Deferred Income Tax Assets

     74,278       62,998  
                 

Deferred Income Tax Liabilities:

               

Undistributed foreign earnings

     (503 )     (479 )

Operating lease right-of-use assets

     (4,908 )     (3,989 )

Total Deferred Income Tax Liabilities

     (5,411 )     (4,468 )

Valuation allowance

     (724 )     (726 )

Total Net Deferred Income Tax Assets/(Liabilities)

   $ 68,143     $ 57,804  

 

Provision for income taxes varies from the U.S. federal statutory rate. The following reconciliation shows the significant differences in the tax at statutory and effective rates:

 

   

Year ended December 31,

  
   

2023

    

2022

    

2021

  

Federal income tax expense

     21.0 %     21.0 %     21.0 %

State income tax expense, net of federal tax effect

     2.0       1.9       3.3  

Effect of differences in U.S. and foreign statutory rates

     (1.1 )     (1.3 )     (0.5 )

Uncertain tax positions

     0.6       5.5       7.0  

Provision to return

     (0.1 )     (0.2 )     5.0  

Other deferred adjustments

     (5.7 )     21.4       1.3  

Change in tax rate

     0.1       6.9       6.5  

Foreign derived intangible income

     (9.8 )     (10.6 )     0.0  

Non-deductible expenses

     (0.7 )     4.7       (38.5 )

PPP Loan

     0.0       0.0       29.1  

Unrealized loss

     4.2       0.3       (138.9 )

Section 162(m)

     6.4       4.2       (30.2 )

R&D credit

     (1.5 )     (0.5 )     0.0  

Foreign tax credit

     0.0       (3.6 )     0.0  

Undistributed foreign earnings

     0.1       (1.4 )     (8.7 )

Valuation allowance

     0.0       (130.2 )     139.6  

Other

     (0.3 )     0.0       0.0  
      15.2 %     (81.9 )%     (4.0 )%

 

Deferred taxes result from temporary differences between tax basis of assets and liabilities and their reported amounts in the consolidated financial statements. The temporary differences result from costs required to be capitalized for tax purposes by the U.S. Internal Revenue Code (“IRC”), and certain items accrued for financial reporting purposes in the year incurred but not deductible for tax purposes until paid.

 

The components of income (loss) before provision for income taxes are as follows (in thousands):

 

   

Year ended December 31,

  
   

2023

    

2022

    

2021

  

Domestic

   $ 28,552     $ 31,588     $ (7,881 )

Foreign

     16,394       18,487       2,219  
    $ 44,946     $ 50,075     $ (5,662 )

 

The Company uses a recognition threshold and measurement process for recording in the consolidated financial statements uncertain tax positions (“UTP”) taken or expected to be taken in a tax return.

 

The following table provides further information of UTPs that would affect the effective tax rate, if recognized, as of December 31, 2023 (in millions):

 

Balance, December 31, 2020

   $ 1.0  

Settlements

     (0.8 )

Balance, December 31, 2021

     0.2  

Additions based on tax positions related to the current year

     0.1  

Additions for tax positions of prior years

     2.8  

Settlements

     (0.2 )

Balance, December 31, 2022

     2.9  

Additions based on tax positions related to the current year

     0.3  

Additions for tax positions of prior years

     0.8  

Settlements

     (0.9 )

Balance, December 31, 2023

   $ 3.1  

 

Current interest on uncertain income tax liabilities is recognized as a component of the income tax provision recognized in the consolidated statements of operations. During 2023 and 2022, the Company recognized $41 thousand and $0.2 million of interest expense related to UTPs, respectively.

 

The Company does not expect its gross unrecognized tax benefits to significantly change within the next 12 months.

 

Tax years 2020 through 2022 remains subject to examination in the United States. The tax years 2019 through 2022 are generally still subject to examination in the various states. Furthermore, all net operating losses and tax credit carryforwards are still subject to review given that the statute of limitation for these items would begin in the year of utilization. The tax years 2017 through 2022 are still subject to examination in Hong Kong. In the normal course of business, the Company is audited by federal, state and foreign tax authorities.

 

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets by jurisdiction. The Company is required to establish a valuation allowance for the U.S. deferred tax assets and record a charge to income if Management determines, based upon available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets may not be realized.

 

Based on the Company’s evaluation of all positive and negative evidence, as of December 31, 2023, a valuation allowance of $0.7 million has been recorded against the deferred tax assets that more likely than not will not be realized. For the year ended December 31, 2023, the valuation allowance remained approximately the same as the $0.7 million recorded at December 31, 2022. The 2023 and 2022 net deferred tax assets of $68.1 million and $57.8 million, respectively, consist of the net deferred tax assets in the US and foreign jurisdictions, where the Company is in a cumulative income position.

 

Pursuant to the Internal Revenue Code of 1986, as amended (the “Code”) Sections 382 and 383, annual use of a company’s NOL and tax credit carryforwards may be limited if there is a cumulative change in ownership of greater than 50% within a three-year period. The amount of the annual limitation is determined based on the value of the company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. If limited, the related tax asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. The Company had established a valuation allowance as the realization of such deferred tax assets had not met the more likely than not threshold requirement.

 

During 2023, the Company finalized the assessment of available net operating loss and tax credit carryforwards under Section 382 and 383. This resulted in an increase of available tax-effected federal and state net operating loss carryforwards of approximately $1.4 million and $1.3 million, respectively. During 2022, the Company completed an initial assessment of the available net operating loss and tax credit carryforwards under Section 382 and 383 and determined that the Company underwent two ownership changes during the period from 2019 to 2021. This resulted in a net reduction of available federal and state net operating loss carryforwards of $16.8 million and federal tax credit carryforwards of approximately $0.6 million, with a corresponding reduction to the valuation allowance of $17.4 million.

 

At December 31, 2023, the Company has U.S. federal net NOLs, of approximately $148.0 million, which will begin to expire in 2033. At December 31, 2023, the Company has state NOLs of approximately $49.0 million, which will begin to expire in 2024.

 

The Company maintained undistributed earnings overseas as of December 31, 2023. As of December 31, 2023, the Company believed the funds held by all non-U.S. subsidiaries will be permanently reinvested outside of the U.S., with the exception of Hong Kong. As a result of tax reform, the Company’s unrepatriated earnings are no longer subject to federal income tax in the U.S. when distributed.