Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
 
Income from continuing operations before provision (benefit) for income taxes are taxed under the following jurisdictions (dollar amounts in thousands):
Year Ended December 31, 2023 2022
Domestic $ (15,962) $ (7,505)
Foreign 36,164  22,720 
Total $ 20,202  $ 15,215 
 
Components of the provision (benefit) for income taxes for each of the two years in the period ended December 31, 2023 are as follows (dollar amounts in thousands):
Year Ended December 31, 2023 2022
Current:    
Federal $ 1,875  $ 2 
State 361  (48)
Foreign 9,605  6,725 
Subtotal 11,841  6,679 
Deferred:    
Federal (8,277) 5,792 
State (490) (13)
Foreign 712  2,207 
Subtotal (8,055) 7,986 
Total provision (benefit) for income taxes $ 3,786  $ 14,665 
 
The provision (benefit) for income taxes, as a percentage of income from continuing operations before provision (benefit) for income taxes, differs from the statutory U.S. federal income tax rate due to the following:
Year Ended December 31, 2023 2022
Statutory U.S. federal income tax rate 21.0  % 21.0  %
State income taxes, net of U.S. federal income tax benefit (0.4) (0.5)
U.S. tax impact of foreign operations (25.3) (8.6)
Valuation allowance change 5.4  64.3 
Unrecognized tax benefits 1.8  1.4 
Permanent foreign items 4.8  4.3 
Withholding tax on royalties 5.1  4.2 
Executive compensation 1.2  2.7 
Stock compensation (0.1) (2.4)
Tax return to provision differences (7.9) (3.4)
Income eliminated in consolidation 13.8  13.1 
Other (0.7) 0.3 
Effective income tax rate 18.7  % 96.4  %

Adjustments relating to the U.S. impact of foreign operations decreased the effective tax rate by 25.3 percentage points and 8.6 percentage points in 2023 and 2022, respectively. The components of this calculation were:
Components of U.S. tax impact of foreign operations 2023 2022
Foreign tax credits (26.7) % (19.4) %
Foreign tax rate differentials 0.4  1.5 
Foreign withholding taxes 4.5  2.6 
Transfer pricing adjustment 1.4  1.2 
Impact of Subpart F 0.7  1.8 
Impact of GILTI (2.4) 3.7 
Impact of FDII (3.2) — 
Total (25.3) % (8.6) %
The significant components of the deferred tax assets (liabilities) are as follows (dollar amounts in thousands):
As of December 31, 2023 2022
Inventory $ 1,881  $ 1,612 
Accrued liabilities 2,263  2,859 
Operating lease liabilities 2,363  2,667 
Deferred compensation 166  160 
Share-based compensation 1,059  797 
Intangible assets 101  115 
Bad debts 23  9 
Net operating losses 4,358  5,060 
Foreign tax and withholding credits 16,707  15,392 
Accrued compensation 2,178  304 
Fixed assets 2,606  — 
Other deferred tax assets 2,135  1,960 
Valuation allowance (18,534) (18,049)
Total deferred tax assets 17,306  12,886 
Accelerated depreciation —  (4,029)
Right of use assets (2,082) (2,365)
Tax on unremitted earnings (1,508) (1,032)
Other deferred tax liabilities (53) (40)
Total deferred tax liabilities (3,643) (7,466)
Total deferred taxes, net $ 13,663  $ 5,420 

The components of deferred tax assets (liabilities), net are as follows (dollar amounts in thousands):
As of December 31, 2023 2022
Net deferred tax assets $ 15,064  $ 6,859 
Net deferred tax liabilities (1,401) (1,439)
Total deferred taxes, net $ 13,663  $ 5,420 

We have elected the period cost method (costs are treated as a current period expense when incurred) under U.S. GAAP as it relates to GILTI income inclusions in U.S. taxable income. Each reporting period we analyze our indefinite reinvestment assertions with respect to undistributed foreign earnings. As of December 31, 2023, we continue to assert that we do not intend to reinvest undistributed foreign earnings indefinitely in our foreign subsidiaries.
 
We have provided a valuation allowance of $18.5 million and $18.0 million as of December 31, 2023 and 2022, respectively, for certain deferred tax assets, including foreign net operating losses, for which we cannot conclude it is more likely than not that they will be realized. We reviewed our tax positions and increased the valuation allowance by approximately $0.5 million in 2023. For financial reporting purposes, the increase in valuation allowances increases income tax expenses in the year recorded. At December 31, 2023, we had approximately $16.7 million of foreign tax and withholding credits. Of the $16.7 million credits, $16.4 million are foreign tax credits, many of which expire in 2024 and a majority of which are offset by a valuation allowance.
 
At December 31, 2023, foreign subsidiaries had unused operating loss carryovers for tax purposes of approximately $4.4 million, tax effected. The net operating losses will expire at various dates from 2024 through 2034, with the exception of those in some foreign jurisdictions where there is no expiration. The foreign net operating losses have a valuation allowance recorded against the portion expected to expire before utilization.
 
We are subject to regular audits by federal, state and foreign tax authorities. These audits may result in additional tax liabilities. We believe we have appropriately provided for income taxes for all years. Several factors drive the calculation of our tax reserves. Some of these factors include: (i) the expiration of various statutes of limitations; (ii) changes in tax law and
regulations; (iii) the issuance of tax rulings; and (iv) settlements with tax authorities. Changes in any of these factors may result in adjustments to our reserves, which would impact our reported financial results.
 
Our U.S. federal income tax returns for 2020 through 2022 are open to examination for federal tax purposes. We have several foreign tax jurisdictions that have open tax years from 2018 through 2022.

The total outstanding balance for liabilities related to unrecognized tax benefits at December 31, 2023 and 2022 was $0.6 million and $0.2 million, respectively, all of which would favorably impact the rate if recognized. Included in these amounts is approximately $0.1 million and $0.1 million, respectively, of combined interest and penalties. We increased interest and penalties approximately $13,000 and $0.1 million for the years ended December 31, 2023 and 2022, respectively. We account for interest expense and penalties for unrecognized tax benefits as part of our income tax provision.
 
During the years ended December 31, 2023 and 2022, we added approximately $0.4 million and $0.2 million, respectively, to our liability for unrecognized tax benefits.
 
A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax benefits, excluding interest and penalties, is as follows for the years (dollar amounts in thousands):
Year Ended December 31, 2023 2022
Unrecognized tax benefits, opening balance $ 110  $ — 
Settlement of liability reclassified as income tax payable —  — 
Payments on liability —  (5)
Tax positions taken in a prior period    
Gross increases 360  120 
Gross decreases —  — 
Tax positions taken in the current period    
Gross increases —  — 
Gross decreases —  — 
Lapse of applicable statute of limitations —  — 
Currency translation adjustments 1  (5)
Unrecognized tax benefits, ending balance $ 471  $ 110 
 
We do not anticipate a significant change to liabilities related to unrecognized tax benefits within the next twelve months.

Although we believe our estimates are reasonable, we can make no assurance that the final tax outcome of these matters will not be different from that which it has reflected in our historical income tax provisions and accruals. Such differences could have a material impact on our income tax provision and operating results in the period in which we make such determination.