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Income Taxes

12 Months Ended

Dec. 31, 2020

11.	Income Taxes

Consolidated income before provision for income taxes consists of the following for the years ended December 31, 2020, 2019 and 2018 (U.S. dollars in thousands):

	2020		2019		2018
U.S.	$	71,138	$	24,211	$	(67,087	)
Foreign		185,094		230,961		286,753
Total	$	256,232	$	255,172	$	219,666

The provision for current and deferred taxes for the years ended December 31, 2020, 2019 and 2018 consists of the following (U.S. dollars in thousands):

	2020			2019			2018
Current
Federal	$	—		$	—		$	—
State		1,629			2,213			652
Foreign		77,079			79,694			116,303
		78,708			81,907			116,955
Deferred
Federal		(14,430	)		(8,878	)		(17,836	)
State		(563	)		(473	)		(1,974	)
Foreign		1,162			9,063			634
		(13,831	)		(288	)		(19,176	)
Provision for income taxes	$	64,877		$	81,619		$	97,779

The principal components of deferred taxes are as follows (U.S. dollars in thousands):

	Year Ended December 31,
	2020			2019
Deferred tax assets:
Inventory differences	$	6,181		$	5,040
Foreign tax credit and other foreign benefits		57,720			69,820
Stock-based compensation		8,925			7,441
Accrued expenses not deductible until paid		42,694			35,374
Foreign currency exchange		1,403			163
Net operating losses		8,667			6,341
Capitalized research and development		23,019			18,716
R&D credit carryforward		1,229			881
Other		45			37
Gross deferred tax assets		149,883			143,813
Deferred tax liabilities:
Foreign currency exchange		—			721
Foreign withholding taxes		20,207			20,986
Intangibles step-up		4,623			4,958
Overhead allocation to inventory		2,684			3,611
Amortization of intangibles		18,551			15,393
Other		1,690			1,063
Gross deferred tax liabilities		47,755			46,732
Valuation allowance		(67,340	)		(77,042	)
Deferred taxes, net	$	34,788		$	20,039

At December 31, 2020, the Company had foreign operating loss carryforwards of $26.4 million for tax purposes, which will be available to offset future taxable income. If not used, $11.4 million of carryforwards will expire between 2021 and 2030, while $15.0 million do not expire. A valuation allowance has been placed on foreign operating loss carryforwards of $24.7 million, tax effected the valuation on the net operating loss is $8.4 million. In addition, a valuation allowance has been recorded on the foreign tax credit carryforward, and the R&D credit carryforward of $58.9 million which will expire between 2026 and 2030.

The Company uses the tax law ordering approach when determining when excess tax benefits have been realized.

The valuation allowances have been recognized for the foreign tax credit, the foreign net operating loss carryforwards, and the R&D credit carryforward. The valuation allowances were recognized for assets which it is more likely than not some portion or all of the deferred tax asset will not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary difference, projected future taxable income, tax planning strategies and recent financial operations. When the Company determines that there is sufficient positive evidence to utilize the foreign tax credits, the foreign net operating losses, or the R&D credit carryforward, the valuation will be released which would reduce the provision for income taxes.

The deferred tax asset valuation adjustments for the years ended December 31, 2020, 2019 and 2018 are as follows (U.S. dollars in thousands):

	Year Ended December 31,
	2020			2019			2018
Balance at the beginning of period	$	77,042		$	68,697		$	56,906
Additions charged to cost and expenses		2,154	⁽¹⁾		10,913	⁽⁴⁾		27,902	⁽⁶⁾
Decreases		(12,100	)⁽²⁾		(3,343	)⁽⁵⁾		(16,215	)⁽⁷⁾
Adjustments		244	⁽³⁾		775	⁽³⁾		104	⁽³⁾
Balance at the end of the period	$	67,340		$	77,042		$	68,697

(1)	Increase in valuation is due primarily to net operating losses in foreign markets.

(2)	The decrease was due to the utilization of prior year foreign tax credits that had previously had a valuation allowance recorded against the asset.

(3)	Represents the net currency effects of translating valuation allowances at current rates of exchange.

(4) Increase in valuation is due primarily to $9.8 million that was recorded on the foreign tax credit carryforward. The additional amount is due to net operating losses in foreign markets.

(5) The decrease was due primarily to the utilization of foreign tax credits, and expiration of foreign net operating losses.

(6)	Increase in valuation is due primarily to the $27.2 million that was recorded on the foreign tax credit carryforward. The additional amount is due to net operating losses in foreign markets

(7)	The decrease was due primarily to the utilization of foreign tax credits. Decrease is due primarily to the write-off of Brazil deferred tax assets, which had no impact to the income statement, as a valuation allowance had been previously recorded against the asset.

The components of deferred taxes, net on a jurisdiction basis are as follows (U.S. dollars in thousands):

	Year Ended December 31,
	2020		2019
Net noncurrent deferred tax assets	$	35,414	$	30,780
Net noncurrent deferred tax liabilities		626		10,741
Deferred taxes, net	$	34,788	$	20,039

The Company is subject to regular audits by federal, state and foreign tax authorities. These audits may result in proposed assessments that may result in additional tax liabilities.

The actual tax rate for the years ended December 31, 2020, 2019 and 2018 compared to the statutory U.S. Federal tax rate is as follows:

	Year Ended December 31,
	2020			2019			2018
Income taxes at statutory rate		21.00	%		21.00	%		21.00	%
Indefinite reinvestment		—			—			(2.73	)%
Excess tax benefit from equity award		0.70	%		0.02	%		(1.41	)%
Non-U.S. income taxed at different rates		3.37	%		3.09	%		7.37	%
Foreign withholding taxes		5.21	%		4.10	%		7.68	%
Change in reserve for uncertain tax positions		1.98	%		1.07	%		3.68	%
Valuation allowance recognized foreign tax credit & others		(4.59	)%		2.56	%		5.54	%
Revaluation of deferred taxes		—			—			1.61	%
Foreign-Derived Intangible Income (FDII)		(2.78	)%		(0.70	)%		—
Other		0.43	%		0.85	%		1.77	%
		25.32	%		31.99	%		44.51	%

The effective rate for 2018 was significantly impacted by the restructuring and impairment expenses incurred in the fourth quarter of 2018, as well as additional valuation allowances related to foreign tax credits. The decrease in the effective tax rate for 2020 primarily reflects the strong growth in the U.S. market and Manufacturing segment, which enabled us to utilize additional foreign tax credits to offset the U.S. income taxes.

The cumulative amount of undistributed earnings of the Company’s non-U.S. Subsidiaries held for indefinite reinvestment is approximately $60.0 million, at December 31, 2020. If this amount were repatriated to the United States, the amount of incremental taxes would be approximately $6.0 million.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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