Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Geographic sources of income (loss) before taxes are as follows:

	For the Year Ended December 31,
	2020		2019		2018
	(In thousands)
United States	$	38,719	$	1,138	$	5,535
Foreign	347,963		158,672		180,280
Income before taxes	$	386,682	$	159,810	$	185,815

The provision for income taxes includes current federal, state and foreign taxes payable and those deferred because of temporary differences between the financial statement and the tax bases of assets and liabilities.

The components of the provision (benefit) for income taxes are as follows:

	For the Year Ended December 31,
	2020		2019		2018
	(In thousands)
Current:
Federal	$	4,608	$	(179)	$	22,003
State	134		3		39
Foreign	38,298		11,427		47,318
	43,040		11,251		69,360
Deferred:
Federal	(7,877)		1,832		5,468
State	(535)		299		2,993
Foreign	11,555		23,800		(21,571)
	3,143		25,931		(13,110)
Income tax expense	$	46,183	$	37,182	$	56,250

The reconciliation between the U.S. federal statutory income tax rate of 21% for 2020, 2019 and 2018 and our income tax expense is as follows:

	For the Year Ended December 31,
	2020		2019		2018
	(In thousands)
U.S. federal statutory income tax rate	$	81,203	$	33,560	$	39,021
State taxes, net of federal benefit	346		293		1,677
Foreign income taxed at different rates	(27,988)		(10,600)		6,340
Foreign exchange (loss) gain	6,710		84		(3,797)
Change in valuation allowance	(15,624)		18,374		(12,662)
Adjustments related to prior years	(2,575)		(3,190)		1,898
U.S. tax reform (the Tax Act)	—		—		22,284
Income tax credits generated	(21,525)		(9,006)		(18,106)
Foreign earnings and profits	23,853		3,360		387
Foreign derived intangible income	(6,339)		(3,195)		—
Expiration of net operating losses and credits	144		3,084		19,462
Settlements and changes in uncertain tax positions	6,801		3,256		(1,230)
Other	1,177		1,162		976
Income tax expense	$	46,183	$	37,182	$	56,250

The change in valuation allowance for 2020, 2019 and 2018 is primarily the result of changes in our ability to realize net operating loss, tax credit, and other carryforwards.

As a result of certain capital investments, export commitments and employment levels, income from operations in Korea, Malaysia, the Philippines and Singapore was subject to reduced income tax rates and, in some cases, was exempt from income taxes. We recognized $27.6 million, $14.7 million and $1.9 million in tax benefits as a result of the tax holidays in 2020, 2019 and 2018, respectively. The benefit of the tax holidays on diluted earnings per share was approximately $0.11, $0.06 and $0.01 for 2020, 2019 and 2018, respectively.

The following is a summary of the components of our deferred tax assets and liabilities:

	December 31,
	2020		2019
	(In thousands)
Deferred tax assets:
Net operating loss carryforwards	$	24,791	$	25,905
Income tax credits	93,056		98,158
Property, plant and equipment	25,342		27,199
Deferred interest expense	10,306		12,361
Accrued liabilities	57,586		61,812
Receivable	33,295		30,558
Unrealized foreign exchange loss	5,603		2,750
Operating lease liabilities	20,343		18,164
Other	11,741		11,889
Total deferred tax assets	282,063		288,796
Valuation allowance	(121,310)		(136,934)
Total deferred tax assets net of valuation allowance	160,753		151,862
Deferred tax liabilities:
Property, plant and equipment	28,440		23,747
Deferred gain	11,907		11,193
Unrealized foreign exchange gain	5,620		1,195
Unbilled receivables	2,031		3,580
Operating lease right of use assets	19,704		17,687
Other	4,514		4,125
Total deferred tax liabilities	72,216		61,527
Net deferred tax assets	$	88,537	$	90,335
Recognized as:
Other assets	$	95,045	$	90,465
Other non-current liabilities	(6,508)		(130)
Total	$	88,537	$	90,335

We monitor on an ongoing basis our ability to utilize our deferred tax assets and whether there is a need for a related valuation allowance. In evaluating our ability to recover our deferred tax assets in the jurisdictions from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies and recent results of operations.

Valuation allowance against deferred tax assets consist of the following:

	December 31,
	2020		2019
	(In thousands)
Valuation allowance:
U.S.	$	62,820	$	80,241
Foreign	58,490		56,693
Total valuation allowance	$	121,310	$	136,934

We had recorded a valuation allowance against our interest expense carryforward as a result of the limitation of deductibility of interest expense contained in the Tax Act. Realization of the carryforward is dependent on generating sufficient taxable income to overcome the interest limitation provisions. Although utilization of this carryforward is not assured, in light of our current earnings and recent estimates of future taxable income, management believes sufficient positive evidence exists to conclude that the valuation allowance is no longer needed and reversed the $12.4 million valuation allowance in 2020.

Our net operating loss carryforwards (“NOLs”) are as follows:

	December 31,
	2020		2019		Expiration
	(In thousands)
U.S. Federal NOLs	$	22,683	$	23,977	2021-2024
U.S. State NOLs	88,170		93,674		2021-2038
Foreign NOLs	85,960		85,123		2022-2028

At December 31, 2020 and 2019, a portion of our remaining U.S. federal net operating loss carryforward was reserved with a valuation allowance due to ownership change limitations from a prior year acquisition as well as certain state net operating loss carryforwards expected to expire unused.

Our tax credit carryforwards are as follows:

	December 31,
	2020		2019		Expiration
	(In thousands)
U.S. Foreign Tax Credits	$	70,265	$	77,983	2026-2027
U.S. Other Tax Credits	168		1,404		2026
Foreign Tax Credits	22,623		18,771		2021-2030

At December 31, 2020 and 2019, a portion of our U.S. and foreign tax credit carryforwards were reserved with a valuation allowance for the amount expected to expire unused.

Due to the changes in the Tax Act, distributions of cash to the U.S. as dividends generally will not be subject to U.S. federal income tax. We have not provided foreign withholding taxes or state income taxes on the undistributed earnings of our foreign subsidiaries, over which we have sufficient influence to control the distribution of such earnings and have determined that substantially all such earnings have been reinvested indefinitely. These earnings could become subject to foreign withholding tax if they are remitted as dividends. We estimate that repatriation of these foreign earnings would generate withholding taxes and state income taxes of approximately $119.1 million.

We operate in and file income tax returns in various U.S. and foreign jurisdictions which are subject to examination by tax authorities. We have tax returns that are open to examination in various jurisdictions for tax years 2010-2020. The open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations related to the amount and/or timing of income, deductions and tax credits. There can be no assurance that the outcome of examinations will be favorable. Our unrecognized tax benefits are subject to change as examinations of specific tax years are completed in the respective jurisdictions. In certain circumstances where we elect to appeal the results of an examination, we may be required to make tax assessment payments to proceed with the administrative appeal process. Current examinations include our 2012, 2013 and 2018 Philippine income tax returns and our 2018 Singapore income tax return.

A reconciliation of the beginning and ending gross amount of unrecognized tax benefits is as follows:

	For the Year Ended December 31,
	2020		2019		2018
	(In thousands)
Balance at January 1	$	26,242	$	25,268	$	27,211
Additions based on tax positions related to the current year	10,427		8,944		401
Additions for tax positions of prior years	1,173		188		636
Reductions for tax positions of prior years	(280)		(4,539)		(2,958)
Reductions related to settlements with tax authorities	—		(1,886)		—
Reductions from lapse of statutes of limitations	(4,964)		(1,733)		(22)
Balance at December 31	$	32,598	$	26,242	$	25,268

The net increase in our unrecognized tax benefits was $6.4 million from December 31, 2019 to December 31, 2020. The increase was primarily related to income attribution offset by decreases from the lapse of statutes of limitations. At December 31, 2020, all of our gross unrecognized tax benefits would reduce our effective tax rate, if recognized. It is reasonably possible that unrecognized tax benefits related to entity classification and withholding taxes will decrease in the next 12 months by up to $7.1 million due to the lapse of statutes of limitations in foreign jurisdictions.

The liability related to our unrecognized tax benefits is $28.3 million as of December 31, 2020 and is reported as a component of other non-current liabilities. The unrecognized tax benefits presented in the table above also include positions that have reduced deferred tax assets. The balance of accrued and unpaid interest and penalties is $4.7 million as of December 31, 2020 and is included as a component of other non-current liabilities in connection with our unrecognized tax benefits.