Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The “Income before income tax expense” line item in the consolidated statements of operations consisted of:

(Dollars in thousands)	2020		2019		2018
Domestic	$	(4,371)	$	(18,711)	$	14,381
International	72,905		73,837		96,208
Total	$	68,534	$	55,126	$	110,589

The “Income tax expense” line item in the consolidated statements of operations consisted of:

(Dollars in thousands)	Current		Deferred		Total
2020
Domestic	$	5,340	$	(11,012)	$	(5,672)
International	26,610		(2,394)		24,216
Total	$	31,950	$	(13,406)	$	18,544
2019
Domestic	$	3,372	$	(16,827)	$	(13,455)
International	21,984		(722)		21,262
Total	$	25,356	$	(17,549)	$	7,807
2018
Domestic	$	(341)	$	(3,007)	$	(3,348)
International	26,604		(318)		26,286
Total	$	26,263	$	(3,325)	$	22,938

Deferred tax assets and liabilities as of December 31, 2020 and 2019, were comprised of the following:

(Dollars in thousands)	2020		2019
Deferred tax assets
Accrued employee benefits and compensation	$	6,199	$	5,730
Tax loss and credit carryforwards	17,644		17,761
Reserves and accruals	6,581		5,996
Operating leases	665		904
Capitalized research and development	14,167		11,343
Other	1,824		2,210
Total deferred tax assets	47,080		43,944
Less deferred tax asset valuation allowance	(9,250)		(14,625)
Total deferred tax assets, net of valuation allowance	37,830		29,319
Deferred tax liabilities
Depreciation and amortization	10,282		15,368
Postretirement benefit obligations	2,001		1,719
Unremitted earnings	2,426		1,624
Operating leases	714		908
Other	2,115		1,803
Total deferred tax liabilities	17,538		21,422
Net deferred tax asset (liability)	$	20,292	$	7,897

As of December 31, 2020, we had state net operating loss carryforwards ranging from $0.2 million to $4.7 million in various state taxing jurisdictions, which expire between 2022 and 2039 and approximately $8.4 million of credit carryforwards in Arizona, which will expire between 2021 and 2035. We also had $5.8 million of federal research and development (R&D) credit carryforwards that begin to expire in 2031. We believe that it is more likely than not that the benefit from certain of the state net operating loss, state R&D credits carryforwards will not be realized. In recognition of this risk, we have provided a valuation allowance of $8.0 million relating to these carryforwards. We currently have approximately $2.2 million of foreign tax credits that begin to expire in 2030.

We had a valuation allowance of $9.3 million as of December 31, 2020 and $14.6 million as of December 31, 2019, against certain of our deferred tax assets, primarily carryforwards expected to expire unused and deferred tax assets that are capital in nature. No valuation allowance has been provided on our other deferred tax assets, as we believe it is more likely than not that all such assets will be realized in the applicable jurisdictions. In 2020, we released the valuation allowance of $5.3 million previously established against our R&D credit carryforwards as a result of our updated analysis, including current year utiliziation and updated future utilization. We reached this conclusion after considering the availability of taxable income in prior carryback years, tax planning strategies, and the likelihood of future taxable income exclusive of reversing temporary differences and carryforwards in the respective jurisdictions or entities. Differences between forecasted and actual future

operating results or changes in carryforward periods could adversely impact the amount of deferred tax asset considered realizable.

Income tax expense differs from the amount computed by applying the U.S. federal statutory income tax rate to income before income taxes. The reasons for this difference were as follows:

(Dollars in thousands)	2020		2019		2018
Tax expense at Federal statutory income tax rate	$	14,392	$	11,576	$	23,224
Impact of foreign operations	1,193		107		826
Foreign source income, net of tax credits	1,050		(2,248)		(197)
State tax, net of federal	(313)		(690)		121
Unrecognized tax benefits	5,800		543		(869)
U.S. Tax Reform	—		—		209
Equity compensation excess tax deductions	(791)		(2,902)		(2,238)
General business credits	(931)		(656)		(2,172)
Distribution related foreign taxes	2,332		1,240		1,916
Executive compensation limitation	900		589		801
Valuation allowance change (excluding U.S. Tax Reform)	(5,375)		(2,527)		602
Disproportionate tax effect of pension settlement charges	—		2,510		—
Other	287		265		715
Income tax expense (benefit)	$	18,544	$	7,807	$	22,938

Our effective income tax rate for 2020 was 27.1% compared to 14.2% for 2019. The 2020 rate increase was primarily due to the increase in current year accruals of reserves for uncertain tax positions, the decrease in foreign tax credits available to offset foreign source income, the decrease in excess tax deductions on stock-based compensation and higher tax impact on unremitted foreign earnings and profits, partially offset by the beneficial impact of changes in valuation allowance related to R&D credits and pre-tax mix across jurisdictions with disparate tax rates.

We did not make any changes in 2020 to our position on the permanent reinvestment of our historical earnings from foreign operations. With the exception of certain Chinese subsidiaries, we continue to assert that historical foreign earnings are indefinitely reinvested. As of December 31, 2020 and 2019, we had recorded a deferred tax liability of $2.4 million and $1.6 million, respectively, for Chinese withholding tax on undistributed earnings that are not indefinitely reinvested. The other remaining foreign subsidiaries have both the intent and ability to indefinitely reinvest their undistributed earnings and we estimate that, if these undistributed earnings are distributed, they may give rise to an estimated $3.8 million of additional tax liabilities. If circumstances change and it becomes apparent that some, or all of the undistributed earnings as of December 31, 2020 will not be indefinitely reinvested, the provision for the tax consequences, if any, will be recorded in the period when circumstances change. Distributions out of current and future earnings are permissible to fund discretionary activities such as business acquisitions. However, when distributions are made, this could result in a higher effective tax rate.

Unrecognized tax benefits, excluding potential interest and penalties, for the years ended December 31, 2020 and December 31, 2019, were as follows:

(Dollars in thousands)	2020		2019
Beginning balance as of January 1	$	10,217	$	9,801
Gross increases - current period tax positions	5,417		3,139
Gross increases - tax positions in prior periods	46		—
Gross decreases - tax positions in prior periods	—		—
Foreign currency exchange	8		—
Lapse of statute of limitations	—		(2,723)
Ending balance as of December 31	$	15,688	$	10,217

Included in the balance of unrecognized tax benefits as of December 31, 2020 were $15.3 million of tax benefits that, if recognized, would impact the effective tax rate. Also included in the balance of unrecognized tax benefit as of December 31, 2020 were $0.4 million of tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes.

We recognized interest accrued related to unrecognized tax benefit as income tax expense. Related to the unrecognized tax benefits noted above, as of December 31, 2020 and 2019, we had accrued potential interest and penalties of approximately $1.2

million and $0.7 million, respectively. We have recorded a net income tax expense of $0.5 million during December 31, 2020 and net income tax expense of $0.2 million during 2019.

We are subject to taxation in the U.S. and various state and foreign jurisdictions. Our tax years from 2016 through 2020 are subject to examination by the tax authorities. With few exceptions, we are no longer subject to U.S. federal, state, local and foreign examinations by tax authorities for the years before 2016.