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Income Taxes
 12 Months Ended
Dec. 31, 2021
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)2021202043465
Domestic$34,435 $(4,371)$(18,711)
International91,845 72,905 73,837 
Total$126,280 $68,534 $55,126 
The “Income tax expense” line item in the consolidated statements of operations consisted of:
(Dollars in thousands)CurrentDeferredTotal
2021
Domestic$5,155 $(2,938)$2,217 
International16,187 (257)15,930 
Total$21,342 $(3,195)$18,147 
2020
Domestic$5,340 $(11,012)$(5,672)
International26,610 (2,394)24,216 
Total$31,950 $(13,406)$18,544 
2019
Domestic$3,372 $(16,827)$(13,455)
International21,984 (722)21,262 
Total$25,356 $(17,549)$7,807 
Deferred tax assets and liabilities as of December 31, 2021 and 2020, were comprised of the following:
(Dollars in thousands)20212020
Deferred tax assets
Accrued employee benefits and compensation$10,647 $6,199 
Net operating loss carryforwards3,785 2,563 
Tax credit carryforwards13,170 15,081 
Reserves and accruals5,145 6,581 
Operating leases4,191 665 
Capitalized research and development16,622 14,167 
Other5,299 1,824 
Total deferred tax assets58,859 47,080 
Less deferred tax asset valuation allowance(9,775)(9,250)
Total deferred tax assets, net of valuation allowance49,084 37,830 
Deferred tax liabilities
Depreciation and amortization32,669 10,282 
Postretirement benefit obligations2,071 2,001 
Unremitted earnings2,335 2,426 
Operating leases4,422 714 
Other4,367 2,115 
Total deferred tax liabilities45,864 17,538 
Net deferred tax asset (liability)$3,220 $20,292 
As of December 31, 2021, we had state net operating loss carryforwards totaling $15.9 million in various state taxing jurisdictions, which expire between 2022 and 2040, and approximately $9.6 million of state research credit carryforwards, which will expire between 2022 and 2040. We also had $4.9 million of federal research and development (R&D) credit carryforwards that begin to expire in 2035. We believe that it is more likely than not that the benefit from certain of the state net operating loss and state R&D credits carryforwards will not be realized. In recognition of this risk, we have provided a valuation allowance of $8.5 million relating to these carryforwards. We currently have approximately $1.2 million of foreign tax credits that begin to expire in 2028.
We had a valuation allowance of $9.8 million as of December 31, 2021 and $9.3 million as of December 31, 2020, 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. 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)202120202019
Tax expense at Federal statutory income tax rate$26,519 $14,392 $11,576 
Impact of foreign operations2,020 1,193 107 
Foreign source income, net of tax credits(4,944)1,050 (2,248)
State tax, net of federal175 (313)(690)
Unrecognized tax benefits(8,823)5,800 543 
Equity compensation excess tax deductions262 (791)(2,902)
General business credits(867)(931)(656)
Distribution related foreign taxes2,516 2,332 1,240 
Executive compensation limitation1,570 900 589 
Valuation allowance change525 (5,375)(2,527)
Disproportionate tax effect of pension settlement charges— — 2,510 
Other(806)287 265 
Income tax expense (benefit)$18,147 $18,544 $7,807 
Our effective income tax rate for 2021 was 14.4% compared to 27.1% for 2020. The 2021 rate decrease was primarily due to the beneficial impact of increased reversals of unrecognized tax positions in China.
We did not make any changes in 2021 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, 2021 and 2020, we had recorded a deferred tax liability of $2.3 million and $2.4 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 $2.1 million of additional tax liabilities. If circumstances change and it becomes apparent that some, or all of the undistributed earnings as of December 31, 2021 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, 2021 and 2020, were as follows:
(Dollars in thousands)20212020
Beginning balance as of January 1$15,688 $10,217 
Gross increases - current period tax positions1,046 5,417 
Gross increases - tax positions in prior periods1,150 46 
Gross decreases - tax positions in prior periods(9,151)— 
Foreign currency exchange(10)8 
Settlements(2,140)— 
Ending balance as of December 31$6,583 $15,688 
Included in the balance of unrecognized tax benefits as of December 31, 2021 were $5.9 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, 2021 were $0.5 million of tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes. We believe that it is reasonably possible that a decrease of up to $1.2 million in unrecognized tax benefits related to foreign exposures may be necessary within the coming year.
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, 2021 and 2020, we had accrued potential interest and penalties of approximately $1.1 million and $1.2 million, respectively. We have recorded a net income tax benefit and expense of $0.5 million and $0.5 million in 2021 and 2020, respectively.
We are subject to taxation in the U.S. and various state and foreign jurisdictions. Our tax years from 2018 through 2022 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 2018.