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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes For financial reporting purposes, income before taxes includes the following components (in thousands):
| Years ended December 31,
| 2019 |  | 2018 |  | 2017
Domestic | $ | (7,405 | ) |  | $ | (7,897 | ) |  | $ | (3,552 | )
Foreign | 33,845 |  |  | 41,886 |  |  | 24,115 |
| $ | 26,440 |  |  | $ | 33,989 |  |  | $ | 20,563 |
The expense (benefit) for income taxes is comprised of (in thousands):
| Years ended December 31,
| 2019 |  | 2018 |  | 2017
Current: |  |  |  |  |
Federal | $ | 453 |  |  | $ | 189 |  |  | $ | (425 | )
State and local | (130 | ) |  | 162 |  |  | 89 |
Foreign | 6,378 |  |  | 8,982 |  |  | 4,615 |
| 6,701 |  |  | 9,333 |  |  | 4,279 |
Deferred: |  |  |  |  |
Federal | (2,638 | ) |  | 197 |  |  | (257 | )
State and local | (123 | ) |  | (35 | ) |  | (1 | )
Foreign | 205 |  |  | 849 |  |  | 2,148 |
| (2,556 | ) |  | 1,011 |  |  | 1,890 |
Total income tax expense | $ | 4,145 |  |  | $ | 10,344 |  |  | $ | 6,169 |
A reconciliation of income tax expense (benefit) at the U.S. federal statutory income tax rate to the actual income tax provision is as follows (in thousands):
| Years ended December 31,
| 2019 |  | 2018 |  | 2017
Tax at statutory rate | $ | 5,553 |  |  | $ | 7,138 |  |  | $ | 7,197 |
State income taxes, net of U.S. federal tax benefit | (21 | ) |  | 89 |  |  | 93 |
Effect of foreign operations | (109 | ) |  | 611 |  |  | (1,137 | )
Change in valuation allowance | (646 | ) |  | 498 |  |  | (397 | )
Change in unrecognized tax benefits, net | 650 |  |  | 258 |  |  | 105 |
Impairment of goodwill | — |  |  | 525 |  |  | — |
Specialty tax credits | (176 | ) |  | (295 | ) |  | (139 | )
Statutory rate changes | (249 | ) |  | 272 |  |  | (470 | )
Effect of foreign exchange | (1,152 | ) |  | 321 |  |  | (1,292 | )
Loss of benefit of U.S. net operating loss (a) | 967 |  |  | — |  |  | — |
Excess tax benefits related to share based compensation (a) | (357 | ) |  | — |  |  | — |
2017 Tax Act: |  |  |  |  |  |  |  |
Effects of U.S. tax reform | — |  |  | (135 | ) |  | 11,311 |
Change in valuation allowance | — |  |  | 945 |  |  | (9,093 | )
Other | (315 | ) |  | 117 |  |  | (9 | )
Total income tax expense | $ | 4,145 |  |  | $ | 10,344 |  |  | $ | 6,169 |
(a) Amounts for 2017 and 2018 are included in Other and fell below the 5% threshold. On December 22, 2017, the Tax Cuts and Jobs Act ("2017 Tax Act") was enacted. The 2017 Tax Act significantly changed U.S. tax law by, among other things, lowering the corporate tax rate, implementing a modified territorial tax system, and imposing a one-time transition tax on post 1986 undistributed foreign earnings as of December 31, 2017. The 2017 Tax Act permanently reduces the U.S. tax rate from a maximum of 35% to a flat 21%, effective January 1, 2018. Under U.S. GAAP, changes in tax rates and tax law are accounted for in the period of enactment and deferred tax assets and liabilities are measured at the enacted tax rate expected to apply to taxable income in the years in which the temporary differences are expected to recover or be settled. Also on December 22, 2017, the SEC staff issued SAB 118 which provides for a measurement period of one year from the enactment date to finalize the accounting for effects of the 2017 Tax Act. Consistent with that guidance, the Company had provisionally determined the tax cost of the one-time transition tax under the 2017 Tax Act to be approximately $2.2 million. This amount included the tax benefit from the net operating loss of approximately $3.9 million. As a result of the implementation of a modified territorial tax system, the Company reassessed its assertion with respect to certain subsidiaries that the earnings of those subsidiaries are indefinitely reinvested and in 2017 recorded a deferred tax liability of $1.8 million withholding tax associated with a planned cash distribution of approximately $25.5 million of previously unremitted earnings. The deferred tax liability of $1.8 million was included in the provisional tax of $2.2 million for 2017. As of December 31, 2019, the remaining planned cash distribution amount is approximately $14.1 million with a remaining deferred tax liability of approximately $1.5 million. In accordance with SAB 118, the financial reporting impact of the 2017 Tax Act was completed in the fourth quarter of 2018 resulting in a net $0.8 million increase in tax expense caused by a decrease in the transition tax and an increase in the valuation allowance. The 2017 Tax Act subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in the future years or provide for tax expense related to GILTI in the year the tax is incurred. The Company has elected to recognize tax expense related to GILTI in the year the tax is incurred. The Company recognized approximately $12.9 million and $15.6 million of GILTI income for the years ended December 31, 2019 and 2018, respectively. The U.S. tax on the GILTI income was fully offset by foreign tax credits associated with GILTI and U.S. operating losses exclusive of GILTI. Any excess foreign tax credits associated with GILTI are lost and cannot be carried forward to future years. The Company would have generated a net operating loss for U.S. federal income tax purposes but for the effects of the GILTI provision. Deferred income taxes represent the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
| December 31,
| 2019 |  | 2018
Deferred tax assets: |  |  |
Pension and other postretirement costs | $ | 3,770 |  |  | $ | 3,600 |
Inventories | 2,095 |  |  | 2,103 |
Net operating/capital loss and interest carryforwards | 11,895 |  |  | 9,536 |
Tax credit carryforwards | 1,431 |  |  | 748 |
Deferred compensation | 2,865 |  |  | 2,009 |
Other accruals and reserves | 3,362 |  |  | 3,547 |
Book over tax depreciation | — |  |  | 12 |
Total gross deferred tax assets | 25,418 |  |  | 21,555 |
Less: valuation allowance | (14,867 | ) |  | (14,455 | )
| 10,551 |  |  | 7,100 |
Deferred tax liabilities: |  |  |
Tax over book depreciation | (290 | ) |  | — |
Investment in subsidiary | (1,845 | ) |  | (1,983 | )
Intangible assets, including tax deductible goodwill | (5,745 | ) |  | (884 | )
Total gross deferred tax liabilities | (7,880 | ) |  | (2,867 | )
Net deferred tax assets | $ | 2,671 |  |  | $ | 4,233 |
In 2015, the Company established a valuation allowance with respect to substantially all of its U.S. deferred tax assets due to uncertainty regarding the realization of these assets. Throughout 2018 and 2019, the Company reassessed its ability to realize its U.S. and other deferred tax assets by considering both positive and negative evidence regarding realization. The most significant negative evidence is continuing cumulative operating losses in the U.S. The impact of the acquisitions of Stress-Tek, Pacific and DSI was also considered in determining the realization of the U.S. deferred tax assets. Other aspects, such as operating results, additional interest expense and additional tax deductions related to the Stress-Tek acquisition, were also considered. The Company also considered positive evidence such as tax planning strategies and the projected benefits of our restructuring efforts. However, there was insufficient positive evidence to overcome the negative evidence. In November 2019, the Company acquired Dynamic Systems, Inc. ("DSI"), a U.S. company. DSI's opening balance sheet included $17 million of gross deferred tax liabilities, including $4.1 million of indefinite-lived liabilities. The acquisition contributed to a $2.5 million net reduction in valuation allowance and current tax benefit for the Company. This reduction in the valuation allowance will be adjusted going forward. Overall, the cumulative losses and the acquisition impacts still indicate that realization of our U.S. deferred tax assets remains uncertain such that the Company cannot conclude that it is "more likely than not" that the deferred tax assets will be recoverable. We will continue to monitor the realization of U.S. deferred tax assets and reduce the valuation allowance if, and when, sufficient positive evidence of realization exists. At December 31, 2019 and 2018, the valuation allowance on U.S. deferred tax assets was approximately $11.8 million and $12.3 million, respectively. The net change in valuation allowance was approximately $(0.6) million. The valuation allowance related to state taxes was $0.8 million and $1.0 million expense for the years ended December 31, 2019 and 2018, respectively. The Company also has valuation allowances of $3.1 million and $2.2 million at December 31, 2019 and 2018, respectively, with respect to certain foreign net operating loss and capital loss carryforwards. Significant valuation allowances are as follows (in thousands):
| December 31,
Jurisdiction | 2019 |  | 2018
U.S. federal | $ | 3,395 |  |  | $ | 4,240 |
U.S. state (net of U.S. federal tax benefit) | 8,411 |  |  | 8,057 |
Israel - capital losses | 2,457 |  |  | 1,457 |
The following table summarizes significant net operating losses and credit carryforwards as of December 31, 2019 (in thousands):
| December 31, |  |
Jurisdiction | 2019 |  | Expiring
U.S. foreign tax credit | 1,431 |  |  | 2025-2039
U.S state net operating losses | 92,407 |  |  | 2023-2039
Israel capital losses | 10,684 |  |  | No expiration
Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $159.0 million at December 31, 2019 compared to $143.0 million at December 31, 2018. As a result of the 2017 Tax Act, in 2017 the Company had provided for a deferred tax liability of approximately $1.8 million of withholding tax associated with a planned cash distribution of approximately $25.5 million. As of December 31, 2019, other than the planned cash distribution of $14.1 million, substantially all of the remaining undistributed earnings are considered to be indefinitely reinvested and accordingly no provision has been made with respect to these earnings for incremental foreign income taxes, state income taxes or foreign withholding taxes. If those earnings were distributed to the U.S., the Company could be subject to incremental foreign income taxes, state income taxes, and withholding taxes. Determination of the amount of unrecognized deferred tax liability is not practicable because of the uncertainty regarding the timing of any such distribution and the impact on existing valuation allowances. In addition to the $1.5 million, additional withholding taxes of approximately $17.5 million are estimated to be payable upon remittance of the remaining previously unremitted earnings as of December 31, 2019. Net income taxes paid were $11.1 million, $7.3 million, and $4.1 million for the years ended December 31, 2019, 2018, and 2017, respectively. The Company and its subsidiaries are subject to income taxes imposed by the U.S., various states, and the foreign jurisdictions in which we operate. Each jurisdiction establishes rules that set forth the years which are subject to examination by its tax authorities. While the Company believes the tax positions taken on its tax returns for each jurisdiction are supportable, they may still be challenged by the jurisdiction's tax authorities. In anticipation of such challenges, the Company has established reserves for tax-related uncertainties. These liabilities are based on the Company’s best estimate of the potential tax exposures in each respective jurisdiction. It may take a number of years for a final tax liability in a jurisdiction to be determined, particularly in the event of an audit. If an uncertain matter is determined favorably, there could be a reduction in the Company’s tax expense. An unfavorable determination could increase tax expense and could require a cash payment, including interest and penalties. The following table summarizes changes in the Company's gross liabilities, excluding interest and penalties, associated with unrecognized tax benefits (in thousands):
| December 31,
| 2019 |  | 2018 |  | 2017
Balance at beginning of year | $ | 912 |  |  | $ | 823 |  |  | $ | 772 |
Addition based on tax positions related to current year | 144 |  |  | 189 |  |  | 163 |
Addition based on tax positions related to prior years | 668 |  |  | 182 |  |  | — |
Reduction based on tax positions related to prior years | (32 | ) |  | (98 | ) |  | (12 | )
Currency translation adjustments | 3 |  |  | (28 | ) |  | 14 |
Reduction for payments made | (134 | ) |  | — |  |  | — |
Reduction for lapses of statute of limitations | (206 | ) |  | (156 | ) |  | (114 | )
Balance before indemnification receivable | 1,355 |  |  | 912 |  |  | 823 |
Receivable from Vishay Intertechnology for indemnification | — |  |  | — |  |  | (12 | )
Balance at end of year | $ | 1,355 |  |  | $ | 912 |  |  | $ | 811 |
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Related to the unrecognized tax benefits noted above, for the years ended December 31, 2019, December 31, 2018 and December 31, 2017, the Company accrued total penalties and interest of $0.0 million, $0.1 million and $0.1 million, respectively, none of which was included in the indemnification receivable. As of December 31, 2019, December 31, 2018 and December 31, 2017, accrued penalties and interest were $0.1 million, $0.1 million and $0.1 million, respectively. Included in the balance of unrecognized tax benefits as of December 31, 2019, 2018, and 2017 is $1.4 million, $0.9 million, and $0.8 million, respectively, of tax benefits that, if recognized, would impact the effective tax rate. The Company believes that it is reasonably possible that an increase in unrecognized tax benefits related to foreign exposures of between $0.1 million and $0.2 million may be necessary in 2019. As of December 31, 2019, the Company anticipates that it is reasonably possible that it will reverse up to $0.1 million of its current unrecognized tax benefits within the calendar year due to the expiration of the statute of limitations in certain jurisdictions. None of the unrecognized tax benefits the Company expects to reverse in 2020 due to statute lapses are covered by the Tax Matters Agreement. The Company and its subsidiaries file U.S. federal income tax returns, as well as income tax returns in various state, local, and foreign jurisdictions. The Company files federal, state, and local income tax returns on a combined, unitary, or stand-alone basis. The statute of limitations in those jurisdictions generally ranges from 3 to 4 years. Additionally, the Company's foreign subsidiaries file income tax returns in the countries in which they have operations and the statutes of limitations in those jurisdictions generally range from 3 to 10 years. During the 2nd and 3rd quarters of 2019, the Company concluded tax examinations in Taiwan and Belgium, respectively, for two of its subsidiaries, covering the years 2016 and 2017. The conclusion of the tax examinations resulted in no significant change in tax. During the fourth quarter of 2018, the Company concluded a tax examination in Germany for one of its subsidiaries, covering the years 2015 and 2016. The conclusion of the tax examination resulted in no significant change in tax. During the fourth quarter of 2017, the Company concluded a tax examination in Japan for one of its subsidiaries, covering the years 2014 through 2016. The conclusion of the tax examination resulted in no significant change in tax. The Company is subject to ongoing income tax audits, administrative appeals and judicial proceedings in India spanning a number of years.

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- 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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