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Income Taxes

12 Months Ended

Dec. 31, 2019

6. Income Taxes

The income tax expense included in the accompanying consolidated statement of operations represents federal, state and foreign income taxes. The components of income before income taxes and the provision for income taxes consist of the following:


Year ended December 31,	2019		2018		2017
Income before income taxes:
Domestic	$	30,464	$	32,907	$	36,657
Foreign		37,929		32,151		15,925
Total income before income taxes	$	68,393	$	65,058	$	52,582

Provision for income taxes:
Current:
Federal	$	(4,384)	$	2,370	$	2,478
State and foreign		6,900		6,288		11,014
Total current expense		2,516		8,658		13,492

Deferred:
Federal	$	6,780	$	3,788	$	(2,585)
State and foreign		(1,194)		(1,236)		(3,374)
Total deferred benefit		5,586		2,552		(5,959)
Total income tax expense	$	8,102	$	11,210	$	7,533

A reconciliation of the Company’s effective income tax rate to the statutory federal tax rate is as follows:


Year ended December 31,	2019		2018		2017
Statutory U.S. federal income tax rate	21.0	%	21.0	%	35.0	%
State income taxes, net of federal tax benefit	0.2		0.1		(0.8)
Tax credits and incentives	(9.2)		(8.4)		(4.7)
Foreign tax rate differential	2.0		1.1		(4.5)
Impact of change in enacted tax law	1.5		(1.3)		(17.2)
Change in valuation allowance	(0.2)		(3.0)		4.2
U.S. tax on foreign earnings	(4.9)		1.0		-
Compensation and benefits	(0.7)		1.3		(1.1)
Other ^(A)	2.1		5.4		3.4
Effective income tax rate	11.8	%	17.2	%	14.3	%

(A)	The amount for 2018 includes the impact of reducing tax attributes due to legal entity consolidation which is completely offset with change in valuation allowance.

Significant components of the Company’s deferred tax assets and liabilities were as follows:


As of December 31	2019		2018
Deferred tax assets:
Inventories	$	2,254	$	2,135
Employee compensation and benefits		2,105		1,225
Accrued liabilities and reserves		3,211		4,181
Property, plant and equipment		552		647
Tax loss carryforwards		7,536		8,437
Tax credit carryforwards		15,448		22,772
Right-of-use assets		4,768		-
Other		582		410
Gross deferred tax assets		36,456		39,807
Less: Valuation allowance		(8,586)		(8,962)
Deferred tax assets less valuation allowance		27,870		30,845

Deferred tax liabilities:
Property, plant and equipment		(2,071)		(2,545)
Intangible assets		(14,846)		(16,683)
Outside basis difference in foreign subsidiary		(13,750)		(13,750)
Lease liability		(4,695)		-
Other		(375)		(641)
Gross deferred tax liabilities		(35,737)		(33,619)
Net deferred tax liabilities	$	(7,867)	$	(2,774)

The balance sheet classification of our net deferred tax asset is shown below:


Year ended December 31	2019		2018
Long-term deferred tax assets	$	4,663	$	12,121
Long-term deferred tax liabilities		(12,530)		(14,895)
Net deferred tax liabilities	$	(7,867)	$	(2,774)

The Company has recognized deferred taxes related to the expected foreign currency impact upon repatriation from foreign subsidiaries not considered indefinitely reinvested. Any foreign tax on repatriation of earnings not considered to be indefinitely reinvested is expected to be immaterial. At December 31, 2018, the aggregate undistributed earnings of our foreign subsidiaries amounted to $56,894.

Based on the Company’s review of both positive and negative evidence regarding the realizability of deferred tax assets at December 31, 2019, a valuation allowance continues to be recorded against certain deferred tax assets based upon the conclusion that it was more likely than not they would not be realized. The future provision for income taxes may be significantly impacted by changes to valuation allowances in certain countries.

The Company has net operating loss carry forwards of $57,817 and $23,851 for state and foreign tax jurisdictions, respectively. The state net operating losses expire from 2026-2035 or have indefinite lives and the foreign net operating losses expire from 2020-2024 or have indefinite lives. The Company has general business and foreign tax credit carry forwards of $15,833, $1,711 and $1,354 for U.S. federal, state and foreign jurisdictions, respectively. The U.S. federal general business credits, if unused, begin to expire in 2025, and the state and foreign tax credits expire at various times.

The following is a reconciliation of the Company’s total gross unrecognized tax benefits:


	2019		2018		2017
Balance as of January 1	$	3,481	$	3,645	$	3,839
Tax positions related to the current year:
Additions		-		-		31
Tax positions related to the prior years:
Reductions		(32)		(165)		(176)
Expirations of statutes of limitation		-		1		(49)
Balance as of December 31	$	3,449	$	3,481	$	3,645

At December 31, 2019, the Company has classified $0 as a noncurrent liability and $3,449 as a reduction to non-current deferred income tax assets. If the Company’s tax positions are sustained by the taxing authorities in favor of the Company, the amount that would affect the Company’s effective tax rate is approximately $3,449 and $3,481 at December 31, 2019 and 2018, respectively.

The Company classifies interest expense and, if applicable, penalties which could be assessed related to unrecognized tax benefits as a component of income tax expense. For the years ended December 31, 2019, 2018 and 2017, the Company recognized approximately $(5), $(13) and $(33) of gross interest and penalties, respectively. The Company has accrued approximately $0 and $19 for the payment of interest and penalties at December 31, 2019 and 2018, respectively.

The Company conducts business globally and, as a result, files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The following table summarizes the open tax years for each jurisdiction:


Jurisdiction	Open Tax Years
U.S. Federal		2016-2019
Argentina		2014-2019
Brazil		2014-2019
China		2016-2019
France		2017-2019
Germany		2016-2019
Italy		2014-2019
Mexico		2014-2019
Netherlands		2016-2019
Spain		2015-2019
Sweden		2014-2019
United Kingdom		2018-2019