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Income Taxes

12 Months Ended

Dec. 31, 2020

6. Income Taxes

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


Year ended December 31	2020		2019		2018
(Loss) income before income taxes:
Domestic	$	(25,403)	$	30,464	$	32,907
Foreign		14,679		37,929		32,151
Total (loss) income before income taxes	$	(10,724)	$	68,393	$	65,058

Provision for income taxes:
Current:
Federal	$	(3)	$	(4,384)	$	2,370
State and foreign		5,182		6,900		6,288
Total current expense	$	5,179	$	2,516	$	8,658

Deferred:
Federal	$	(8,512)	$	6,780	$	3,788
State and foreign		559		(1,194)		(1,236)
Total deferred (benefit) provision		(7,953)		5,586		2,552
Total income tax (benefit) provision	$	(2,774)	$	8,102	$	11,210

A summary of the differences between the statutory federal income tax rate of 21.0% and the consolidated provision for income taxes is shown below.


Year ended December 31		2020		2019		2018
Statutory U.S. federal income tax (benefit) provision	$	(2,252)	$	14,363	$	13,662
State income taxes, net of federal tax benefit		(647)		152		95
Tax credits and incentives		(2,791)		(6,297)		(5,159)
Foreign tax rate differential		90		1,347		710
Impact of change in enacted tax law		1,108		993		(848)
Change in valuation allowance		2,174		(138)		(1,922)
U.S. tax on foreign earnings		(433)		(3,373)		664
Compensation and benefits		362		(469)		839
Other ^(A)		(385)		1,524		3,169
(Benefit) provision for income taxes	$	(2,774)	$	8,102	$	11,210

(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	2020		2019
Deferred tax assets:
Inventories	$	1,858	$	2,254
Employee compensation and benefits		2,306		2,105
Accrued liabilities and reserves		3,649		3,211
Property, plant and equipment		943		552
Tax loss carryforwards		12,307		7,536
Tax credit carryforwards		22,949		15,448
Lease liability		4,199		4,768
Other		897		582
Gross deferred tax assets		49,108		36,456
Less: Valuation allowance		(10,237)		(8,586)
Deferred tax assets less valuation allowance		38,871		27,870

Deferred tax liabilities:
Property, plant and equipment		(2,400)		(2,071)
Intangible assets		(13,630)		(14,846)
Outside basis difference in foreign subsidiary		-		(13,750)
Right-of-use-assets		(4,076)		(4,695)
Other		(4,793)		(375)
Gross deferred tax liabilities		(24,899)		(35,737)
Net deferred tax assets (liabilities)	$	13,972	$	(7,867)

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


Year ended December 31	2020		2019
Long-term deferred tax assets	$	26,907	$	4,663
Long-term deferred tax liabilities		(12,935)		(12,530)
Net deferred tax assets (liabilities)	$	13,972	$	(7,867)

The Company adopted ASU 2019-12,Income Taxes: Simplifying the Accounting for Income Taxes. As a result, the Company reversed a deferred tax liability of $13,750 related to its Stoneridge Brazil subsidiary that was previously a foreign equity method investment. The impact of adoption was recognized in retained earnings.

The Company has recognized deferred taxes related to foreign withholding taxes and the expected foreign currency impact upon repatriation from foreign subsidiaries not considered indefinitely reinvested. At December 31, 2020, the aggregate undistributed earnings of our foreign subsidiaries amounted to $52,715.

Based on the Company’s review of both positive and negative evidence regarding the realizability of deferred tax assets at December 31, 2020, a valuation allowance is recorded against certain deferred tax assets based upon the conclusion that it was more likely than not they would not be realized.

The Company generated federal net operating loss of $15,801 in 2020. The Company has net operating loss carry forwards of $74,474 and $30,991 for state and foreign tax jurisdictions, respectively. Federal net operating loss carryover is indefinite and be carried back for 5 years. The state net operating losses expire from 2024-2040 or have indefinite lives and the foreign net operating losses expire from 2021-2025 or have indefinite lives. The Company has general business and foreign tax credit carry forwards of $19,810, $1,792 and $1,348 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:


	2020		2019		2018
Balance as of January 1	$	3,449	$	3,481	$	3,645
Tax positions related to the current year:
Additions		-		-		-
Tax positions related to the prior years:
Reductions		-		(32)		(165)
Expirations of statutes of limitation		-		-		1
Balance as of December 31	$	3,449	$	3,449	$	3,481

At December 31, 2020, the Company has classified $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 at December 31, 2020 and 2019.

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, 2020, 2019 and 2018, the Company recognized approximately $0, $(5) and $(13) of gross interest and penalties, 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		2017-2020
Argentina		2015-2020
Brazil		2014-2020
China		2017-2020
France		2017-2020
Germany		2016-2020
Italy		2015-2020
Mexico		2015-2020
Netherlands		2017-2020
Spain		2016-2020
Sweden		2015-2020
United Kingdom		2019-2020

- 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.

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