Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.20.4
Income Taxes
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes
NOTE 10—INCOME TAXES
Income Tax Provision
Consolidated income from continuing operations before income taxes consisted of the following:
Year Ended December 31,
(in thousands)
 2020 2019 2018
United States operations $ 29,154  $ 247,642  $ 224,430 
Foreign operations 110,369  157,787  136,287 
Income before income tax $ 139,523  $ 405,429  $ 360,717 
The components of the provision for income taxes consisted of the following:
Year Ended December 31,
(in thousands)
 2020 2019 2018
Current:
Federal $ 18,435  $ 41,148  $ 59,213 
State and local 4,929  7,458  9,959 
Non-United States 26,897  30,930  28,700 
50,261  79,536  97,872 
Deferred:
Federal (14,728) (7,887) (10,961)
State and local (5,097) (999) (1,910)
Non-United States 1,074  4,290  768 
(18,751) (4,596) (12,103)
Income tax expense $ 31,510  $ 74,940  $ 85,769 
The following is a reconciliation of the statutory federal income tax rate to the effective rate reported in the financial statements:
Year Ended December 31,
(percent of income before tax) 2020 2019 2018
Provision for federal income taxes at the statutory rate 21.0  % 21.0  % 21.0  %
State and local income taxes, net of federal benefit 1.5  1.7  2.0 
Non-United States income taxed at different rates 2.1  (0.1) (0.1)
Foreign tax credits (0.9) (0.1) — 
Adjustment to deferred taxes (1.2) (2.1) — 
Global Intangible Low-Taxed Income 0.1  —  0.4 
Research credits (1.4) (0.5) (0.6)
Withholding taxes 0.5  0.3  0.4 
Excess tax benefits from stock plans (0.8) (1.6) (1.4)
Provision for income taxes related to tax reform —  —  1.4 
Other 1.7  (0.1) 0.7 
Actual provision for income taxes 22.6  % 18.5  % 23.8  %
Deferred Income Tax Balances
Significant components of the Company's deferred taxes consisted of the following:
December 31,
(in thousands)
 2020 2019
Deferred tax assets:
Accruals and allowances $ 47,667  $ 38,532 
Capitalized inventory costs 38,832  34,389 
Stock compensation 6,078  5,013 
Net operating loss carryforwards 24,253  23,660 
Depreciation and amortization 29,358  32,293 
Tax credits 844  2,329 
Foreign currency 2,418  — 
Other 2,304  2,258 
Gross deferred tax assets 151,754  138,474 
Valuation allowance (23,534) (24,130)
Net deferred tax assets 128,220  114,344 
Deferred tax liabilities:
Depreciation and amortization (16,206) (15,738)
Prepaid expenses (2,085) (2,661)
Deferred tax liability associated with future repatriations (19,008) (19,847)
Foreign currency —  (3,610)
Gross deferred tax liabilities (37,299) (41,856)
Total net deferred taxes $ 90,921  $ 72,488 
The Company has foreign net operating loss carryforwards of $89.1 million as of December 31, 2020, of which $72.7 million have an unlimited carryforward period and $16.5 million expire between 2025 and 2040. The net operating losses result in deferred tax assets of $24.3 million and $23.7 million and were subject to a valuation allowance of $21.2 million and $21.9 million at December 31, 2020 and 2019, respectively.
At December 31, 2020, the Company has accumulated undistributed earnings generated by the Company's foreign subsidiaries of
$320.8 million. As $100.0 million of such earnings have previously been subject to the one-time transition tax on foreign earnings by the Tax Cuts and Jobs Act, any additional taxes due with respect to such earnings would generally be limited to foreign and state taxes and have been recorded as a deferred tax liability. However, the Company intends to indefinitely reinvest the earnings generated after January 1, 2018 and expects future domestic cash generation to be sufficient to meet future domestic cash needs.
Unrecognized Tax Benefits
The Company conducts business globally, and, as a result, the Company or one or more of its subsidiaries file income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. The Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Canada, China, France, Japan, South Korea, Switzerland, and the United States. The Company has effectively settled Canadian tax examinations of all years through 2012, United States tax examinations of all years through 2013, Japanese tax examinations of all years through 2014, France tax examinations of all years through 2014, Swiss tax examinations of all years through 2014, Italy tax examinations of all years through 2016, and China tax examinations of all years through 2018. The Korean National Tax Service concluded an audit of the Company's 2009 through 2013 corporate income tax returns in 2014, and an audit of the Company's 2014 corporate income tax return in 2016. Due to the nature of the findings in both of these audits, the Company has invoked the Mutual Agreement Procedures outlined in the United States-Korean income tax treaty. The Company does not anticipate that adjustments relative to these findings, or any other ongoing tax audits, will result in material changes to its financial condition, results of operations or cash flows. Other than the findings previously noted, the Company is not currently under examination in any major jurisdiction.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:
December 31,
(in thousands)
 2020 2019 2018
Balance at beginning of year $ 12,478  $ 11,064  $ 10,512 
Increases related to prior year tax positions 1,903  4,374  490 
Decreases related to prior year tax positions (162) (5,423) (1,093)
Increases related to current year tax positions 906  4,991  1,818 
Settlements —  (1,464) 319 
Expiration of statute of limitations (632) (1,064) (982)
Balance at end of year $ 14,493  $ 12,478  $ 11,064 
Due to the potential for resolution of income tax audits currently in progress, and the expiration of various statutes of limitation, it is reasonably possible that the unrecognized tax benefits balance may change within the twelve months following December 31, 2020 by a range of zero to $5.4 million. Open tax years, including those previously mentioned, contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing, or inclusion of revenue and expenses or the sustainability of income tax credits for a given examination cycle.
Unrecognized tax benefits of $13.6 million, $11.5 million and $9.1 million would affect the effective tax rate if recognized at December 31, 2020, 2019 and 2018, respectively.
The Company recognizes interest expense and penalties related to income tax matters in Income tax expense. The Company recognized a net increase of accrued interest and penalties of $0.8 million in 2020, and a net reversal of accrued interest and penalties of $0.5 million in 2019 and a net increase of accrued interest and penalties of $0.4 million in 2018, all of which related to uncertain tax positions. The Company had $2.3 million and $1.5 million of accrued interest and penalties related to uncertain tax positions at December 31, 2020 and 2019, respectively.