Income Taxes

12 Months Ended

Dec. 31, 2020

Income Taxes

Income Taxes

Note 18. Income Taxes

Income before income taxes is as follows:

	Year ended December 31,
	2020		2019		2018
	(in thousands)
United States	$	51,934	$	18,148	$	52,172
Foreign		3,952		2,774		2,533
Income before income taxes	$	55,886	$	20,922	$	54,705

Provision for income taxes is as follows:

	Year ended December 31,
	2020		2019		2018
	(in thousands)
Current:
United States
Federal	$	—	$	—	$	41
State		157		5		112
Foreign		1,062		579		323
Total current		1,219		584		476
Deferred:
Federal		4,594		3,962		8,108
State		295		(855)		425
Foreign		(204)		197		(189)
Total deferred		4,685		3,304		8,344
Income tax provision	$	5,904	$	3,888	$	8,820

Reconciliation of income taxes at the United States Federal statutory rate to the effective income tax rate is as follows:

	Year ended December 31,
	2020		2019		2018
	(in thousands)
Income taxes at the United States statutory rate	$	11,736	$	4,393	$	11,488
State income taxes		226		78		299
Unrecognized tax benefits		—		(251)		(345)
Effect of change in valuation allowance		806		1,492		(441)
Foreign income tax rate differentials		181		129		73
Stock based compensation		(2,803)		(1,257)		(715)
Credit expirations		(14)		894		—
Rate change		151		194		160
Credit generation		(2,473)		(3,124)		(3,530)
Discrete items, net		(147)		18		972
Previously unrecognized tax benefit		(4,063)		—		—
GILTI inclusion		732		566		366
Other, net		1,572		756		493
Income tax provision	$	5,904	$	3,888	$	8,820

Significant components of long-term deferred income taxes are as follows:

	Year ended December 31,
	2020		2019
	(in thousands)
Deferred tax assets:
Federal net operating loss carryforwards	$	23,193	$	39,380
State net operating loss carryforwards		969		1,211
Foreign net operating loss carryforwards		529		554
Federal tax credit carryforwards		19,377		18,061
State tax credit carryforwards		7,358		6,837
Property, plant and equipment		9,501		10,098
Operating lease liability		348		503
Accrued compensation		16		266
Inventories		2,271		2,674
Stock compensation		1,566		2,477
Warranty		982		689
Deferred revenue		1,032		1,086
Capitalized research and development costs		5,785		—
Gross deferred tax assets		72,927		83,836
Valuation allowance		(9,133)		(8,327)
Net deferred tax assets		63,794		75,509
Deferred tax liabilities:
Intangible assets		(80)		(47)
Right-of-use asset		(4,756)		(5,141)
Internal Revenue Code 481(a) adjustment		—		(412)
Other		(1,107)		(1,849)
Gross deferred tax liabilities		(5,943)		(7,449)
Deferred taxes, net	$	57,851	$	68,060

Changes in tax rates and tax laws are accounted for in the period of enactment. Our deferred tax assets and liabilities are measured at the enacted tax rate expected to apply when these temporary differences are expected to be realized or settled.

At December 31, 2020, we had $57.9 million of deferred tax assets worldwide relating to net operating loss carryforwards, tax credit carryforwards and other temporary differences, which are available to reduce income taxes in future years. At December 31, 2020, we maintain a $9.1 million valuation allowance in the U.S. against certain tax credits and state net operating losses due to the uncertainty of their realization based on long-term Company forecasts and the expiration dates on these attributes. This represents an increase of $0.8 million from the prior year.

At December 31, 2020, we have federal and state net operating loss carryforwards of $114.1 million and $17.8 million, respectively. Federal and state net operating losses will expire between 2021 and 2034. The federal net operating loss carryforwards are subject to an uncertain tax position reserve of $3.7 million. At December 31, 2020, we have foreign net operating loss carryforwards of $2.1 million. The majority of our foreign net operating losses have an unlimited carryforward period.

At December 31, 2020, we have research and development and other tax credit carryforwards of $37.5 million. These carry forwards are subject to an uncertain tax position reserve of $8.8 million. These credits can be used to reduce future federal and state income tax liabilities and expire principally between 2021 and 2040.

We consider the undistributed earnings of our foreign subsidiaries as of December 31, 2020, to be indefinitely reinvested and, accordingly, no U.S. income taxes have been provided thereon. As of December 31, 2020, the amount of

cash associated with indefinitely reinvested foreign earnings was approximately $14.0 million. We have not, nor do we anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.

We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. We and most foreign subsidiaries are subject to income tax examinations by tax authorities for all years dating back to 2009. Our policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. We believe that we have appropriate support for the income tax positions taken and to be taken on our tax returns and that our accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

At December 31, 2020, we had unrecognized tax benefits related to uncertain tax positions of approximately $10.0 million, of which approximately $9.6 million reduced the Company’s deferred tax assets and the offsetting valuation allowance and $0.5 million was recorded in other long-term liabilities.

A reconciliation of the beginning and ending balance of unrecognized tax benefits are as follows:

		Year ended December 31,
	2020		2019		2018
	(in thousands)
Balance at beginning of year	$	9,799	$	9,127	$	9,105
Increase / (decrease) in unrecognized tax benefits as a result of tax positions taken during a prior period		(502)		215		(132)
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitation		—		(334)		(543)
Increases in unrecognized tax benefits as a result of tax positions taken during the current period		747		791		697
Balance at end of year	$	10,044	$	9,799	$	9,127
Recorded as other long-term liability	$	472	$	409	$	676
Recorded as a decrease in deferred tax assets		9,572		9,390		8,451
Balance at end of year	$	10,044	$	9,799	$	9,127

As of December 31, 2020 we had $10.0 million of unrecognized tax benefits which, if recognized would reduce the effective tax rate.