Note 16 - Income Taxes

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 16 – Income Taxes

The Company is subject to income tax in multiple jurisdictions and the use of estimates is required to determine the provision for income taxes. For the years ended December 31, 2019, 2018 and 2017, the Company recorded an income tax provision of $17.5 million, $15.1 million and $22.7 million, respectively. The effective income tax rate for the years ended December 31, 2019, 2018 and 2017 was 21.6 percent, 16.4 percent and 30.4 percent, respectively.

The effective tax rate increased by 5.2% for the year ended December 31, 2019 when compared to 2018 primarily due to a decrease in tax benefits from the vesting of restricted stock and exercise of stock options, an increase in the state tax provision, and an increase to valuation allowances for unrealizable deferred tax assets. 

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduced the U.S. federal corporate tax rate from 35% to 21%, required companies to pay a transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. 

The provision for income taxes is based on income before income taxes reported for financial statement purposes. The components of income before income taxes are as follows:

	Year Ended December 31,
(in thousands)	2019		2018		2017
Domestic	$	74,841	$	81,893	$	69,929
Foreign		6,352		9,762		4,506
Total	$	81,193	$	91,655	$	74,435

Significant components of the provision for income taxes for the following periods are as follows:

	Year Ended December 31,
(in thousands)	2019			2018			2017
Current:
Federal	$	6,991		$	(782	)	$	17,808
State		2,882			2,078			1,367
Foreign		1,544			1,810			2,215
Deferred
Federal		5,121			11,325			865
State		269			538			193
Foreign		(809	)		(430	)		(1,918	)
Valuation Allowance		1,540			528			2,127
Total	$	17,538		$	15,067		$	22,657

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

	Year Ended December 31,
	2019			2018			2017
Federal tax statutory rate		21.0	%		21.0	%		35.0	%
State tax (net of federal benefit)		2.1			2.0			1.7
Share based compensation		(0.5	)		(2.8	)		(0.8	)
Valuation allowance against deferred tax assets		1.4			0.7			2.9
Research and development credit		(2.8	)		(2.5	)		(2.2	)
Foreign rate differential		(0.3	)		(0.1	)		(1.9	)
Tax reserves		1.1			(0.1	)		0.9
Domestic manufacturing deduction		-			-			(2.5	)
Miscellaneous		(0.4	)		(0.5	)		(0.2	)
Transition tax		-			(0.8	)		3.2
Revaluation of deferred tax liability		-			(0.5	)		(5.7	)
Total		21.6	%		16.4	%		30.4	%

Significant components of deferred tax assets and liabilities are as follows:

	December 31,
(in thousands)	2019			2018
Deferred tax assets:
Accrued expenses	$	1,362		$	931
Leases		3,337			-
Warrants and stock options		3,325			2,908
Intangible assets		1,171			748
Inventories		169			154
Other assets		1,765			666
Net operating loss		6,513			6,605
Less valuation allowance		(8,248	)		(6,900	)
Total deferred tax assets		9,394			5,112
Deferred tax liabilities:
Depreciation		(26,750	)		(21,788	)
Goodwill		(5,590	)		(3,486	)
Leases		(3,337	)		-
Total deferred tax liabilities		(35,677	)		(25,274	)
Net deferred tax liability	$	(26,283	)	$	(20,162	)

The Company has recorded no U.S. deferred taxes related to the undistributed earnings of its non-U.S. subsidiaries as of December 31, 2019. Such amounts are intended to be reinvested outside of the United States indefinitely. It is not practicable to estimate the amount of additional tax that might be payable on the foreign earnings. As of December 31, 2019, the Company had accumulated undistributed earnings in non-U.S. subsidiaries of $9.3 million.

As of December 31, 2019, the Company had estimated net operating loss carry forwards of $6.5 million for tax purposes. The net operating losses relate to operations in Japan and Germany. Japan losses can be carried forward for up to ten years. The remaining Japan net operating losses begin to expire at various dates between 2020 and 2026. The Company’s Japan operations are taxed both by local authorities and in the U.S. Germany net operating losses may be carried forward without any time limitations but are limited to €1 million, plus 60 percent of taxable income exceeding €1 million.

The Company establishes valuation allowances for deferred tax assets when, after consideration of all positive and negative evidence, it is considered more-likely-than-not that a portion of the deferred tax assets will not be realized. The Company's valuation allowances of $8.2 million and $6.9 million at December 31, 2019 and 2018, respectively, reduce the carrying value of deferred tax assets associated with certain net operating loss carry forwards and other assets with insufficient positive evidence for recognition. The increase in the valuation allowance is primarily attributable to fluctuations in foreign currency and the net operating losses incurred in Germany in 2019.

The Company files a U.S. federal income tax return and income tax returns in various states and foreign jurisdictions. With a few exceptions, the Company is no longer subject to U.S. federal, state, or foreign income tax examinations by tax authorities for years before 2016.

The Company has liabilities related to unrecognized tax benefits totaling $4.6 million and $4.1 million at December 31, 2019 and 2018, respectively, that if recognized would result in a reduction of the Company’s effective tax rate. The liabilities are classified as other long-term liabilities in the accompanying consolidated balance sheets. The Company recognizes interest and penalties related to income tax matters in income tax expense and reports the liability in current or long-term income taxes payable as appropriate. Interest and penalties were immaterial for each of the years ended December 31, 2019, 2018 and 2017.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	December 31,
	2019			2018
Balance at beginning of period	$	4,096		$	4,233
Additions for tax positions of current year		592			593
Additions for tax positions of prior years		-			309
Decrease related to expiration of statutes of limitations		(90	)		(1,039	)
Balance at period end	$	4,598		$	4,096