Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Loss before income taxes consists of the following components:

(in thousands)	Year Ended December 31, 2020		Year Ended December 31, 2019		Year Ended December 31, 2018
Domestic	$	(26,460)	$	(72,293)	$	(32,982)
Foreign	4,870		(6,360)		4,582
Total	$	(21,590)	$	(78,653)	$	(28,400)

Significant components of income taxes are as follows:

(in thousands)	Year Ended December 31, 2020		Year Ended December 31, 2019		Year Ended December 31, 2018
Currently payable:
Federal	$	377	$	(296)	$	(631)
State and local	4		37		36
Foreign	1,744		4,747		1,281
Total currently payable	2,125		4,488		686
Deferred:
Federal	27,705		(23,358)		(2,404)
State and local	305		(571)		(66)
Foreign	1,241		(5,059)		3,624
Total deferred	29,251		(28,988)		1,154
Provision (benefit) for income taxes	$	31,376	$	(24,500)	$	1,840

A reconciliation of income tax expense at the U.S. Federal statutory income tax rate to actual income tax provision (benefit) is as follows: 

(in thousands)	Year Ended December 31, 2020		Year Ended December 31, 2019		Year Ended December 31, 2018
Tax at statutory rate	$	(4,534)	$	(16,517)	$	(5,962)
State income taxes, net of federal tax benefit	364		(531)		(54)
Effect of foreign items	1,502		1,004		834
Valuation allowance and unbenefited losses	33,478		(10,654)		6,018
Deferred tax rate changes	71		281		240
Transaction costs	(131)		671		531
Tax incentives	(311)		(56)		(91)
Disallowed foreign exchange loss	1,746		573		—
Warrants	—		—		—
Other	(809)		729		324
Provision (benefit) for income taxes	$	31,376	$	(24,500)	$	1,840

Income tax expense (benefit) for the year ended December 31, 2020, 2019 and 2018 include certain discrete tax items for changes in valuation allowances, foreign effective rate items and other rate modifying items.

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted in the U.S. The TCJA represents sweeping changes in U.S. tax law. Among other changes in tax law, the TCJA permanently reduced the U.S. corporate income tax rate to 21% beginning in 2018, imposed a one-time repatriation tax on deferred foreign earnings, established a participation exemption system by allowing a 100% dividends received deduction on qualifying dividends paid by foreign subsidiaries, limited deductions for net interest expense under Internal Revenue Code (“IRC”) Section 163(j) and expanded the U.S. taxation of foreign earned income to include “global intangible low-taxed income” (“GILTI”).

The TCJA subjects a U.S. corporation to tax on its GILTI. U.S. GAAP allows companies to make an accounting policy election to either (1) treat taxes due on future GILTI inclusions in U.S. taxable income as a current-period expense when incurred (“period cost method”) or (2) factor such amounts into the measurement of its deferred taxes (“deferred method”). The Company elected to use the period cost method and estimated impacts of the GILTI inclusion to be a $1.0 million tax expense in tax year 2020. The Company provided no tax provision impact related to base erosion and anti-abuse tax (“BEAT”) provisions of the TCJA, as the Company’s average gross receipts are under $500 million. In addition, the Company has not been eligible for a benefit for foreign derived intangible income (“FDII”) due to the Company’s U.S. net operating loss positions in tax year 2018, 2019 and 2020.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted in the U.S. The CARES Act includes tax changes and financial aid designed to protect the American people from the public health and economic impacts of COVID-19. The tax changes include allowing net operating losses to be carried back five years, suspending the 80% of taxable income limitation on the use of net operating losses, an increase of the EBITDA limitation on the deduction of interest expense from 30% to 50%, excluding any grant income associated with forgiven PPP loans, and the acceleration of the refund for alternative minimum tax credits granted under the TCJA. Most significant to the Company are the modifications on the limitation on business interest deduction for tax year 2020, allowing an increase for deductible interest expense in the U.S. In addition, the grant income associated with the PPP loans is non-taxable income in the U.S. for tax year 2020.

The Company’s U.S. operations have incurred cumulative taxable losses through December 31, 2020. The Company’s U.S. net operating loss carry forwards and carry forwards of other tax attributes are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. The utilization of the tax attributes may become restricted in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Section 382 and Section 383 of the IRC, as well as similar state tax provisions. This could limit the amount of the tax attributes that the Company can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will generally be determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. Please refer to Note 4 - Related Party Transactions regarding the ownership change in the year ended December 31, 2020. The Company completed a Section 382 study and determined the ownership change gave rise to the restrictions that will limit the realizability of certain U.S. tax attributes and built-in losses related to future intangible amortization tax deductions.

For the year ended December 31, 2020, the Company recorded a tax expense of $33.5 million for the net increase in valuation allowances related to deferred tax assets that will no longer be able to be realized. The unrealizable deferred tax assets relate to the aforementioned Section 382 limitations on U.S. tax attributes for a tax expense of $36.3 million. After the annual limitation was determined in the Section 382 study, the Company did not have sufficient evidence to support future taxable income to realize the deferred tax assets associated with non-deductible net interest expense, U.S. and state net operating losses, and future intangible amortization tax deductions. The remaining $2.8 million tax benefit included in the net $33.5 million change in valuation allowance tax expense relates to a tax benefit of $0.3 million for decreases in foreign valuation allowances in Japan, Netherlands and Turkey, offset by immaterial increases in South Africa and Peru, and a tax benefit of $2.5 million for untaxed income related to the elimination of intercompany profit in inventory.

For the year ended December 31, 2019, the Company recorded a tax benefit of $10.7 million for the decrease in valuation allowances related to deferred tax assets that will no longer be able to be realized. The Company increased the valuation allowance in the U.S. tax jurisdiction by a $7.8 million tax expense as the Company does not have sufficient evidence to support future taxable income to realize the deferred tax assets related to non-deductible net interest expense limited under the TCJA, foreign tax credit carryforwards and outside basis differences in U.S. investments. The remaining $18.5 million tax benefit included in the net $10.7 million change in valuation allowance tax benefit relates to a $1.1 million tax benefit for decreases in foreign valuation allowances in Japan, Netherlands and Turkey, and a $17.4 million tax benefit for untaxed income related to the elimination of intercompany profit in inventory.

For the year ended December 31, 2018, the Company recorded a tax expense of $6.0 million for the increase in valuation allowances related to deferred tax assets that will no longer be able to be realized and other unbenefited losses. The unbenefited losses relate to the elimination of intercompany profit in inventory, resulting in tax expense of $1.0 million. The Company increased the valuation allowance in the U.S. tax jurisdiction by $2.8 million as the Company does not have sufficient evidence to support the future taxable income to realize the deferred tax asset related to non-deductible net interest expense limited under the TCJA. In addition to the U.S. valuation allowance increase, there was tax expense of $2.2 million recorded due to an increase in foreign valuation allowance in Japan, Netherlands, and Turkey as a result of insufficient sources of future taxable income to support certain deferred tax assets. There was also a reduction of $1.7 million in the valuation allowance recorded due to changes in certain temporary differences and foreign currency translation rates which did not have an impact on tax expense.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2020 and December 31, 2019 are as follows: 

(in thousands)	December 31, 2020		December 31, 2019
Deferred tax assets:
Pension and other retiree obligations	$	323	$	91
Inventory	482		438
Other accruals and reserves	5,020		4,580
Loss and credit carryforwards	39,172		32,020
Interest expense deduction limitation carryforward	8,147		7,767
Investments	2,137		2,170
Right-of-use asset	1,410		1,505
Other	2,326		—
Valuation allowance	(55,996)		(19,587)
Deferred tax assets	$	3,021	$	28,984
Deferred tax liabilities:
Intangible assets other than goodwill	(24,404)		(23,953)
Property, plant and equipment	(1,315)		(1,964)
Unrealized foreign currency gains	(3,862)		—
Lease liability	(1,575)		(1,571)
Other	—		(396)
Deferred tax liabilities	(31,156)		(27,884)
Net deferred tax (liabilities) assets	$	(28,135)	$	1,100

The Company makes significant judgments regarding the realizability of its deferred tax assets (principally net operating losses). The carrying value of deferred tax assets is based on the Company’s assessment that it is more likely than not that the Company will realize these assets after consideration of all available positive and negative evidence.

Gross operating loss carryforwards amounted to $10.2 million for foreign jurisdictions, $162.8 million for U.S. federal and $20.4 million for U.S. states at December 31, 2020. These operating loss carryforwards relate to years 2015 through current 2020 tax periods. At December 31, 2020, none of the operating loss carryforwards were subject to expiration in 2021 through 2023. The operating loss carryforwards expiring in years 2024 through 2031 make up $1.9 million of the recorded deferred tax asset. The operating loss carryforwards expiring in years 2032 through 2040 make up $9.6 million of the recorded deferred tax asset. The remaining deferred tax asset relating to operating loss carryforwards of $26.7 million have an indefinite expiration. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets.

As of December 31, 2020, management determined that sufficient negative evidence exists to conclude that it is more-likely-than-not that the certain income tax assets in the U.S., Netherlands, South Africa and Peru are not realizable, and therefore, retained the valuation allowance accordingly.

The Company has recorded tax credits in the U.S. for research and development expenditures and foreign taxes that were generated in tax years 2015, through 2020 for a total amount of $1.5 million. The foreign tax credits will begin to expire beginning in 2025 and the research and development credits will begin to expire in 2035.

U.S. income and foreign withholding taxes have not been recognized for the difference between the financial reporting and tax basis of the investments in foreign subsidiaries that are indefinitely reinvested outside the U.S. This amount may be recognized upon a sale or liquidation of the subsidiary. There is not a gross temporary difference as of December 31, 2020, since the tax basis of investments in foreign subsidiaries is in excess of the financial reporting basis.

Uncertain Tax Positions

(in thousands)	Year Ended December 31, 2020		Year Ended December 31, 2019		Year Ended December 31, 2018
Beginning Balance	$	2,670	$	1,879	$	2,884
Additions of tax positions of the current year	—		1,725		393
Additions to tax positions of the prior years	209		88		—
Reductions of tax positions of the prior years	(1,236)		—		(872)
Reductions related to prior tax positions due to foreign currency	(633)		(862)		(525)
Expiration of statutes of limitations	(151)		(160)		(1)
Ending Balance	$	859	$	2,670	$	1,879

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. As of December 31, 2020, and 2019, the Company had unrecognized tax benefits, defined as the aggregate tax effect of differences between tax return positions and the benefits recognized in the Company's financial statements, of $0.9 million and $2.7 million, respectively. If recognized in the fiscal years ended December 31, 2020 and 2019, $0.9 million and $2.7 million, respectively, of these benefits would have reduced income tax expense and the effective tax rate. Of these amounts, approximately $0.1 million and $0.2 million of the Company's unrecognized tax benefits at December 31, 2020 and 2019, respectively, are indemnified and the release of the indemnification asset will have an offsetting impact to the effective tax rate of the Company. Of the $0.9 million and $2.7 million benefits at December 31, 2020 and 2019, respectively, approximately $0.2 million and $0.5 million have been recorded as a reduction to the related deferred tax asset for the net operating loss in accordance with Accounting Standards Update 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists for all periods. The total amount of unrecognized tax benefits is not expected to change within 12 months of the reporting date. The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefit within the provision for income taxes in the Consolidated statements of operations. The Company recorded an increase of $0.2 million of interest and penalties as part of "Provision for income taxes" in the Company's Consolidated statements of operations during the period ending December 31, 2020. Cumulative interest and penalties of $0.8 million and $0.7 million are recorded as part of Income taxes payable for December 31, 2020 and 2019, respectively.