Note 12 - Taxes on Income

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

12.    TAXES ON INCOME

Income (loss) before taxes (benefit) was as follows (in thousands):

	Years Ended December 31,
	2020		2019			2018
Domestic	$	10,454	$	(3,469	)	$	1,122
Foreign		19,613		(16,511	)		(5,187	)
Total	$	30,067	$	(19,980	)	$	(4,065	)

Provisions (benefits) for taxes on income (loss) consisted of the following components (in thousands):

	Years Ended December 31,
	2020			2019			2018
Current:
Federal	$	(1,683	)	$	(3,116	)	$	(4,902	)
Foreign		5,010			5,705			6,025
State		794			49			(722	)
Subtotal		4,121			2,638			401
Deferred:
Federal		(421	)		(994	)		58
Foreign		704			(199	)		(1,531	)
State		863			2,565			(221	)
Subtotal		1,146			1,372			(1,694	)
Total tax provision	$	5,267		$	4,010		$	(1,293	)

The reconciliation between the U.S. federal statutory income tax rate of 21% for 2020, 2019 and 2018 and the Company’s income tax provision is as follows (in thousands):

	Years Ended December 31,
	2020			2019			2018
Income taxes (benefit) at U.S. federal statutory tax rate	$	6,315		$	(4,196	)	$	(854	)
Increase (decrease) in taxes resulting from:
Change in the balance of the valuation allowance for deferred tax assets allocated to foreign income tax expense		38			806			590
Change in the balance of the valuation allowance for deferred tax assets allocated to domestic income tax expense		(1,256	)		3,025			(564	)
State income taxes, net of federal income tax benefit		1,051			2,033			(791	)
Divestitures		(501	)		5,613			2,133
Meals and entertainment		271			442			482
Changes in taxes previously accrued		45			(1,557	)		(573	)
Foreign tax rate differences		(176	)		(643	)		1,301
Share-based compensation		572			358			(1,427	)
Goodwill impairment		—			—			291
Recognition of uncertain tax positions		(504	)		(717	)		(218	)
Deemed mandatory repatriation		—			—			(842	)
Other matters		(588	)		(1,154	)		(821	)
Total tax provision	$	5,267		$	4,010		$	(1,293	)
Effective tax rate		17.5	%		(20.1	%)		31.8	%

Deferred taxes are recognized for temporary differences between the financial reporting bases and tax bases of assets and liabilities based on enacted tax rates expected to be in effect when such amounts are realized or settled. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based upon consideration of available evidence, including future reversals of existing taxable temporary differences, future projected taxable income, the length of the tax asset carryforward periods, and tax planning strategies.

Net deferred taxes consisted of the following (in thousands):

	December 31,
	2020			2019
Deferred income tax assets:
Foreign tax credit carryforwards	$	6,152		$	4,101
General business credit carryforwards		1,485			844
Net operating loss carryforwards		15,546			19,079
Accrued expenses		15,047			15,119
Operating lease liabilities		15,820			17,360
Other		5,999			7,587
Total gross deferred income tax assets		60,049			64,090
Less valuation allowance		(43,424	)		(34,247	)
Net deferred income tax assets		16,625			29,843
Deferred income tax liabilities:
Property, plant and equipment		(4,625	)		(5,689	)
Intangible assets		(1,009	)		(12,203	)
Operating lease assets		(15,464	)		(17,198	)
Other		(5,423	)		(4,791	)
Total deferred income tax liabilities		(26,521	)		(39,881	)
Net deferred income tax liabilities	$	(9,896	)	$	(10,038	)

The Company’s tax assets and liabilities, netted by taxing location, are in the following captions in the balance sheets (in thousands):

	December 31,
	2020			2019
Noncurrent deferred income tax assets, net	$	448		$	1,216
Noncurrent deferred income tax liabilities, net		(10,344	)		(11,254	)
Net deferred income tax liabilities	$	(9,896	)	$	(10,038	)

The Company’s deferred tax assets at December 31, 2020 included $15.5 million in federal, state and foreign net operating loss (“NOL”) carryforwards. These NOLs include $9.0 million, which if not used will expire between the years 2021 and 2040, and $6.5 million that have no expiration dates. The Company also has deferred tax amounts related to foreign tax credit carryforwards of $6.2 million, of which, $0.9 million will expire in 2026 if not used, $3.7 million will expire in 2029 if not used, $1.5 million will expire in 2030 if not used and $0.1 million have no expiration date. The Company also has deferred tax amounts related to general business credit carryforwards of $1.5 million, of which, $0.2 million will expire in 2038 if not used, $0.8 million will expire in 2039 if not used and $0.5 million will expire in 2040 if not used.

For financial reporting purposes, a valuation allowance of $43.4 million has been recognized at December 31, 2020 to reduce the deferred tax assets related to certain federal, state and foreign net operating loss carryforwards and other assets, for which it is more likely than not that the related tax benefits will not be realized, due to uncertainties as to the timing and amounts of future taxable income. The valuation allowance at December 31, 2019 was $34.2 million.

As of December 31, 2020, a valuation allowance has been recorded to record only the portion of the deferred tax asset that is more likely than not to be realized. The amount of the deferred tax asset considered realizable; however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.

Activity in the valuation allowance is summarized as follows (in thousands):

	Years Ended December 31,
	2020			2019			2018
Balance, at beginning of year	$	34,247		$	28,451		$	29,782
Additions		14,677			8,789			1,879
Reversals		(6,571	)		(6,776	)		(2,102	)
Other adjustments		1,071			3,783			(1,108	)
Balance, at end of year	$	43,424		$	34,247		$	28,451

As a result of the deemed mandatory repatriation provisions in the Tax Cuts and Jobs Act (“TCJA”), the Company included $206.7 million of undistributed earnings in income subject to U.S. tax at reduced tax rates. Certain provisions within the TCJA effectively transition the U.S. to a territorial system and eliminates deferral on U.S. taxation for certain amounts of income that are not taxed at a minimum level. At this time, the Company does not intend to distribute earnings in a taxable manner; and therefore, intends to limit distributions to: (i) earnings previously taxed in the U.S.; (ii) earnings that would qualify for the 100 percent dividends received deduction provided in the TCJA; or (iii) earnings that would not result in significant foreign taxes. As a result, the Company has not recognized a deferred tax liability on any remaining undistributed foreign earnings as of December 31, 2020.

FASB ASC 740, Income Taxes (“FASB ASC 740”), prescribes a more-likely-than-not threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASC ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure of uncertain tax positions in financial statements.

A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows (in thousands):

	Years Ended December 31,
	2020			2019			2018
Balance, at beginning of year	$	1,384		$	1,955		$	2,229
Additions for tax positions of prior years		51			9			8
Lapse in statute of limitations		(451	)		(587	)		(264	)
Foreign currency translation		7			7			(18	)
Balance, at end of year, total tax provision	$	991		$	1,384		$	1,955

The total amount of unrecognized tax benefits, if recognized, that would affect the effective tax rate was $0.3 million at December 31, 2020.

The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2020, 2019 and 2018, approximately $0.2 million was expensed for interest and penalties in each year.

The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits will change in 2021. The Company has certain tax return years subject to statutes of limitation that will expire within twelve months. Unless challenged by tax authorities, the expiration of those statutes of limitation is expected to result in the recognition of uncertain tax positions in the amount of approximately $0.9 million.

The Company is subject to taxation in the United States, various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state, local or foreign examinations by tax authorities for years before 2016.