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Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2016
Income Tax Disclosure [Abstract] |
Income Taxes |
16) | Income Taxes
A reconciliation of the Company’s effective tax rate to the U.S. federal statutory rate is as follows:
|  | Years Ended December 31, |
|  | 2016 |  |  | 2015 |  |  | 2014 |
U.S. Federal income tax statutory rate |  |  | 35.0 | % |  |  | 35.0 | % |  |  | 35.0 | %
Federal tax credits |  |  | (1.8 | ) |  |  | (1.2 | ) |  |  | (1.0 | )
State income taxes, net of federal benefit |  |  | 0.8 |  |  |  | 1.3 |  |  |  | 2.0 |
Effect of foreign operations taxed at various rates |  |  | (12.7 | ) |  |  | (6.4 | ) |  |  | (7.3 | )
Qualified production activity tax benefit |  |  | (2.9 | ) |  |  | (1.6 | ) |  |  | (1.8 | )
Deferred tax asset valuation allowance |  |  | 2.1 |  |  |  | — |  |  |  | (0.5 | )
Release of income tax reserves (including interest) |  |  | (2.4 | ) |  |  | (4.8 | ) |  |  | (10.7 | )
Foreign dividends, net of foreign tax credits |  |  | (2.2 | ) |  |  | 0.7 |  |  |  | (1.0 | )
Acquisition and integration related costs |  |  | 1.5 |  |  |  | — |  |  |  | — |
Other |  |  | 0.7 |  |  |  | 0.3 |  |  |  | 0.4 |
|  |  | 18.1 | % |  |  | 23.3 | % |  |  | 15.1 | %
The components of income from continuing operations before income taxes and the related provision for income taxes consist of the following:
|  | Years Ended December 31, |
|  | 2016 |  |  | 2015 |  |  | 2014 |
Income from continuing operations before income taxes: |  |  |  |  |  |  |  |  |  |  |  |
United States |  | $ | 42,491 |  |  | $ | 90,401 |  |  | $ | 86,015 |
Foreign |  |  | 85,486 |  |  |  | 69,067 |  |  |  | 50,378 |
|  | $ | 127,977 |  |  | $ | 159,468 |  |  | $ | 136,393 |
Current taxes: |  |  |  |  |  |  |  |  |  |  |  |
United States |  | $ | 17,693 |  |  | $ | 15,813 |  |  | $ | 8,361 |
State |  |  | 2,359 |  |  |  | 2,927 |  |  |  | 1,124 |
Foreign |  |  | 41,938 |  |  |  | 18,021 |  |  |  | 5,866 |
|  |  | 61,990 |  |  |  | 36,761 |  |  |  | 15,351 |
Deferred taxes: |  |  |  |  |  |  |  |  |  |  |  |
United States |  |  | (23,604 | ) |  |  | (862 | ) |  |  | 8,908 |
State and Foreign |  |  | (15,218 | ) |  |  | 1,272 |  |  |  | (3,644 | )
|  |  | (38,822 | ) |  |  | 410 |  |  |  | 5,264 |
Provision for income taxes |  | $ | 23,168 |  |  | $ | 37,171 |  |  | $ | 20,615 |
The significant components of the deferred tax assets and deferred tax liabilities are as follows:
|  | Years Ended December 31, |
|  | 2016 |  |  | 2015 |
Deferred tax assets: |  |  |  |  |  |  |  |
Carry-forward losses and credits |  | $ | 50,673 |  |  | $ | 8,531 |
Inventory and warranty reserves |  |  | 24,253 |  |  |  | 15,404 |
Accrued expenses and other reserves |  |  | 16,176 |  |  |  | 2,343 |
Stock-based compensation |  |  | 8,995 |  |  |  | 3,713 |
Executive supplemental retirement benefits |  |  | 6,888 |  |  |  | 3,947 |
Total deferred tax assets |  | $ | 106,985 |  |  | $ | 33,938 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Acquired intangible assets |  |  | (127,571 | ) |  |  | (9,434 | )
Depreciation and amortization |  |  | (16,428 | ) |  |  | (1,724 | )
Loan costs |  |  | (7,282 | ) |  |  | — |
Unrealized gain |  |  | (3,195 | ) |  |  | — |
Other |  |  | (1,336 | ) |  |  | (57 | )
Total deferred tax liabilities |  |  | (155,812 | ) |  |  | (11,215 | )
Valuation allowance |  |  | (12,527 | ) |  |  | (6,127 | )
Net deferred tax (liabilities) assets |  | $ | (61,354 | ) |  | $ | 16,596 |
As of December 31, 2016, the Company had federal, state and foreign gross research and other tax credit carry-forwards of $63,925. These credit carry-forwards will expire at various dates through 2036. The Company also had federal, state and foreign gross net operating loss carry-forwards of $50,434. Included in the total carry-forward are $28,476 of losses that can be carried forward indefinitely while the remaining losses of $21,958 begin to expire in 2020. Although the Company believes that its tax positions are consistent with applicable U.S. federal, state and international laws, it maintains certain tax reserves as of December 31, 2016 in the event its tax positions were to be challenged by the applicable tax authority and additional tax assessed on audit. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:
|  | Years Ended December 31, |
|  | 2016 |  |  | 2015 |  |  | 2014 |
Balance at beginning of year |  | $ | 4,332 |  |  | $ | 19,610 |  |  | $ | 47,684 |
Decreases for prior years |  |  | (195 | ) |  |  | (26 | ) |  |  | (13 | )
Increases for the current year |  |  | 23,940 |  |  |  | 322 |  |  |  | 550 |
Reductions related to settlements with taxing authorities |  |  | — |  |  |  | (15,370 | ) |  |  | (18,235 | )
Reductions related to expiration of statute of limitations |  |  | (2,612 | ) |  |  | (204 | ) |  |  | (10,376 | )
Balance at end of year |  | $ | 25,465 |  |  | $ | 4,332 |  |  | $ | 19,610 |
As of December 31, 2016, the total amount of gross unrecognized tax benefits, which excludes interest and penalties, was $25,465. As of December 31, 2015, the total amount of gross unrecognized tax benefits, which excludes interest and penalties, was $4,332. The net increase from December 31, 2015 was primarily attributable to the addition of historical unrecognized tax benefits for Newport and its subsidiaries which were included as a result of the acquisition of Newport in April 2016. As of December 31, 2016, excluding interest and penalties, there are $18,417 of net unrecognized tax benefits that, if recognized, would impact the Company’s annual effective tax rate. In 2016, the Company recorded a net benefit to income tax expense of $2,606, excluding interest and penalties, due to the release of income tax reserves related to the expiration of certain statutes of limitation. The Company accrues interest and, if applicable, penalties for any uncertain tax positions. Interest and penalties are classified as a component of income tax expense. As of December 31, 2016, 2015 and 2014, the Company had accrued interest on unrecognized tax benefits of approximately $491, $157 and $578, respectively. Over the next 12 months it is reasonably possible that the Company may recognize approximately $3,100 of previously net unrecognized tax benefits, excluding interest and penalties, related to state and foreign tax positions as a result of the expiration of statutes of limitation. The Company is subject to examination by U.S. federal, state and foreign tax authorities. The United States Internal Revenue Service commenced an examination of our U.S. federal tax filings for tax years 2011 through 2013 during the quarter ended March 31, 2015. This audit was effectively settled during the quarter ended December 31, 2015 upon the Company’s acceptance of the income tax examination changes. As part of the audit the Company consented to extend the U.S. statute of limitations for tax year 2011. The U.S. statute of limitations for tax year 2011 expired September 30, 2016. The Company also effectively settled another U.S. federal income tax examination, for tax years 2007 through 2009, during the quarter ended December 31, 2014 upon receipt of an audit approval letter from the Joint Committee on Taxation. The statute of limitations for tax years 2007 through 2009 expired on December 31, 2015. The U.S. statute of limitations remains open for tax years 2013 through present. The statute of limitations for tax filings in other jurisdictions varies between fiscal years 2007 through present. The company also has certain federal credit carry-forwards and state tax loss and credit carry-forwards that are open for examination for tax years 2000 through the present. On a quarterly basis, the Company evaluates both positive and negative evidence that affects the realizability of net deferred tax assets and assesses the need for a valuation allowance. The future benefit to be derived from its deferred tax assets is dependent upon its ability to generate sufficient future taxable income to realize the assets. During 2016, the Company increased its valuation allowance by $6,400 primarily related to the addition of historical valuation allowances for Newport and its subsidiaries which were included as a result of the acquisition in April 2016. During 2015, the Company decreased its valuation allowance by $20,636, primarily related to the expiration of U.S. capital loss carry-forwards. During 2014, the Company decreased its valuation allowance by $339, primarily related to the effective settlement of a foreign tax audit. Through December 31, 2016, the Company has not provided deferred income taxes on the undistributed earnings of its foreign subsidiaries because such earnings are intended to be permanently reinvested outside of the United States. Determination of the potential deferred income tax liability on these undistributed earnings is not practicable because such liability, if any, is dependent on circumstances existing and tax planning choices available when remittance occurs. At December 31, 2016, the Company had approximately $545,000 of undistributed earnings in its foreign subsidiaries which are considered to be indefinitely reinvested. The Company’s Israeli subsidiaries have elected to be treated under a preferential Israeli tax regime under which their taxable income is taxed at reduced tax rates. These reduced rates range anywhere between 9% and 16%. One of the Company’s Israeli subsidiaries effectively settled an examination for tax years 2009 through 2011 during the quarter ended March 31, 2014.

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