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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes |
14) | Income Taxes
The Act, which was enacted on December 22, 2017, reduced the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and created new taxes on certain foreign sourced earnings. The Company applied SAB 118 when accounting for the enactment effects of the Act. As of December 22, 2018 the company has completed, and recorded, the impacts of the Act based on its understanding and interpretation of the regulatory guidance that has been issued. For the year ended December 31, 2018, the Company recognized a tax benefit of $625 related to an adjustment of the provisional estimates that had been previously recorded for the Act and included these adjustments as a component of income tax expense from continuing operations. The global intangible low-taxed income (“GILTI”) provision from the Act subjects a U.S. shareholder to current tax on GILTI earned by certain foreign subsidiaries. Under FASB Staff Q&A, Topic 740 No. 5, the Company has elected to recognize the resulting tax on GILTI as a period expense in the period the tax is incurred. Based upon the proposed GILTI regulations, the Company has estimated that the impact of the GILTI tax, net of foreign tax credits, will increase its effective tax rate for the year ended December 31, 2018 by approximately 0.4%. A reconciliation of the Company’s effective tax rate to the U.S. federal statutory rate is as follows:
|  | Years Ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
U.S. Federal income tax statutory rate |  |  | 21.0 | % |  |  | 35.0 | % |  |  | 35.0 | %
Federal tax credits |  |  | (0.7 | ) |  |  | (0.7 | ) |  |  | (1.8 | )
State income taxes, net of federal benefit |  |  | 1.3 |  |  |  | 1.0 |  |  |  | 0.8 |
Effect of foreign operations taxed at various rates |  |  | (1.3 | ) |  |  | (12.1 | ) |  |  | (12.7 | )
Qualified production activity tax benefit |  |  | — |  |  |  | (1.4 | ) |  |  | (2.9 | )
Foreign derived intangible income |  |  | (2.1 | ) |  |  | — |  |  |  | — |
Global intangible low taxed income, net of foreign tax credits |  |  | 0.4 |  |  |  | — |  |  |  | — |
Transition tax, net of foreign tax credits |  |  | (0.1 | ) |  |  | 6.4 |  |  |  | — |
Revaluation of U.S. deferred income taxes |  |  | (0.3 | ) |  |  | (5.0 | ) |  |  | — |
Revaluation of prepaid taxes |  |  | 1.6 |  |  |  | — |  |  |  | — |
Stock based compensation |  |  | (1.3 | ) |  |  | (2.5 | ) |  |  | — |
Deferred tax asset valuation allowance |  |  | — |  |  |  | (0.1 | ) |  |  | 2.1 |
Release of income tax reserves (including interest) |  |  | (0.4 | ) |  |  | (0.4 | ) |  |  | (2.4 | )
Taxes on foreign dividends, net of foreign tax credits |  |  | (1.0 | ) |  |  | 3.3 |  |  |  | (2.2 | )
Acquisition and integration related costs |  |  | — |  |  |  | — |  |  |  | 1.5 |
Other |  |  | 1.2 |  |  |  | 0.7 |  |  |  | 0.7 |
|  |  | 18.3 | % |  |  | 24.2 | % |  |  | 18.1 | %
The components of income from operations before income taxes and the related provision for income taxes consist of the following:
|  | Years Ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Income from operations before income taxes: |  |  |  |  |  |  |  |  |  |  |  |
United States |  | $ | 287,309 |  |  | $ | 224,979 |  |  | $ | 42,491 |
Foreign |  |  | 193,641 |  |  |  | 222,646 |  |  |  | 85,486 |
|  | $ | 480,950 |  |  | $ | 447,625 |  |  | $ | 127,977 |
Current taxes: |  |  |  |  |  |  |  |  |  |  |  |
United States |  | $ | 41,428 |  |  | $ | 77,023 |  |  | $ | 17,693 |
State |  |  | 8,094 |  |  |  | 6,149 |  |  |  | 2,359 |
Foreign |  |  | 57,920 |  |  |  | 30,152 |  |  |  | 41,938 |
|  |  | 107,442 |  |  |  | 113,324 |  |  |  | 61,990 |
Deferred taxes: |  |  |  |  |  |  |  |  |  |  |  |
United States |  |  | (2,533 | ) |  |  | (16,250 | ) |  |  | (23,604 | )
State and Foreign |  |  | (16,855 | ) |  |  | 11,419 |  |  |  | (15,218 | )
|  |  | (19,388 | ) |  |  | (4,831 | ) |  |  | (38,822 | )
Provision for income taxes |  | $ | 88,054 |  |  | $ | 108,493 |  |  | $ | 23,168 |
The significant components of the deferred tax assets and deferred tax liabilities are as follows:
|  | Years Ended December 31, |
|  | 2018 |  |  | 2017 |
Deferred tax assets: |  |  |  |  |  |  |  |
Carry-forward losses and credits |  | $ | 23,675 |  |  | $ | 25,834 |
Inventory and warranty reserves |  |  | 17,945 |  |  |  | 17,734 |
Accrued expenses and other reserves |  |  | 10,260 |  |  |  | 15,393 |
Stock-based compensation |  |  | 5,351 |  |  |  | 5,092 |
Executive supplemental retirement benefits |  |  | 5,972 |  |  |  | 4,984 |
Other |  |  | 2,396 |  |  |  | 597 |
Total deferred tax assets |  | $ | 65,599 |  |  | $ | 69,634 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Acquired intangible assets |  | $ | (74,120 | ) |  | $ | (83,092 | )
Depreciation and amortization |  |  | (8,332 | ) |  |  | (10,150 | )
Loan costs |  |  | (1,108 | ) |  |  | (2,157 | )
Foreign withholding taxes |  |  | (3,176 | ) |  |  | (16,206 | )
Unrealized gain |  |  | (1,952 | ) |  |  | (469 | )
Total deferred tax liabilities |  |  | (88,688 | ) |  |  | (112,074 | )
Valuation allowance |  |  | (17,936 | ) |  |  | (13,629 | )
Net deferred tax (liabilities) assets |  | $ | (41,025 | ) |  | $ | (56,069 | )
Due to the reduction in U.S. federal statutory tax rate resulting from the enactment of the Act, the Company recorded a provisional adjustment reducing its net deferred tax liabilities by $22,345 as of December 31, 2017. This provisional adjustment was finalized during the year ended December 31, 2018 and an additional tax provision of $2,614 was recorded. As of December 31, 2018, the Company has federal, state and foreign gross research and other tax credit carry-forwards of $29,858. Included in the total carry-forward are $15,081 of credits that can be carried forward indefinitely and the remaining credits expire at various dates through 2035. The Company also had, state and foreign gross net operating loss and capital loss carry-forwards of $43,715. Included in the total carry-forward are $36,057 of losses that can be carried forward indefinitely while the remaining losses expire at various dates through 2035. 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, 2018 in the event its tax positions were to be challenged by the applicable tax authority and additional tax assessed upon audit. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:
|  | Years Ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Balance at beginning of year |  | $ | 27,345 |  |  | $ | 25,465 |  |  | $ | 4,332 |
Increases/(decreases) for prior years |  |  | 934 |  |  |  | 640 |  |  |  | (195 | )
Increases for the current year |  |  | 6,091 |  |  |  | 4,340 |  |  |  | 23,940 |
Reductions related to expiration of statutes of limitations and audit settlements |  |  | (1,686 | ) |  |  | (3,100 | ) |  |  | (2,612 | )
Balance at end of year |  | $ | 32,684 |  |  | $ | 27,345 |  |  | $ | 25,465 |
As of December 31, 2018, the total amount of gross unrecognized tax benefits, which excludes interest and penalties, was $32,684. As of December 31, 2017, the total amount of gross unrecognized tax benefits, which excludes interest and penalties, was $27,345. The net increase from December 31, 2017 was primarily attributable to the addition of reserves for the federal transition tax from the Act along with certain non-U.S. items offset by decreases from settlement of an audit by the U.S. Internal Revenue Service (“IRS”) and the expiration of certain statutes of limitations. 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, 2018, 2017 and 2016, the Company had accrued interest on unrecognized tax benefits of approximately $568, $327 and $491, respectively. Over the next 12 months it is reasonably possible that the Company may recognize approximately $2,150 of previously net unrecognized tax benefits, excluding interest and penalties, related to various U.S. federal, state and foreign tax positions primarily due to the expiration of certain statutes of limitations. The Company and its subsidiaries are subject to examination by U.S. federal, state and foreign tax authorities. The IRS commenced an examination of our U.S. federal income tax filings for tax years 2015 and 2016 during the quarter ended September 30, 2017. This audit was effectively settled during the quarter ended March 31, 2018 and the impact was not material. During the quarter ended March 31, 2018 the Company received notification from the United States Internal Revenue Service of its intent to audit the Company’s U.S. subsidiary, Newport Corporation, for tax year 2015. This audit commenced during the quarter ended June 30, 2018 and there have been no proposed adjustments through December 31, 2018. The U.S. statute of limitations remains open for tax years 2015 through present. The statute of limitations for the Company’s tax filings in other jurisdictions varies between fiscal years 2013 through present. The Company has certain federal credit carry-forwards and state tax loss and credit carry-forwards that are open to 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 2018, the Company increased its valuation allowance by $4,307, primarily attributable to certain tax credit and net operating loss carryforward amounts. During 2017, the Company increased its valuation allowance by $1,102, primarily related to certain state tax credits. 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. The Act provided for a mandatory one-time transition tax on deemed repatriation of the post-1986 undistributed cumulative earnings and profits of the Company’s foreign subsidiaries. As of the year ended December 31, 2017 the Company estimated that it had approximately $560,000 of undistributed foreign earnings subject to the Transition Tax and recognized approximately $27,610 of income tax expense, net of foreign tax credits, in its consolidated statement of operations for the Year ended December 31, 2017. In accordance with SAB 118 the Company finalized the provisional amounts it previously recorded for the Transition Tax during the year ended December 31, 2018. As a result of finalizing the Transition Tax amount the Company recorded an additional tax benefit, net of foreign tax credits, of $4,624 in its consolidated statement of operations for the year ended December 31, 2018. The reduction in Transition Tax was based upon a final amount of undistributed foreign earnings of approximately $521,000. No provision has been made for the deferred taxes related to certain outside basis differences in the Company’s non-US subsidiaries. The Company continues to assert indefinite reinvestment in these outside basis differences generated through December 31, 2018. Determination of the amount of unrecognized deferred tax liability on outside basis differences is not practicable because the amount of such liability, if any, is dependent upon circumstances existing and tax planning choices available when a transaction using outside basis occurs. 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 rates. These reduced rates range anywhere between 7.5% and 16%. One of the Company’s Israeli subsidiaries effectively settled an examination for tax years 2012 and 2013 during the quarter ended June 30, 2017.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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