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Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes |
1 6 ) | Income Taxes
The Tax Cuts and Jobs Act (“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. During the quarter ended December 31, 2018, the Company completed and recorded the impacts of the Act based on its understanding and interpretation of the regulatory guidance issued. A reconciliation of the Company’s effective tax rate to the U.S. federal statutory rate is as follows:
|  | Years Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
U.S. Federal income tax statutory rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 35.0 | %
Federal tax credits |  |  | (2.9 | ) |  |  | (0.7 | ) |  |  | (0.7 | )
State income taxes, net of federal benefit |  |  | 2.3 |  |  |  | 1.3 |  |  |  | 1.0 |
Effect of foreign operations taxed at various rates |  |  | (4.4 | ) |  |  | (1.3 | ) |  |  | (12.1 | )
Qualified production activity tax benefit |  |  | — |  |  |  | — |  |  |  | (1.4 | )
Executive compensation |  |  | 5.8 |  |  |  | — |  |  |  | — |
Gain on intercompany sale of assets |  |  | 2.9 |  |  |  | — |  |  |  | — |
Benefit of a capital loss |  |  | (1.2 | ) |  |  | — |  |  |  | — |
Foreign derived intangible income deduction |  |  | (3.8 | ) |  |  | (2.1 | ) |  |  | — |
Global intangible low taxed income, net of foreign tax credits |  |  | 2.6 |  |  |  | 0.4 |  |  |  | — |
Transition tax, net of foreign tax credits |  |  | — |  |  |  | (0.1 | ) |  |  | 6.4 |
Revaluation of deferred income taxes |  |  | (1.4 | ) |  |  | (0.3 | ) |  |  | (5.0 | )
Revaluation of prepaid taxes |  |  | — |  |  |  | 1.6 |  |  |  | — |
Stock-based compensation |  |  | (0.3 | ) |  |  | (1.3 | ) |  |  | (2.5 | )
Deferred tax asset valuation allowance |  |  | 0.1 |  |  |  | — |  |  |  | (0.1 | )
Release of income tax reserves (including interest) |  |  | (0.8 | ) |  |  | (0.4 | ) |  |  | (0.4 | )
Foreign dividends, net of foreign tax credits |  |  | 0.6 |  |  |  | (1.0 | ) |  |  | 3.3 |
Other |  |  | 0.6 |  |  |  | 1.2 |  |  |  | 0.7 |
|  |  | 21.1 | % |  |  | 18.3 | % |  |  | 24.2 | %
The effective tax rate for 2019 includes a correction of an out of period error with respect to deferred tax assets related to limitations on the deduction of executive compensation in the amount of $5,023. This correction, which should have been recorded during the three months ended September 30, 2018, increased the Company’s effective tax rate for the year ended December 31, 2019 by approximately 2.8%. The components of income from operations before income taxes and the related provision for income taxes consist of the following:
|  | Years Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Income before income taxes: |  |  |  |  |  |  |  |  |  |  |  |
United States |  | $ | 2,279 |  |  | $ | 287,309 |  |  | $ | 224,979 |
Foreign |  |  | 175,557 |  |  |  | 193,641 |  |  |  | 222,646 |
|  | $ | 177,836 |  |  | $ | 480,950 |  |  | $ | 447,625 |
Current taxes: |  |  |  |  |  |  |  |  |  |  |  |
United States |  | $ | 6,790 |  |  | $ | 41,428 |  |  | $ | 77,023 |
State |  |  | 2,068 |  |  |  | 8,094 |  |  |  | 6,149 |
Foreign |  |  | 32,807 |  |  |  | 57,920 |  |  |  | 30,152 |
|  |  | 41,665 |  |  |  | 107,442 |  |  |  | 113,324 |
Deferred taxes: |  |  |  |  |  |  |  |  |  |  |  |
United States |  |  | (1,743 | ) |  |  | (2,533 | ) |  |  | (16,250 | )
State and Foreign |  |  | (2,472 | ) |  |  | (16,855 | ) |  |  | 11,419 |
|  |  | (4,215 | ) |  |  | (19,388 | ) |  |  | (4,831 | )
Provision for income taxes |  | $ | 37,450 |  |  | $ | 88,054 |  |  | $ | 108,493 |
The significant components of the deferred tax assets and deferred tax liabilities are as follows:
|  | Years Ended December 31, |
|  | 2019 |  |  | 2018 |
Deferred tax assets: |  |  |  |  |  |  |  |
Carry-forward losses and credits |  | $ | 59,189 |  |  | $ | 23,675 |
Inventory and warranty reserves |  |  | 29,661 |  |  |  | 17,945 |
Accrued expenses and other reserves |  |  | 12,607 |  |  |  | 10,260 |
Stock-based compensation |  |  | 8,580 |  |  |  | 5,351 |
Executive supplemental retirement benefits |  |  | 1,556 |  |  |  | 5,972 |
Lease liability |  |  | 15,284 |  |  |  | — |
Unrealized net loss |  |  | 2,741 |  |  |  | — |
Other |  |  | 2,347 |  |  |  | 2,396 |
Total deferred tax assets |  | $ | 131,965 |  |  | $ | 65,599 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Acquired intangible assets and goodwi ll |  | $ | (128,144 | ) |  | $ | (74,120 | )
Depreciation and amortization |  |  | (14,072 | ) |  |  | (8,332 | )
Loan costs |  |  | (2,317 | ) |  |  | (1,108 | )
Right-of-use asset |  |  | (14,415 | ) |  |  | — |
Foreign withholding taxes |  |  | (5,008 | ) |  |  | (3,176 | )
Unrealized net gain |  |  | — |  |  |  | (1,952 | )
Total deferred tax liabilities |  |  | (163,956 | ) |  |  | (88,688 | )
Valuation allowance |  |  | (27,360 | ) |  |  | (17,936 | )
Net deferred tax liabilities |  | $ | (59,351 | ) |  | $ | (41,025 | )
Due to the reduction in U.S. federal statutory tax rate 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, 2019, the C ompany ha d federal, state and foreign gross research and other tax credit carry-forwards of $ 64,983 . Included in the total carry-forward are $ 14,230 of credits that can be carried forward indefinitely and the remaining credits expire at various dates through 2037. The C ompany also had f e deral , state and foreign gross net operating loss and capital loss carry-forwards of $ 98,280 . Included in the total carry-forward are $ 57,588 of losses that can be carried forward indefinitely while the remaining losses expire at various dates through 2037 . 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, 2019 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, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Balance at beginning of year |  | $ | 32,684 |  |  | $ | 27,345 |  |  | $ | 25,465 |
Increases for prior years |  |  | 9,324 |  |  |  | 934 |  |  |  | 640 |
Increases for the current year |  |  | 3,219 |  |  |  | 6,091 |  |  |  | 4,340 |
Reductions related to expiration of statutes of limitations and audit settlements |  |  | (1,734 | ) |  |  | (1,686 | ) |  |  | (3,100 | )
Balance at end of year |  | $ | 43,493 |  |  | $ | 32,684 |  |  | $ | 27,345 |
As of December 31, 2019, the total gross unrecognized tax benefits, which excludes interest and penalties, was $43,493. As of December 31, 2018, the total gross unrecognized tax benefits, which excludes interest and penalties, was $32,684. The net increase was primarily attributable to the addition of historical gross unrecognized tax benefits for ESI as a result of the ESI Merger during the quarter ended March 31, 2019. 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, 2019, 2018 and 2017, the Company had accrued interest on unrecognized tax benefits of approximately $527, $568 and $327, respectively. Over the next 12 months it is reasonably possible that the Company may recognize $1,463 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 statutes of limitations. The Company and its subsidiaries are subject to examination by U.S. federal, state and foreign tax authorities. The U.S. Internal Revenue Service commenced an examination of the Company’s 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. Also, during the quarter ended March 31, 2018, the Company received notification from the U.S. Internal Revenue Service of their intent to audit its U.S. subsidiary, Newport, for the tax year 2015. This audit commenced during the quarter ended June 30, 2018 and was effectively settled during the quarter ended June 30, 2019, with a no change result. The U.S. statute of limitations remains open for tax years 2016 through the present. The statute of limitations for the Company’s tax filings in other jurisdictions varies between fiscal years 2014 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 2019, the Company increased its valuation allowance by $9,424. This increase was primarily attributable to the addition of historical valuation allowances for ESI and its subsidiaries which were included as a result of the ESI Merger during the quarter ended March 31, 2019. During 2018, the Company increased its valuation allowance by $4,307, primarily related to certain tax credit and net operating loss carry-forward amounts. During 2017, the Company increased its valuation allowance by $1,102, primarily related to certain state tax credits. No provision has been made for deferred taxes related to remaining historical outside basis differences in certain of the Company’s non-US subsidiaries. The Company continues to assert indefinite reinvestment in these outside basis differences generated on or before December 31, 2019. 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. Certain of the Company’s subsidiaries have obtained tax rate reductions or tax holidays under incentive programs offered under government programs. A Singapore subsidiary of ESI obtained a tax holiday in Singapore. The benefits of the holiday w ere approximately $2.2 million ($0.04 per share) in 2019. The tax holiday in Singapore is expected to expire at the end of June 2021.

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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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